OFAC s 50% Rule: The Achilles Heel of Sanctions Programs

Transcription

1 OFAC s 50% Rule: The Achilles Heel of Sanctions Programs Monday, April 3 4:50 PM Presenter: Anders A. L. Rodenberg, Head of Financial Institutions and Advisory in North America, Bureau van Dijk

2 Agenda 1 The 50% rule and its challenges 2 Examples of current 50% exposure 3 Proposed and actual solutions 4 Key Takeaways 2

3 Example: Traditional Sanctions Program - Clients Operational Challenges: Sanctions Lists No Match High Risk EDD/ Investigation 1. Multiple lists globally double matches 2. False positives 3. OFAC or EU updates on Friday afternoons Prospects KYC Sanctions Screening Match Risk Model Sanctions Lists Counterparty A Sanctions Investigations Low Risk Clients Transaction Monitoring system (Sanctions Screening) Counterparty B KYC Review/Refresh High risk Annually Low risk 3-year review Suspicious Activity FIU/Sanctions Investigation Accepted Counterparty C 3

4 OFAC s 50% rule and different ownership Aggregation rebranding of 50% rule to 0.1% rule? Sanctioned company A I Sanctioned Individual 100% 15% 40% Direct B F Aggregation 50% 70% Indirect C D Indirect 50% E Cascade 4

5 Sanctioned or Not? Complexity example from Orbis: Cascade down, indirect and aggregation ownership 5

6 Globalization Owners Subsidiaries has led to very complex corporate ownership structures Sample from Orbis on a Sanctioned entity 6

7 Circular ownership Individual A 1% Company B 100% 99% Company C used to hide ownership from the traditional ownership thresholds 7

8 Change! Ownership is dynamic That s equal to more than 200,000 per day, 8,800 changes per hour or over 2 changes per second! 8

9 Company at the bottom sanctioned due to cascade down ownership from Arkadii Rotenberg, August

10 Received off-cycle notification of the change in ownership. Ownership transferred from Arkadii Rotenberg to Igor Rotenberg, September

11 Igor Rotenberg is not on a sanctions list company no longer sanctioned due to OFAC 50% rule, September * Igor is Arkadii s son - EU 50% rule including control might give different answer. 11

12 Sanctions compliance in 2017 rely on Ownership Total links for owners and control - more than 424,000,000 More than 276,000,000 unique positions More than 148,000,000 ownership links More than 31,00,000 companies with 50% ownership but not widely applied in Sanctions programs. 12

13 - More than 667 shadow sanctioned entities for Gazprombank alone - More than 8 levels down - Constant changes: acquisitions, names, percentages 13

14 - Security issued June Sberbank sanctioned September 2014 Named on OFAC list Named on OFAC list 100% ownership by Sberbank RU Not Named on OFAC list 50.01% ownership by Sberbank Europe - Capital increase on security December 2014 From Grandfarthered to Sanctioned 14

15 But I don t have exposure to Russia Countries with 50% owned subsidiaries of a limited number of sanctioned entities Source: Orbis 15

16 Not concerned with US companies? Plenty of companies in the US with foreign ultimate ownership. The ownership in the example goes from USA to Italy, UK, Luxembourg, Cyprus, Bahamas x 4 and ends in Russia. 16

17 Incorporation of ownership in sanctions programs Sanctions Lists 50% Lists No Match High Risk EDD/ Investigation Prospect KYC Sanctions Screening Match Risk Model Sanctions Lists Counterparty A Sanctions Investigations Low Risk Clients 50% Lists Transaction Monitoring system (Sanctions Screening) Counterparty B KYC Review/Refresh High risk Annually Low risk 3-year review Suspicious Activity FIU/Sanctions Investigation Accepted Counterparty C 17

18 New Trends and Challenges for Sanctions Compliance 1 Sanctions compliance moved from Math to Political Science 2 Sanctioned yesterday, ok today and sanctioned again tomorrow 3 Operational trends: Screening intermediaries, 50% lists, ownership tools 4 Challenges: - More screens and more lists equals more alerts - Unknown Ownership create false positives 5 OFAC or EU updates on Friday afternoons 6 Global and updated ownership data 18

19 Political solutions around ownership Europe 4 th EU AML-directive Beneficial owner registries USA Central beneficial owner registry FinCen CDD-rule Global GLEIF level 2 data collection Common source of the beneficial owner data: Company-driven 19

20 Who controls or owns a company with X%? 1. Criminal intent has given rise to AML & Sanction legislation in the first place 2. Inherent flaw a) Some won t have the knowledge of their beneficial owner b) Some won t have the authority to disclose c) No line of communication when change happens 20

21 UK Registry Example Looking up company in Companies House 21

22 UK Registry Example Beneficial Owner PSC Source: Orbis 22

23 UK Registry Example Mr. Ortega known for being founder and chairman of Zara. If problematic with easy and transparent companies then how will it work for companies trying to hide relations. 23

24 Global approach to collecting Beneficial Ownership information Multiple, global sources and networks are essential 24

25 Key take-aways The 50% rule made sanctions compliance dependent on detailed and global ownership information. Limited access to ownership data in Sanctions programs have created unknown sanctions exposure. Global ownership can only be certain if your data source captures ownership across every country and companies of all sizes. Make sure your data source is as comprehensive as possible Make sure your data source is not just focused on big companies and large countries Automated data process based on multiple sources is crucial to detect ownership changes as and when they occur Download our free Beneficial Ownership White Paper: 25

26 Specializing in private company information More than 215 million companies globally More than 148 million corporate ownership links Over 115 million people in 276 million roles 26

27 For any questions about this presentation, or a demo of Bureau van Dijk s solutions, please contact me: bvdinfo.com anders.rodenberg@bvdinfo.com 27