Sanctions Compliance Rising Global Risks May 2010

Transcription

1 Washington New York London Tokyo Singapore Sydney Milan Toronto Paris San Francisco Sanctions Compliance Rising Global Risks May 2010

2 Sanctions risks continue to rise 2010 sanctions penalties will top $1 billion Law enforcement cooperation is increasing Investigative interest in trade finance is high Global trade globalizes risk Source: 2

3 Sanctions risks increasing beyond the US and USD De jure and de facto extraterritorial reach of US sanctions has been greatly extended through a variety of forces: moral suasion by leaders of the US Treasury; repeal of technical exceptions to the Iranian sanctions regime (no U-turns); development of new standards of transparency in international wire transfers through FATF/EU; development of the MT 202 COV; criminal investigations led by the District Attorney for the County of New York culminating in Deferred Prosecutions Agreements and hundreds of millions of dollars in settlements books and records; intentional use of 202s to evade detection; increased cooperation among national governments in sanctions investigations, particularly where there is a proliferation issue; and high-profile interdictions of illicit arms shipments. Financial institutions increasingly recognize that the risks also apply to non-usd transactions. Extent to which financial institutions may be held accountable for customer and non-customer export control violations remains unknown. 3

4 Customer due diligence is critical Transaction filtering and customer screening is widespread, but geared to country and SDN programs. Smart sanctions are tougher to comply with. Financial institutions with better controls will report transactions that somehow get through other institutions with weaker controls to authorities, including OFAC. Individuals and entities seeking to evade sanctions increasingly rely on front companies. Screening trade finance documentation for export control violations based on the nature of the goods, services, and technology involved is challenging, especially for dual-use goods, and easily circumvented by inaccurate descriptions in underlying transactions. This increases the importance of ensuring adequate customer due diligence, particularly: Where customers can be accepted by one part of a global group and introduced to another; and Where customers can be accepted for one set of products and services (e.g., deposits, checking, payroll, treasury) and expand into another set of riskier products (e.g., trade finance). In many cases, the greatest risk to the US operations of global banks may come from within the banks own networks. 4

5 Key actions Do Conduct an enterprise sanctions compliance risk assessment. Develop group wide policies that facilitate a consistent global approach while allowing for differences where warranted by the risk assessment and local regulatory expectations. Consider develop group-wide minimum screening standards and exception processing procedures. Develop a proactive approach to export controls, focused on developing high value SARs rather than boiling the ocean. Provide supplemental, in-person training to employees in high risk businesses (funds transfer, trade finance), including on the ways in which customers (and fellow employees) may seek to evade sanctions controls. Take a risk-based, group-wide approach to list management to realize efficiencies and reduce false positives. Do Test compliance with policies, looking particularly for known evasive patterns (incomplete addresses, resubmitted payments, incorrect message type). Self-disclose violations. Even the best programs will experience violations. Authorities will value prompt selfdisclosure. Don t Don t assume that sanctions compliance begins and ends with screening and filtering. Don t allow sanctions compliance to become divorced from AML compliance. As time goes forward, AML compliance, particularly, good customer due diligence will be key. It is important to reinforce the connection between the two. Don t subject employees to stale training materials, it contributes to compliance training fatigue and builds resentment. 5

6 About Promontory

7 Promontory draws upon former senior regulators to provide world-class advice on risk management Our people held senior roles in: APRA (Australia) Bank of England Bank of Japan Commission Bancaire (France) CONSOB (Italy) ECB FSA (Japan) FSA (UK) Ministry of Finance (Italy) OCC FDIC Federal Reserve SEC Treasury (US) Treasury (UK) Others Promontory is expert at providing practical risk-management solutions that satisfy evolving regulatory expectations. Gene Ludwig founded Promontory in Since then, the firm has grown to include hundreds of professional consultants advising virtually every major financial institution around the world. From 1993 to 1997, Gene was in charge of the Office of the Comptroller of the Currency (OCC). More information about Promontory appears in the Annex, and also at 7

8 Promontory s expertise includes enterprise risk management, as well as expertise in individual risk disciplines We are expert in each of the major risk disciplines, including: Market risk Liquidity risk Credit risk Operational risk Compliance risk. During the recent crisis, risk management was a clear differentiator of firm performance. Since then, regulatory expectations for risk management have risen in many areas, including stress testing, liquidity risk management, and linking compensation policies to a risk management framework. Promontory is expert not only in each of the risk disciplines, but in understanding how the risk disciplines come together for effective enterprise risk management. Market Risk Liquidity Risk Credit Risk Operational Risk Compliance Risk 8

9 Promontory s AML and sanctions compliance practice has extensive experience AML experience in: Australia Bahamas Belgium Bermuda Brazil Canada Caymans China France Germany Guernsey India Indonesia Ireland Italy Jersey Latvia Lichtenstein Lithuania Luxembourg Netherlands Nigeria Malaysia Pakistan Russia Spain Switzerland UAE UK US Uruguay, others Promontory has hands-on, on the ground practical experience in every aspect of AML and sanctions compliance in every major market around the world. Michael Dawson leads our AML and sanctions compliance practice. He is a former official of the US Treasury, where he helped craft counter-terrorism financing strategies at the Treasury and in the interagency process through the White House s National Security Council. mdawson@promontory.com AML & Sanctions Risk Ratings 9