Taking sanctions seriously

Transcription

1 Taking sanctions seriously Managing sanctions risks Briefing Thursday 15 th January 2015 Mark Spiers

2 Why take sanctions seriously? Breaches are criminal offences But it is different to AML and CTF They change It is not always clear how to implement them They are here to stay 2

3 The JMLSG guidance risk based To reduce the risk of breaching obligations under financial sanctions regimes, firms are likely to focus their resources on areas of their business that carry a greater likelihood of involvement with targets or their agents. Within this approach, firms are likely to focus their prevention and detection procedures on direct customer relationships, and then have appropriate regard to other parties involved. JMLSG

4 The JMLSG guidance Firms need to have some means of monitoring payment instructions to ensure that proposed payments to targets or their agents are not made. JMLSG

5 The sanctions regimes Decidedly not risk based! Strict liability in some cases. 5

6 The sanctions regimes helpful HMT advice 7.12 I have carried out a transaction that is subject to financial sanctions; what should I do? If you find that you have carried out an economic transaction that was prohibited by sanctions (for example by dealing with a designated person s funds without a licence), you should contact Financial Sanctions at HM Treasury to regularise the position. You might also need to contact your regulator, such as the Financial Conduct Authority (FCA), if you are separately regulated by them. You may also wish to take independent legal advice What if I did not know I was breaching a prohibition? A person does not commit an offence if they did not know and had no reasonable cause to suspect that the funds, economic resources or financial services were being made available, directly or indirectly, to or for the benefit of a designated person. (HMT Financial Sanctions FAQs August 2013) 6

7 Specific sanctions programmes 7

8 Relevant regimes Issuers of sanctions UN EU UK US Generically 2 types: List based named individuals or organisations and connected parties; and Comprehensive or general applying to a class of person or goods. Anti-circumvention is a key concern in drafting. 8

9 UN Items designated by the Council and administered by countries participating. Mainly related to terrorism and weapons of mass destruction. Currently have: arms embargoes travel sanctions restrictions on the provision of financial services import/export bans on certain commodities civil aviation restrictions 9

10 EU Designated by the EU and administered by participating countries. Mainly based on name lists with some more general elements. 10

11 UK Foreign and Commonwealth Office (FCO) responsible for overall policy. HM Treasury responsible for: implementation/administration of international financial sanctions domestic designation licensing exemptions to financial sanctions maintaining lists of sanctioned parties. Mainly name list based, but with some country / industry / comprehensive elements. FCA is supervisory authority for most financial firms* re: controls But has no enforcement power for specific breaches. *HMRC for payment institutions 11

12 UK Current Regimes Country Type Country Type Afghanistan Names Lebanon and Syria Al-Qaida Names Liberia Names Belarus Names Libya Names General (no targets) CAR Names North Korea Names, general elements DRC Names Somalia Names Egypt Names South Sudan Names Eritrea Trade (No targets) Sudan Names, general FRY Names Syria Names and associates Guinea Names Tunisia Names Guinea Bissau Names Ukraine Names Iran Names / General Yemen Names Iraq Names Zimbabwe Names Ivory Coast Names Terrorists Names!! 12

13 US The Office of Foreign Assets Control (OFAC) administers and enforces economic and trade sanctions Set up 1950 Fines per breach Extra-territorial Specially Designated Nationals (SDN) List and comprehensive elements. 13

14 US compliance with OFAC Compliance with OFAC is required by: all US persons, including all US citizens and permanent; resident aliens no matter where they are located all persons and entities physically present in the US all US incorporated entities and their foreign branches all US origin goods and trans-shipments. Use of the USD automatically engages OFAC regulations. 14

15 Recent changes increases EU amends and extends Russia sanctions As a result of the Ukrainian incursion. Effects are unlike previous regimes due to the economic links with Russia. EU amends Central African Republic sanctions Three designated individuals subject to an asset freeze. EU extends Al Qaeda sanctions Two further individuals designated as a result of UN sanctions against them. 15

16 Recent changes increases UK law extended as a result of ECJ case Any monies arriving in the UK, or in a UK bank anywhere in the world That have come from or via a designated person based outside the EU Must be frozen in a suspense account, or other separate account, on arrival in the UK bank A licence needed from HMT to release the funds to the intended recipient. 16

17 Recent changes decreases: Cuba / Iran US to ease certain aspects of Cuba sanctions Including those involving financial services, exports, travel and remittances. EU extends Iran sanctions suspensions The Joint Plan of Action (JPA) entered into between Iran and the E3+3 countries China, France, Germany, Russia, UK and USA has been extended until as negotiations over Iran s nuclear programme continue. 17

18 Enforcement & penalties financial sector BNP Paribas agreed to pay $8.9bn in 2014 for knowingly violating US sanctions on Iran and Sudan Standard Chartered fined $340m in 2012 for hiding transactions with Iran and received a fresh penalty of $300m in 2014 for failing to fix the problems identified in 2012 HSBC fined $1.9bn in 2012 for having poor money laundering controls in place and violating US Sanctions RBS fined $100m for violating US sanctions against Iran, Sudan, Burma and Cuba ING 2012 $ 619 million for intentional manipulations and deletion of info about sanctioned parties in over 20k transactions 18

19 Enforcement & penalties non financials Weatherford International $91 million settlement for export of goods and services to Iran, Cuba and Sudan. New York Stock Exchange listed company Simplified Due Diligence? 19

20 Sanctions risk management 20

21 Establishing a sanctions risk management plan Why? You are the gatekeepers. Identify where the risks are Implement appropriate tools to manage the risk Test Report and improve 21

22 Managing risks Inherent risk (controls + education) Residual risk 22

23 Inherent risks in your business What? (Sanctions, regimes, your business) Who? (Your clients, your investee companies, service providers) How? (Distribution) 23

24 What applies to us? Up to date knowledge of relevant regimes Read the FCA, HMT, FinCen and OFAC publications 24

25 Sources FCA notices and publications HMT updates FinCen advisory notices OFAC advisory OFAC 25

26 Inherent risk what do we provide? What services / products do we provide? Asset management for pension funds vs private equity for HNWI vs VCTs Where do the regulations / provisions bite on our business? Clients Investee companies Service providers Employees and entities in relevant countries? 26

27 Inherent risk Who? Industry / underlying goods High risk goods (Oil and gas) Potential dual use Geography Investors High risk countries or those connected to them UK and Abacha. Buyers / sellers End user vs intermediary Border areas / neighbours risk 27

28 Inherent risk how? Direct customer contact no RM Direct customer - RMs Internet Branches Intermediaries Local banks 28

29 How might you measure risk? Do we capture data on: Clients Documents Transactions Payments? If so where or how? If that is not captured then do we really know our risk? 29

30 Managing the risk 30

31 Managing the risk Processes Systems People 31

32 Governance processes Clear responsibilities in first and second lines of defence Clear board / Exco responsibilities Clear ownership of systems and processes (who owns the systems vs who owns the method of screening?) Clear escalation processes potential sanctions related activity MI collection Record keeping Second and third line oversight 32

33 What does the compliance department own? Is it better to have the first level processing owned in Ops or compliance? Where are the handoffs? 33

34 Processes Client facing / relationship processes / controls Onboarding due diligence Expected activity Expected counterparts Expected goods for trade Periodic Review Client contact Review the transactions against known data 34

35 Processes Transaction based processes Red Flag checklists Escalation of potential hits MI Collection 35

36 Systems Manual vs automated Decision drivers Depends on the size and complexity of the business Data You have to do something! Volume of transactions Inherent risk assessment Recordkeeping evidencing the controls 36

37 Systems Data capture Clients name, date of birth, nationality; UBOs details Documents Counterparty, ship, container numbers, ports Payments Payer / payee details, respondent banks 37

38 Which systems? Screening client data New and ongoing Screening / intercepting and monitoring payments pre or post facto. Vendor Selection for Screening Clients data privacy and security concerns, their servers or yours? Documents imaging software or manual entry Payments SWIFT Gateway integration 38

39 People establishing a blueprint Drivers Volume of screening hits and / or searches Use of checklists on transactions Red flags on transactions Second line activities Existing capabilities What do we need to do to get to the blueprint? 39

40 People self regulation Culture To consider sanctions risk as well as credit and revenue To challenge internally and clients if things are wrong Education, education, education First line through to third line business and technical skills Systems support Guided checklists, research tools etc support for thinking, not doing the thinking for you! 40

41 Dealing with hits Choices Do not proceed Freeze Return / reject Process Process under licence Factors The regime The strength of your knowledge Your risk appetite 41

42 Dealing with the Authorities HMT Licences by either free text or on one of the proscribed forms (Libya and Iran). US OFAC Carry out the due diligence steps and then call the hotline. 42

43 Taking Sanctions Seriously Know the sanctions regimes that apply Consider your business and the inherent risks Develop your plan Have effective interdiction tools where necessary Engage senior management and the whole firm. 43

44 Any questions? 44

45 Contact Mark Spiers Head of Wealth Management and Banks