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Regulatory Risk

Avert compliance risks when dealing with sanctioned businesses in Russia and Ukraine

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REUTERS/Ria Novosti

Just how are corporates, banks and financial institutions supposed to navigate the increasingly choppy seas of compliance risk when dealing with sanctioned businesses in Russia and Ukraine?

Overall, the existing Russian sanctions regime seems only capable of stabilizing and containing the conflict in its current form. There is little appetite, and even less agreement, especially among European countries, about how to encourage the Putin regime to address the issues of the Crimea and the restoration of Ukraine’s territorial integrity.

Download white paper: Russian Sanctions — Who Will Blink First?

Watch the video  James Swenson, Head of EDD, Operations and Delivery at Thomson Reuters, elaborates on the impact of Russian sanctions on compliance programs.

Certainly one of the hottest topics has been the uptick of conflict along the Russian Federation’s eastern border with Ukraine, which followed hot on the heels of the annexing of Crimea. The result was and still is the imposition of sanctions by the US and the EU along with several other countries, honing in on those they perceive to be responsible for the unrest.

“As the situation develops, companies and financial institutions need to examine in detail the effects of US and EU sanction  regime on their dealings with Russian companies and institutions, in particular the state-run banks and government authorities. The sanctions are complicated in their application, not only because the US and the EU have sought to increase pressure on Russia progressively, but also because out of self-interest, they have allowed Russia some wriggle-room.” Rear Admiral Chris Parry CBE, Strategic forecaster and risk expert.

It would appear that, as long as the territorial issue remains largely static and there is not significant armed conflict in relation to Eastern Ukraine and the Crimea, further significant sanctions are unlikely to be imposed. The US and Europe are still relying on the cumulative effect of existing sanctions on Russia and its economy over time to bring the Putin regime to the negotiating table.

Constant political and economic developments in Russia and the Ukraine are driving continuous updates to the OFAC sanctions list and as a part of your organization’s comprehensive risk based approach to screening, you need to screen your client, supplier and stakeholder list against the latest updates.

Download full screening list: Data Sheet World Check Advanced Features

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“The EU and OFAC sanctions are an unprecedented event where individual companies are being surgically targeted for sanctions in a market that is widely held by American and European investors,” says Tim Lind, Global Head, Financial Regulation Solutions, Thomson Reuters.

“. . .’traditional sanctions screening’ performed by banks or export companies, takes on a new dimension for a broader group of businesses based on the introduction of  ‘narrative and sectoral sanctions’.” Tim Lind, Global Head, Financial Regulation Solutions, Thomson Reuters.

Know your acronyms PEPs and SOEs?

Sanctions have primarily targeted individuals close to the President, those politically exposed persons (PEPs) and state controlled entities (SOEs), and those in which the PEPs have a significant holding.

The Minsk Agreement signed in February 2015 led to the implementation of a ceasefire in the Ukraine. However, the US expanded its sanctions regime to take in more Russian and Ukrainian entities, encompassing 14 defense companies and prominent regime individuals, while imposing targeted sanctions on, and preventing financing to, 6 large Russian banks and 4 energy companies.

“Banks and financial institutions will require access to forensic skill and vigilance in detecting and exposing not only direct attempts by Russian organizations to acquire capital and investment, but also indirect methods of operation involving third parties, shell companies and informal networks. These will necessarily include criminal and non-compliant business links, some with connections to legitimate government activity and sovereign wealth management authorities.” Rear Admiral Chris Parry CBE, Strategic forecaster and risk expert.

Download white paper: Russian Sanctions — Who Will Blink First?

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