The sanctions landscape, being inherently guided by the state of global affairs, has never been more complex than in 2019. With maritime trade transporting 80% of world trade, it is now under the microscope of regulators, particularly OFAC and the UN, as it is a principal means of moving sanctioned and embargoed goods.
This increased scrutiny has led to further pressure on trade financing banks, marine insurers, and shipowners, with the number of OFAC-sanctioned vessels soaring from 221 in July 2018, to 583 in July 2019.
Sanctions developments over the past year have centered around Iran, Syria, North Korea and Venezuela, with several sanctions-busting-related vessel standoffs across the globe. One highly publicised instance involved the Iranian oil tanker Grace 1. The tanker was seized off the coast of Gibraltar by British Royal Marines for several days, on suspicion of breaking European sanctions against Syria and multiple sanctions breaches.
Recently, subsidiaries of Cosco Shipping were added to the Specially Designated Nationals (SDN) blocked entity list for transporting Iranian crude oil after the US re-imposition of sanctions. Following this, Secretary of State Mike Pompeo claimed that the US is “telling [...]all nations: [...] we will sanction every violation of sanctionable activity”, which will set the tone for 2020.
Just this week, on 3 December 2019, OFAC added six more vessels operated by a Venezuelan government-controlled oil company, Petroleos de Venezuela S.A., to the Specially Designated Nationals (SDN) List.
OFAC Issues a Framework for Compliance Commitments
In May 2019, (OFAC) published A Framework for OFAC Compliance Commitments to “provide to organizations subject to U.S. jurisdiction, as well as foreign entities that conduct business in or with the United States or U.S. persons, or that use U.S.-origin goods or services, with OFAC’s perspective on the essential components of a sanctions compliance program (SCP).”
This was one of the first times that a regulator has published guidance document, showcasing the importance of having compliance processes in place.
The framework recognises that every company’s SCP should be tailored to that company’s individual risks, and provides an easily applicable framework of five essential components of a risk-based SCP, which include:
Management commitment: The commitment by senior management to support an organisation’s risk-based SCP is one of the most important factors in determining its success.
Risk assessment: OFAC stresses the importance of taking a risk based approach when designing or updating an SCP, with a key element being the conducting of routine “risk assessments” in order to identify potential OFAC issues that the organisation in question is likely to encounter.
Internal controls: An effective SCP should include internal controls, including policies and procedures, in order to identify, interdict, escalate, report (as appropriate), and keep records pertaining to activity that may be prohibited by the regulations and laws administered by OFAC. Working together is key to staying on the right side of the regulator.
Testing & Auditing: A comprehensive and objective testing or audit function within an SCP ensures that an organisation identifies program weaknesses and deficiencies.
Training: Training should be provided to all appropriate employees on a regular basis, and should generally provide job-specific knowledge, communicate each employee’s sanctions compliance responsibilities, and hold employees accountable for sanctions compliance training through assessments.
One thing that is essential in any SCP programme is unifying and maintaining required levels of due diligence when you are trading internationally. Systems that can be engineered to meet the specific risk parameters of any institution globally, and can automate, streamline, and record the process in seconds rather than hours, are clearly the way forward and will continue to gain traction in 2020.
What happens next?
The compliance and risk management teams in any institution are normally the busiest and under the most pressure. Technology that can act as a first line of defence by finding those needles in the haystack, and steer operations to the transactions that need their attention, can work extremely well and will continue to break new ground in 2020.
It's hard to find any industry professional who believes that the current geopolitical landscape and sanctions will become easier in 2020. In fact, most expect current regulation to continue to expand and tighten. The only good news is that the systems and services that are needed to fight corruption and crime globally are improving at a much faster rate than ever before.