Staying Ahead of Sanctions

Author: NICSA

From OFAC sanctions on Russian oligarchs to the U.S.’s recent withdrawal from the Iran nuclear deal, changes in global politics are making regulatory compliance an increasing challenge for firms. According to Sam Sundera, Regional Manager, West Coast Americas at SIX,there are more than 4,500 sanctioned securities listed across all global exchanges with approximately 135 new sanctioned securities issued on a monthly basis.

“Identifying sanctioned securities is now more difficult than ever,” Sundera told NICSA members during a recent #WebinarWednesday discussion on the topic. “These securities do not hide. They are active, they are traded and they can pop up anywhere in the world. Sanctioned issuers, particularly in Russia, continue to issue securities at a high pace. It’s all very dynamic, and investors are not always aware that these securities that even tradable.”

Sundera moderated the panel, which featured sanctions experts from BlackRock, Bureau van Dijk(a Moody’s Analytics company), Charles Schwaband SIX.

Oliver Bodmer, Senior Product Manager at SIX, outlined the turbulent geopolitical landscape. “We’re only halfway through 2018, but this year has already presented many challenges for sanctions compliance teams,” he said. “In January, the U.S. Treasury published a watchlist of 96 oligarchs based on the Countering America’s Adversaries Through Sanctions Act, also known as CAATSA Section 241. Four of these oligarchs were already sanctioned, even though they were again published in the watch list. On April 6, six of these 92 remaining became sanctioned as well.”

On May 8, additional complexity was added when the U.S. withdrew from the Joint Comprehensive Plan of Action, also known as the Iran nuclear deal. In response, the European Union reactivated a statue that protects the interests of EU companies investing in Iran on May 18. However, Bodmer said, “many European companies are terminating their business in Iran since they want to be on the safe side and still have access to the U.S. financial system.”

The influx of new regulations makes keeping an up-to-date database of pre- and post-trade suitability a challenge. In addition, Bodmer said a wealth of data must be linked and analyzed to maintain a clear view of sanctioned securities. “For pre-trade compliance, a big data approach is needed and adequate IT systems that are able to handle the loads need to be put in place,” he said.

Dan Alexander Deputy Global Sanctions Officer and Program Director for the Office of Foreign Assets Control (OFAC) & Global Sanctions Department at Charles Schwab, agreed. “It’s going to be critical that every institution have in place a process whereby when changes are announced, they know who to work with within their business lines, what their product set is and how they can communicate that up to senior management,” he said. “In turn, that should feed their assessment as to whether or not they have the appropriate resources to handle all of these sanction changes — and that also feeds into whether or not they have the appropriate technology that provides all the controls that are going to be needed.”

David Peyman, Global Head of Sanctions, BlackRock, said that we will continue to see a focus on sanctions as a cornerstone of U.S. foreign policy. “Obviously, large financial institutions have had sophisticated compliance programs in place,” Peyman said. “I think medium-size or small-size institutions that do business outside of the United States especially would be well advised to take into account the implications of the new sanctions and consider for themselves what kind of risk assessment program, what kind of sanctions compliance program they may need to implement going forward.”

Anders Rodenberg Director of Sales, Financial Institutions & Advisory, Americas, Bureau van Dijk, a Moody’s Analytics company, pointed to OFAC’s 50 percent rule to entities on the Sectoral Sanctions Identifications List as the “elephant in the room.”

“The complexities arising are enormous, because not only do we have to take into account those entities on the list, but also everything they own by more than 50 percent,” Rodenberg said. “Suddenly, we have some very large complex ownership structures. From a technology perspective, this is where every everyone is being pressured to identify all of these entities.”

At the end of the day — especially with ownership in the picture — Rodenberg said it’s hard to be 100 percent compliant. Still, firms must try to get as close as possible.

“It’s about being able to document that you have had the right programs, the right procedures, in place and that you can clarify why you’ve made one decision over another so it’s a conscious choice instead of something that you hadn’t assessed,” he said. “Where there’s an uncertainty or doubt, it’s very important to go to an external or internal counsel to get some clarification.”

NICSA thanks SIX for sponsoring this webinar. Members can view an archived version of the session at any time by clicking here.

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