On November 19, 2020, the New York ACAMS Chapter hosted an online webinar titled sponsored by Refinitiv, Thomson Reuters and TRSS titled Current Events and Hot Topics in Sanctions. The discussion was moderated by New York ACAMS Chapter Co-Chair Howard Spieler and included the following subject matter experts:
Lisa Berardi-Humphrey (former Counterterrorism Finance Strategy Officer, currently Director of Program & Risk Management, Global Sanctions Compliance, MUFG);
Nicole Sayegh Succar, former OFAC Sanctions Officer and HSBC Sanctions Senior Management, currently Counsel at Crowell & Moring LLP. Her practice focuses on Economic Sanctions and Anti-Money Laundering (AML) advisory and investigations.
Daniel Tannebaum (former Compliance Officer at OFAC, currently Partner, Americas Anti-Financial Crimes Leader and Global Head of Sanctions, Oliver Wyman).
The webinar opened with a quick overview of sanctions for those that are new to this area of financial crimes.
In summary, economic sanctions are financial penalties targeted against selected governments, groups, entities, or individuals. Economic sanctions typically imposed for a variety of political, military, and social issues, and are intended to influence behavior change. The Office of Foreign Assets Control ("OFAC") of the US Department of the Treasury administers and enforces economic and trade sanctions based on US foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United States. For more info, see here.
Economic Sanctions under a Biden Administration
The panelists suggested that the Biden administration will likely bring a more standardized approach to economic sanctions, aided by the fact that the administration may include some of the same officials that served in the Obama administration.
Some key program notes below:
Iran: It is expected that the US will consider rejoining the JPCOA, per President-Elect Biden.
Russia: Expect continued pressure on Russia, especially in light of election interference
Venezuela: Expect continued pressure on the Government of Venezuela, given the general unified approach from many allies.
Cuba: While Obama-era Cuba sanctions may return at some point, this may not be an immediate issue addressed by the incoming administration.
China: Tensions with China are already escalated, with sanctions, followed by reciprocal sanctions, and ongoing trade tariffs. Likely to stay steady for now, barring any new developments.
North Korea: No expectations for any immediate plans for another summit.
The panelists discussed the fact that 2020 was a light year for enforcement actions. To date there have been 14 settlements or penalties levied by OFAC, totaling 22.8 MM USD, which can be compared with 26 settlements/penalties totaling 1.2 B USD in 2019. However, this should not signal a loosening of OFAC's focus, and instead, banks should be taking away several key themes from 2020's enforcement actions:
Carrying over from the penalties assessed in 2019, OFAC continued to focus on violations of the Cuban sanctions program
This highlights the importance that FIs and US companies take steps to prevent their overseas subsidiaries from running afoul of the Cuban regs, particularly in the areas of travel and re-export of goods and services involving Cuban entities
Screening system failures continue to be a theme in 2020's settlements/penalties
Highlights the importance of maintaining a robust program that includes regular testing, tuning and model validation of a bank's screening systems and processes for escalating potential alerts to appropriate review levels
Risks of operating in or having customers who operate in higher risk jurisdictions
2019 saw tensions rise between China and the US, including trade tariffs as well as economic sanctions (from both countries).
Some of the more significant developments include:
Chinese retaliatory sanctions against Trump and others
Some of the discussion was focused on the escalation of tensions between the US and China, which include trade tariffs. The situation has developed into a complex web of issues where major manufacturers are having to evaluate upstream processes to understand whether any products have originated from sanctioned regions or parties. This will likely be a key foreign policy priority for the new administration, and financial crime professionals should be aware of the changing landscape.
Venezuela: Venezuela was a significant target of US sanctions during the year. Oftentimes, other countries are implicated in Venezuela sanctions, particularly with respect to oil trade, such as Russia and Iran. In addition, the humanitarian situation remains dire.
The panel notes that the focus of Venezuela Sanctions was shifting towards ensuring that the upcoming election on December 6 was fair. Panelists noted that it will be interesting to see what happens because of Venezuela’s election and how the Biden administration reacts to the election.
It was also noted by the panel that financial institutions should use caution on petroleum maritime transactions as there have been numerous designations related to shipping Venezuela oil. Examples include a subsidiary of Russian State controlled Rosneft Oil Company, sanctions on maritime firms and vessels transporting Venezuelan oil to Cuba, and Venezuela’s involvement in the Troika of Tyranny.
The discussion concluded with advice on best practices for financial institutions to effectively manage sanctions compliance. Some of those were:
Internal Escalation Process: Review escalation processes and make sure the Fist Line and Second Line teams are trained to identify and refer sanctions-related concerns quickly to the proper reviewers for action. For FIs/companies that do not have in-house OFAC expertise, consider seeking outside counsel to make sure that you are interpreting the often-complex regulations correctly and applying them to the specific situation so you don’t find yourself engaging in potentially violative behavior, which, even unwitting or indirect, can result in hefty fines.
Digital Banking and Assets Sanctions Controls: In addition, with a greater move to digital banking and transactions in digital assets, are FIs/companies comfortable with sanctions controls on both fronts? OFAC is paying attention to both, asking companies questions on both, and at the same time also doing outreach to the virtual currency sector. Andrea Gacki recently did a coffee and crypto talk through Elliptic and it was highly informative – see recap here.
The key takeaway is that those companies are U.S. persons that need a risk-based sanctions program and must risk assess that risk and put in appropriate controls. OFAC was not looking to damper innovation but have companies recognize sanctions control investments necessary for innovative tools with higher risk.
OFAC Enforcement Learnings into Sanctions Program: Always monitor enforcement actions for clues, as they tend to tip OFAC’s hand about future enforcements as well as expectations regarding sanctions compliance.