Navigating the complicated ‘sanctions’ landscape
Few areas of financial crime prevention in Bermuda are as complicated and misunderstood as ‘sanctions'.
Sanctions are measures intended to force cooperation and compliance with international law and standards. In international law and parlance, sanctions may be diplomatic or they can affect commerce — the latter being economic or trade sanctions.
Governments that have instituted sanctions against another country, or financial institutions or businesses doing business in or with that country, will enforce those sanctions strictly and do require that their domestic financial institutions comply. This is one of those areas in which Governments can and do dictate with whom private enterprise can do business.
Sometimes it is not where or who you do business with but what type of business (e.g. sale of weapons) and often it is a mixture of the two.
For years, our financial institutions and other businesses have operated on the amorphous basis of “international best practices” without much in the way of concrete guidance as they sought to answer questions such as “Can I offer Service A in Country B?” and “To whom do I report, what do I report, what are the consequences of my reporting, and what do I need a license for?”
There is a great deal at stake — businesses that get it wrong and breach a sanctions order may face large fines, prison, loss of reputation and loss of business.
In Bermuda, at least, some welcome clarity has been provided by the Bermuda Government which has enacted the International Sanctions Regulations 2013 and, in addition, delivered some welcome guidance.
Although the Bermuda Government always had some form of guidance on its website, the new guidance notes are more comprehensive and user friendly.
The Bermuda Government has made it much easier for businesses to rationally consider their activities and the scope and impact of any sanctions order to their business.
The guidance notes are somewhat misleadingly entitled the “Bermuda List of Sanctions” — but in fact deliver far more than a ‘list' to the reader.
Part A to the Bermuda List explains what the term “sanction” means and what it means to businesses in Bermuda. A useful hyperlink sends the reader back to the National Anti-Money Laundering Committee (NAMLC) website for more information.
The NAMLC website is a critical tool as it highlights and provides hyperlinks to all active sanctions applicable in the jurisdiction.
Part B lists each sanction order by country, or in the case of militant bodies like al Qaeda, by organisation. Sanctions will generally apply to activities and people within a given area. So, for example, while there are restrictions on doing business in Zimbabwe, the sanction does not completely block all business in Zimbabwe.
An example of a sanction that is not bound by geographic area is the sanction orders against al Qaeda. In that case, there is a general prohibition against dealing with the entire organisation, however it may exist, wherever it may exist.
Practically, however, sanctions against this group are applied by the identification of known individuals, entities and other groups associated with the organisation.
While the Bermuda List and the new Regulations are welcome, institutions do still have some homework to do when considering the impact of a sanction order on their business.
They will need to critically look at their book of business to determine whether or not they are doing business with any designated businesses, individuals or countries.
Their compliance team will need to be familiar with the United Kingdom's HM Treasury Consolidated List and be comfortable reviewing and digesting EU regulations and the like.
In addition, there are consolidated lists of the various sanctions orders. For example, there are multiple sanctions orders related to Iran. This means that institutions and businesses need to stay abreast of new sanctions, international updates, amendments and new guidance. You cannot rest on previous work or analysis connected to a sanction order against a country or organisation.
Consider whether the circumstances are such that it is wise to consult an attorney expert in the area.
The good news is that commercial screening services and software providers recognise that their utility depends on their ability to stay current. When businesses run the checks a ‘hit' on a given name will usually say in relation to what sanction.
It follows, that given the risk of harm to a financial institution's reputation if they are found to be dealing with a person or organisation that is on the sanctions list, it is best to invest in your systems to enable you to stay on top of international sanctions.
You should also be proactive — if an individual or business has been included on a sanctions list that has not yet been made applicable to Bermuda — you don't need to wait to take action.
This is one of the few times that we can predict the future and say with some degree of assurance that their name is likely to be coming to a NAMLC website near you! Certainly avoid taking on new business with the country, person and organisation and consider terminating your relationship if with an existing client or transacting party.
In the meantime, make the NAMLC web page on international sanctions one of your “favourites” and review the guidance that now exists and provides practical help making it easier for our businesses to negotiate the ever changing sanctions landscape.
Jarion Richardson is Compliance Manager and Deputy Money Laundering Reporting Officer at Appleby. A copy of this column can be found on the Appleby website at www.applebyglobal.com.
This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.