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Sanctions- Don't risk it
Transcript of Sanctions- Don't risk it
EU Third Anti-Money Laundering Directive
Natural persons who are or have been entrusted with prominent political functions and immediate family members or persons known to be close associates of such persons.” -Article 3 (8)
Entity owned or controlled by PEP
1. Current or former senior official in the executive, legislative, administrative, military, or judicial branch of a foreign government (elected or not)
2. A senior official of a major foreign political party
3. A senior executive of a foreign government owned commercial enterprise, and/or being a corporation, business or other entity formed by or for the benefit of any such individual
4. An immediate family member of such individual; meaning spouse, parents, siblings, children, and spouse's parents or siblings
5. Any individual publicly known (or actually known by the relevant financial institution) to be a close personal or professional associate.
that their status as a PEP
may facilitate the detection
of their illicit behavior.
This means that they may attempt to shield their identity
to prevent detection.
Basel Committee on Banking Supervision
Bank Secrecy Act Anti-Money Laundering Examination Manual
• A "senior foreign political figure"
• The "immediate family" of a senior foreign political figure typically including parents, siblings, spouse, children, and in-laws.
• A "close associate", who maintains an unusually close relationship with the senior foreign political figure
Identification of the beneficial owner
Without knowledge of the beneficial owner, it is impossible for a bank to determine if it is servicing a PEP.
Sheer size of data
Wide reach across various jurisdictions
GENERAL BEHAVIOUR OF PEP
Makes inquiries about institution's AML/PEP policy
THE PEP’S POSITION OR INVOLVEMENT IN BUSINESSES
INDUSTRY/SECTOR WITH WHICH THE PEP IS INVOLVED
PRODUCTS, SERVICE OR DELIVERY CHANNELS
Non-face-to-face business relationships or transactions
Obtain senior management approval
Managing PEP accounts
Identification of PEPs: How to check
RED FLAGS AND RISK INDICATORS
: “Customer, Business Relationship or Transaction”- FATF
PEPs present a multi-dimensional risk to bank; therefore, banks should use
a variety of identification tools and risk factors
to ensure they have an effective approach to detect PEPs
The Risk Based Approach: Special Categories
Definition of PEP
Customer Due Diligence
(assist name searches)
Large volume of 'hits', false positives & cost
Media + Journals
Asset & income declaration filing
"....the natural person(s) who ultimately own or control a customer or transactions, beneficiaries, controllers, or relevant third parties"
Particularly difficult when the contracting party is a corporate entity, trust, or intermediary
Appropriate risk-management systems are required
Uncomfortable to disclose source of wealth or source of funds.
Inconsistent information regarding asset declarations
Provides inaccurate or incomplete information.
Makes use of financial institutions(services) not for high value clients
From a country that prohibits citizens to hold accounts/ property in foreign land
Funds moved to and from countries with no relevant ties
The PEP has a substantial authority over or access to state assets and funds, policies and operations.
The PEP has the formal or informal ability to control mechanisms established to prevent and detected ML/TF.
The PEP does not reveal all positions
The PEP (partially) owns / controls financial institutions
The PEP has access to, control or influence over, government or corporate accounts.
The PEP is a director or beneficial owner of a legal entity that is a client of a financial institution
The PEP has control over regulatory approvals, including awarding licences and concessions.
The PEP (actively) downplays importance of his/her public function
Foreign PEPs : Individuals who are or have been entrusted with prominent public functions by a foreign country.
Domestic PEPs : Individuals who are or have been entrusted domestically with prominent public functions
Heads of State, senior politicians, judicial or military officials, important political party officials
PEPs are individuals who have been entrusted with prominent public functions
Businesses that cater mainly to (high value) foreign clients.
Trust and company service providers.
Dealers in precious metals/stones
Dealers in luxurious transport vehicles
High end real estate dealers.
Arms trade and defence industry.
Banking and finance.
Human health activities.
Mining and extraction.
Provision of public goods
(Consistent) use of rounded and large amounts.
BUSINESS RELATIONSHIP / TRANSACTION, PURPOSE
Multiple bank accounts for no apparent reason.
Correspondent and concentration accounts.
Large international funds transfers to a gaming account.
The account shows substantial activity after a dormant period
Inconsistent financial activity as against expected activity
Difficult to distinguish personal & business money flows
Unable or reluctant to provide transaction details
Termination of relation with PEP by other financial institutions
Anonymous transactions (including cash)
Payments received from unknown or un-associated third parties
Categories of PEP
Country to country definition will vary w.r.t judicial, legal & military structures
For defining PEP, institutions need to define close ties
ENTITIES - PEP
Define shareholding line + positions
Question #2 : Which relative of PEP will classify as connected PEP?
Question #3: How much shareholding by PEP in an entity will make it a PEP owned entity?
Challenges in defining PEP
Question #1: Can Actual PEP definition used in China be applied to Indonesia where political structures vary?
Challenges in identifying PEP
Asset & income declaration filing
Media + Journals
fail to identify PEP
Influence of PEP
Supports against financial crimes.
Collects and analyzes information about financial transactions in order to combat domestic and international money laundering, terrorist financing, and other financial crimes.
Prohibits unlicensed export of information related to certain products and technologies
The main aim of all UN sanctions and embargoes, as set out in the UN Charter, is to implement decisions by its Security Council to maintain or restore international peace and security
The EU imposes sanctions and embargoes to further its Common Foreign and Security Policy (CFSP) objectives. EU measures can also be imposed to uphold respect for human rights, democracy and the rule of law
The Division of Foreign Assets Control (predecessor to OFAC) was established in 1950, with China's entry in Korean War
OFAC administers and enforces economic and trade sanctions based on U.S. foreign policy
–OFAC can (and does) impose penalties on violations
–Work with the regulators in their role of ensuring compliance by U.S. financial institutions
Directory of entities and individuals who have been prohibited from accessing the U.S. financial system
Steps to mitigate
U.N. sanction against South Africa
U.N. sanctions against Iraq
U.S. embargo against Cuba
Freezing the funds/ assets of governments, entities or individuals
Banning financial transactions
Restricting export credits or investment transactions
Sanctions against trading with a country such as export/import bans on goods/commodities.
Only dealing in particular commodities
SMART sanctions are restrictions against individuals or entities rather than against countries
Sanctions may be unilateral or multilateral
• Al Taqwa Bank
You should be on alert whenever you are involved in dealings with non-U.S. parties
In 2004 the European Union imposed measures prohibiting the supply of technical, financial and other assistance related to military activities, directly or indirectly to any person, entity or body in, or for use in Sudan.
Country Risk Management
Terms & definitions
Specially Designated National
Title to “blocked” property remains with the sanctions target, but the exercise of rights normally associated with ownership is relegated to the U.S. Treasury Department and controlled by OFAC specific licenses
… the term “interest” when used with respect to property shall mean interest of any nature whatsoever, direct or indirect.
Allows something that is otherwise prohibited
* Regulatory Provision
* Case by case
Governmental entities and officials of Cuba, Cote D’Ivoire, and Sudan
Named banks in Burma
Commercial transactions involving Iran, Sudan and Burma
Accounts of persons or entities in Iran
financial services, such as insurance
, to designated individuals or governments.
Frequently Applied Measures
(CNN) – President Barack Obama had not even yet outlined the sanctions he wanted to impose on those the U.S. government deems responsible for the Russian land-grab in Ukraine, before the world learned that the United Kingdom, perhaps America's closest ally, was dead set against them.
HM Treasury is responsible for:
• implementation and administration
• Sanctions are a
for major regulators
You can't ignore Sanctions
Voluntary disclosure generally reduce the penalty amounts
but not applicable on all cases
Individuals may be fined thousands of dollars and
Even less serious cases
may garner penalty of up to
millions per violation
if not voluntarily disclosed blooming
Criminal penalties are even more severe:
may lead to millions of dollars in fines
against an organization
Civil penalties can be steep:
• Law & regulation
of a number of countries
• Reputational damage
for failure to comply
Who’s at Risk?
International transactions, including foreign transmissions or wires
Foreign customers or consumers
Non-resident alien customers or consumers
* Selective or Comprehensive
Measures imposed by governments to deprive a country, organization or individual of:
Financial and/or economic assets
The benefit of trade
Economic interaction with a country or countries imposing or implementing sanctions
Travel bans on named individuals
The maximum penalty for a sanctions offence in the UK is imprisonment for seven years and/or an unlimited fine.
Country Risk Management
An embargo is the complete prohibition of commerce and trade with a particular country.
Companies must be aware of embargoes that apply to the intended export/import destination
United Nations sanctions against North Korea (2006)
Sudan is the largest country in Africa.
For decades, a civil war has been fought between the country’s northern and southern areas, costing 1.5 million lives. Since 2003, the resumption of the war in the Darfur region has caused 200,000 deaths and the displacement of 2 million people, according to UN estimates.
The total assets frozen in Britain under the EU and UN sanctions against Iran are approximately
976,110,000 pounds ($1.64 billion)
. In 2008, the US Treasury ordered Citigroup Inc. to
freeze over $2 billion held for Iran in Citigroup accounts.
March 2007. Imposed an arms embargo and expanded the freeze on Iranian assets.
The European Union has imposed restrictions on cooperation with Iran in foreign trade, financial services and banned the provision of insurance and reinsurance
In January 2012, the EU froze assets belonging to the Central Bank of Iran, and banned all trade in gold and other precious metals with the bank and other public bodies.
On 17 March 2012, all Iranian banks identified as institutions in breach of EU sanctions were disconnected from the SWIFT
On August 12 the EU toughened its sanctions against Iran, including banning the creation of joint ventures with enterprises in Iran engaged in the oil and natural gas industries
Goods or services from Iran cannot be imported into the United States
, directly or through third countries, with the following exceptions: gifts valued at $100 or less
Loren, who is a U.S. citizen, is on an assignment in Morocco, where she is temporarily employed by a Moroccan company. Must Loren comply with OFAC regulations while on this assignment?
A. Yes, both Loren and her employer must comply.
B. Yes, but only Loren must comply.
C. No, because she is not on U.S. soil.
D. No, because her employer is Moroccan
27 member states comply
prohibits anyone from dealing
with the funds or economic resources
belonging to or owned, held or controlled by a designated person or
prohibits the entry in UK's jurisdiction
March 2008. Extended the asset freezes and called upon states to monitor the activities of Iranian banks, inspect Iranian ships and aircraft
EU measures approved on July 26, 2013 said European airports would bar any cargo flights to
or from Iran*
-- The sale or purchase, or assistance with the issuance of public bonds by the government or Iranian central bank or Iranian banks is banned
In October 2012, the EU banned any transactions with Iranian banks and financial institutions
The US sanctions
prohibit almost all trade with Iran
, making some exceptions only for activity , including the export of medical and agricultural equipment
The United States imposed additional financial sanctions against Iran, effective 1 July 2013. According to the new Executive Order
“significant transactions in the rial will expose anyone to sanctions,”
Establish the source of wealth and source of funds
Conduct enhanced ongoing monitoring of the business relationship
Ban on exports of equipment for internal repression
- Repeal of Council Decision 2010/232/CFSP
- Ban on provision of certain services
- Valid until 30.4.2015
- Embargo on arms and related material
The Burma sanctions program implemented by OFAC and then EU began when Government of Burma (then ruled by a military junta) had committed
large-scale repression of the democratic opposition
in Burma and
declared a national emergency
with respect to the actions and policies of that government.
With certain exceptions, U.S. persons (both individuals and entities) are prohibited from transferring, paying, exporting, withdrawing, or otherwise dealing in the property and interests in property of an individual or entity on OFAC’s list of Specially Designated Nationals and Blocked Persons in Burma
$ 619 million, ING Bank, June 2012. Charge: Covering up fund transfers in violation of U.S. sanctions against Cuba, Iran.
$ 536 million, Credit Suisse, December 2009. Charge: Allowing clients in Iran, Libya, Sudan, Myanmar and Cuba to conduct financial transactions.
$ 350 million, Lloyds TSB Group. Charge: Allowing Iranian and Sudanese clients access to the U.S. banking system.
Difference between Sanctions & Embargoes?
UK didnot back sanctions against Russia
UN, EU, US
EU, US, UK
UN, US, EU
2011, trading volume between China and N.Korea totalled $5.62 billion, expanding 62.4 percent from the previous year
EU imposed sanctions against Russia
Iran's currency, the rial, lost two-thirds of its value against the US dollar
February 24, 2014 (KHARTOUM) – Sudan’s ministry of foreign affairs has disclosed that Sudanese financial assets amounting to $48.2 million are frozen in the United States under decade-long sanctions.$48.2 million represents the total amount of money frozen up until 2007, while the total number of financial transactions rejected during the period from 2000 to 2008 reached 5,777 transactions, representing a value of $745.3 million
A UN arms embargo has been imposed on Sudan, which is incorporated into EU and UK law. The embargo bans the export of strategic goods to the Sudan, although certain dual-use military goods can be exported under licence for humanitarian and other purposes.
Freeze on the assets of certain persons related to important governmental functions in Myanmar, & their families
Visa bans of persons linked to economic or political activities
Canada imposed sanctions on Burma in 2007 which banned exports, apart from humanitarian goods, and barred imports. The assets of Burmese citizens connected to the junta were frozen. Canada also outlawed the provision of financial services and technical data to Burma.
In 2003, the Burma Freedom and Democracy Act banned imports from the country, but teak and gems - two of Burma's major exports - that had been processed in a third country were allowed. The act also restricted financial transactions, froze assets of some financial institutions and extended visa restrictions on officials
The Tom Lantos Block Burmese Jade (Junta's Anti-Democratic Efforts) Act of 2008 imposed a specific ban on jadeite and rubies which were mined in Burma, and on jewellery containing either of these precious stones.
Country specific sanctions
Ease in sanctions
April 24, 2012 - Foreign Affairs Minister John Baird announced that Canada will suspend some sanctions against Burma, which were among the toughest in the world
Secretary of State Hillary Clinton announced plans for a “targeted easing” of sanctions to allow American dollars to enter the country
The United States did not allow investment in entities owned by Myanmar’s armed forces or its Ministry of Defense. It also bolstered its ability to place sanctions on “those who undermine the reform process, engage in human rights abuses, contribute to ethnic conflict or participate in military trade with North Korea.”
Australia has maintained visa restrictions on senior Burmese military figures and a ban on defence exports since 1988.
New Zealand has a long-standing ban on visas for military leaders and their families
Mr. Obama said the United States “remains deeply concerned about lack of transparency in Burma’s investment environment & military’s role in economy,”
Canada, U.S, Australia and E.U eased sanctions
Myanmar is the second-poorest country in Asia on a per capita basis
President Obama fully supported the expiration of the broader ban on imports other than jadeite and rubies, and articles of jewelry. Represents the next step in the Administration's continued efforts to promote responsible trade and investment in support of Burma's reform process.
2012 -Australia removed some individuals from its Myanmar sanctions target list,for progress towards democracy in the Southeast Asian nation
A case of human rights and civil liberties
The actions of the new quasi-civilian government in Burma have led to waive some of the existing sanctions in an effort to promote further reforms and to support perceived pro-reform Burmese government officials
South East Asian grouping Asean has opposed the use of sanctions against Burma
• Finance of infrastructure projects for power plants or petroleum products (Article 13)
• Freezing of financial assets (Article 14)
• Provision of banking services (Article 25)
• Provision of insurance and re-insurance (Article 26)
These exemptions are limited and conditional upon either special circumstances or explicit permission by relevant national authorities. Members should read the relevant articles carefully and seek advice regarding compliance:
• Pre-existing contracts (Articles 7 & 10)
• Insurance services (Articles 26.2 & 26.3)
UK financial sanctions against Syria
Types of sanctions
Applicable to all persons and entities doing business in the EU, including nationals of non-EU countries, and to EU nationals and entities incorporated or constituted under the laws of an EU Member State when doing business outside the EU.
FCO is responsible for policy on international sanctions, including the scope and content of international sanction regimes
The obligation to comply extends to any person or entity within the UK and
any person elsewhere who is a UK citizen or
an entity incorporated or constituted in the UK. Accordingly, overseas branches of UK companies are subject to UK sanctions in addition to any local sanctions, which may apply in the jurisdiction of the branch
HMT publishes a 'Consolidated List'. Currently 2,700 individuals & entities are on the list, including UK incorporated companies
Xingtong is an overseas subsidiary of a UK company. Will it be subject to UK financial sanctions?
There are 3 types of control:
bans – where no import is allowed
quotas - where the volume of goods is restricted
surveillance – where the import of goods is monitored with licences
Goods currently subject to import bans and licensing controls are:
EU quotas on textiles and clothing from North Korea
EU ban on the import of certain products from Syria
UK licensing controls on the import of firearms
Current import controls
Import licences apply for certain textiles, firearms, ammuniction, iron and steel. There are also prohibitions on the import of anti-personnel mines, torture equipment and certain goods from Iran and North Korea
UK sanctions have in the past targeted all the residents of a particular country (eg Iraq)
France’s biggest bank BNP Paribas may have to pay $10 billion for allegedly evading US sanctions mainly involving Sudan, Iran and other countries between 2002 and 2009
Too big to fail?
A real world example of DIPLOMATIC sanctions is U.S sanction against Iran, where there are no diplomatic ties between embassies or visits of ambassadors
In 1992, U.N. placed it's first and only sports sanction on Yugoslavia where it’s National Soccer team was disqualified from participating in the EURO 1992 tournament, despite finishing top of their qualifying group
Financial Crimes Enforcement Network (FinCEN)
The International Traffic in Arms Regulations
Issued: March 18, 2010
Subject: Guidance to Financial Institutions Based on the Financial Action Task Force Public Statement on Anti-Money Laundering and Counter-Terrorist Financing Risks.
A. Countermeasures: Iran
B. Enhanced Due Diligence: Angola; Democratic People’s Republic of Korea (DPRK); Ecuador; Ethiopia.
C. Due Diligence: Pakistan; Turkmenistan; São Tomé and Príncipe.
Can you think of any sanction against U.S. ?
The violation of OFAC sanctions can result in substantial civil and criminal penalties, including criminal fines from US$50,000 to US$10,000,000 and/or imprisonment from 10 to 30 years for wilful violations, and civil penalties from US$250,000, or twice the amount of each underlying transaction, to US$1,075,000 per breach
In 2005 the United Nations imposed travel restrictions on targeted list
Prohibited activity. No U.S. bank may finance or arrange offshore financing for, third-country trade transactions where Sudan is known to be the ultimate destination of, or the Government of Sudan is the purchaser of, the goods.
Prohibited Activity. Prohibits U.S. persons from engaging in any transactions involving such property or interests in property. It also prohibits all transactions by U.S. persons relating to Sudan’s petroleum or petrochemical industries, including, but not limited to, oil field services and oil or gas pipelines.
Note: In an Executive Order effective 4/27/06, President Bush directed that assets of certain persons named as threatening
the peace process in Darfur, The Sudan, be blocked.
All dealings in property in which an SDN has an interest must be authorized by OFAC unless they are exempt. Any bank subject to U.S. jurisdiction that receives instructions to make an unlicensed funds transfer involving a direct or indirect interest of the Government of Sudan (including any transfer routed through a Sudanese Government-controlled bank) is
required to place such funds into a blocked interest-bearing account on its books and to notify OFAC. Such funds may only be unblocked after receipt of a specific authorization from OFAC
. Setoffs against blocked accounts are prohibited.
OFAC'S SDN AGAINST SUDAN
In response to the Government of Sudan’s continued complicity in unabated violence occurring in Darfur, President Bush imposed new economic sanctions on Sudan in May 2007. The sanctions blocked assets of Sudanese citizens implicated in Darfur violence, and also sanctioned additional companies owned or controlled by the Government of Sudan
- freezing of funds and economic resources of targeted list
New investment in Burma by U.S. persons and U.S. persons’ facilitation of new investment in Burma by foreign persons.
With certain exceptions, the exportation or reexportation of financial services to Burma is prohibited. The term exportation or reexportation of financial services to Burma is defined broadly to mean: (i) the transfer of funds, directly or indirectly, from the United States or by a U.S. person, wherever located, to Burma; or (ii) the provision, directly or indirectly, to persons in Burma of insurance services, investment or brokerage services, banking services, money remittance services; loans, guarantees, letters of credit or other extensions of credit; or the service of selling or redeeming traveler’s checks, money orders and stored value.
Growth & vigour in the use of sanctions
Lists used to screen transactions (Consolidated lists (UN, EU), HMT consolidated list (UK), OFAC SDN list (US), Patriot Act list (US AML), Country sanctions names list , Local sanctions list (local),Local information list (local)
1) Beneficial owner
3) Signatories/ Office bearers
Lack of clear guidelines on the implementation of such regulations
Constantly changing list of sanctioned entities and transactions
Beneficial owner hidden behind intermediaries
Complicated shareholding structures
Design systems with fuzzy logics (Thresholds of name component and spelling matches)
A Compliance programme that must include
• $ 298 million, Barclays, August 2010. Charge: Allowing client payments from Cuba, Sudan.
Vigilance in processes
• their name
• their photograph on an official document which confirms their identity
• their residential address or date of birth
Make sure sanctions information/SDN list is up-to-date
Scenario: Bank XYZ is in the process of transmitting a pay-order in the name of a sanctioned person. How can bank mitigate this risk?
Make regulations an integral part of overall compliance efforts.
• customer and transaction due diligence and screening
• regular monitoring of transactions and periodic audits of sanctions compliance
• contractual controls, including sanctions exclusions and warranties;
• maintaining a list of countries which are subject to embargoes and ensuring that equipment, good and services are not supplied to persons and entities in those countries, including via a third party distributor or otherwise indirectly
• assessing if equipment and products are on export control lists (such as the UK's Strategic Export Control List) and ensuring that all necessary licences to export are obtained;
• checking if imported goods are in any way restricted;
• training in policies and procedures; and
• checking if vessels, raw material, place of origin pertinent to goods are in any way restricted
Take full advantage of compliance resources
Steps to mitigate Sanctions Risk
Reliance on screening of other institutions
In 2004, EU imposed measures prohibiting the supply of technical, financial and other assistance related to military activities directly or indirectly to any person, entity or body in, or for use in Sudan. A UN arms embargo has been imposed on Sudan which is incorporated into EU & UK law.
Ease in sanctions against Iran
The EU and US have lifted limited sanctions against Iran after the International Atomic Energy Agency confirmed Iran had stuck to its part of the landmark deal agreed in 2013 to freeze its nuclear ambitions.
The United Nations nuclear agency, the International Atomic Energy Agency, confirmed that higher-level uranium enrichment in the Natanz facility in central Iran had been stopped.
The move eases restrictions on trade in petrochemicals and precious metals and on the provision of insurance for oil shipments, among other measures.
US Treasury Department said, "the administration has taken necessary steps to pause efforts to further reduce Iranian crude oil exports".
The package includes the freeing up of
in Iranian funds frozen overseas. They will be released in several stages beginning with a first tranche, worth about $500m
Targeted sanctions relief
Trade sanctions relief
in a trade
System's incapability to map out details
June 2010. Banned Iran from participating in any activities related to ballistic missiles, tightened the arms embargo, travel bans on individuals involved with the program, froze the funds and assets of the Iranian Revolutionary Guard and Islamic Republic of Iran Shipping Lines, prohibited the servicing of Iranian vessels, prevent the provision of financial services used for sensitive nuclear activities, prohibit the opening of Iranian banks on their territory and prevent Iranian banks from entering into relationship with their banks if it might contribute to the nuclear program, and prevent financial institutions operating in their territory from opening offices and accounts in Iran
all States shall freeze all funds, financial assets and economic resources that are on their territories on the date of adoption of this resolution or at any time thereafter, that are owned or controlled, directly or indirectly, by the persons designated by the Committee
that all States shall take the necessary measures to prevent entry into or transit through their territories of all persons as designated by the Committee