Since Russia invaded Ukraine on February 24th, there has been a seemingly endless stream of sanction measures against the Russian state by Western nations, targeting everything from high-ranking government officials and oligarchs, to large financial institutions and defense firms.
With the sanctions landscape in this constant state of flux, we gathered a panel of experts to discuss what this has meant for financial intelligence units (FIUs). Our panelists shared the successes and pitfalls they witnessed during this time, offering best practices and agile strategies that FIUs can implement in the future.
Here are three of their most poignant observations on what FIUs can learn from the Russian sanctions regime:
1. Recent rapid-fire sanctions pose new challenges
The significance of this sanctions regime on Russia cannot be understated. During our recent webinar, Henry Smith, Partner, Head of Business Intelligence for EMEA at Control Risks, emphasized the weight of Russia’s connectivity to the global economy. “You’re talking about a country of a size, scale, and significance, economically, that no other country that’s been exposed to comparable sanctions in the past, really represents,” he said.
The scale and volume at which the sanctions were dealt out presented unprecedented challenges. According to Angelena Bradfield, Senior Vice President for AML/BSA Sanctions & Privacy at The Bank Policy Institute, the Russian sanctions regime accomplished in two weeks what took nearly 18 months with Iranian sanctions. The designations also posed an additional challenge to FIUs as these were wide-sweeping geographic sanctions, moving away from the prior list-based approach. FIUs did not have much time to adjust to these groundbreaking policies as the Office of Foreign Assets Control (OFAC) began immediate enforcement.
2. A proactive stance proves critical
One of the main drivers of compliance success was proactivity. Prior to the invasion of Ukraine, the U.S. government tried to raise alarm bells for financial institutions that Russian sanctions could be coming. Those institutions that took it upon themselves to, at a minimum, identify their ties to Russia in advance, fared better in reacting quickly once sanctions were in place. Rather than waiting for the government to define subsidiaries of blocked entities, some FIUs took on the task of investigating business networks themselves to ensure they stayed ahead of the moving sanctions targets and had complete information on their clients and partners.
Our experts also offered advice to financial institutions that were overwhelmed by these rounds of sanctions and are looking to future-proof their compliance frameworks. This is especially important as we’ve seen how consequences of noncompliance have escalated. The biggest piece of advice given was to always get ahead of what’s coming by listening to early warning signs. Some FIUs are already preparing for any future sanctions regimes in Asia, particularly in China, as similar dynamics begin to form.
Completing forensic assessments of all your business’ touchpoints with certain target countries or regions will be critical to rapid and complete compliance in the future. A platform like Sayari Graph leverages global public records and graph technology to map complex, cross-border corporate networks, thus providing a clear picture of illicit financial actors, their infrastructure, and relationships. This comprehensive view provides FIUs with broader context surrounding their customers and counterparties – a key aspect for effective sanctions compliance.
The way Andy Shoyer, Partner at Sidley Austin LLP sees it, “If you aren’t at least a little bit ahead on technology, you’re probably behind.”
3. Information sharing offers benefits across the industry
Ultimately, sanctions are only effective if there’s proper compliance. The key to that, according to our panel, could be information sharing throughout the industry.
“There’s a lot of information that when shared collectively between governments and financial institutions could really change the game when trying to go after bad actors,” said Bradfield.
Each of the panelists agreed that this is a unique time when OFAC has the opportunity to push institutions to embrace compliance technologies and stay ahead of future sanctions. With more guidance and regulatory clarity from OFAC, financial institutions can be better prepared for challenges to come. Additionally, these institutions could only seek to gain by sharing sanctions discoveries or best practices across the industry. If competing financial institutions all shared results of their sanctions investigations, it would help cut down investigation time for FIUs, while ensuring your team isn’t missing any critical risks.
To hear more tips on future-proofing compliance frameworks, how to grow investments in FIUs, and how to gain executive buy-in for sanctions preparation, watch on-demand our full panel discussion, “Emerging Strategies for Conducting FIU Investigations in a Rapid-Fire Russian Sanctions Regime.”