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In Focus Risk
Eff ective monitoring is needed to ensure that sanctions work
Application of a detailed plan will be needed to properly implement the sanctions regime
Collette Allen Client services director, SmartSearch
The old saying that the devil is in the detail has taken on a fresh resonance with the introduction of sanctions against Russia. For getting the details right will be vital
if sanctions are to be provide a meaningful response to the invasion of Ukraine. The simple fact is that if sanctions are to be
eff ective then eff ective monitoring is needed. The Russian economy has undoubtedly
already suff ered a severe blow as a result of the UK, the US, Canada and the European Union agreeing sanctions including the expulsion of selected Russian banks from Swift (Society for Worldwide Interbank Financial Telecommunication), the high security network that connects fi nancial institutions around the world. The rouble has plunged in value by nearly 30% to its lowest level against the US dollar in history, with Russia’s central bank unable to deploy its estimated $630bn in international reserves to prevent a run on the rouble that could have far-reaching consequences for fi nancial stability.
Toothless sanctions Yet although the world’s biggest democracies are working together and the days of toothless sanctions against Russia are clearly over, if the complete package of sanctions is to make the impact intended then ongoing due diligence will be vital. It is, of course, very welcome that a
cross-border freeze has been declared upon the assets of sanctioned individuals and companies, and that a pledge has been made to target any potential “enablers” who could facilitate ways to get around the restrictions.
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But unless a detailed approach is taken to ongoing monitoring, there is a risk that the full impact of sanctions could be weakened by systemic failures. In theory, businesses should be responding to the introduction of sanctions by reviewing their due diligence to ensure that they are not dealing with any individuals and organisations that have been sanctioned. In practice, it is far more complicated.
Properly conducting such reviews will prove very diffi cult for businesses which still rely upon old-fashion paper methods for client verifi cation, and also for those businesses which undertake anti-money laundering (AML) compliance using a provider which requires databases to be reuploaded at extra cost for every new check conducted.
Eff ective solution Automated monitoring is the only eff ective solution for businesses which want to make sure they are undertaking suitably detailed monitoring and not risking inadvertently facilitating a breach of sanctions. For example, the automated monitoring service provided by the SmartSearch platform does not simply enable subscribers to perform screenings to see if their clients are on sanctions or politically exposed person’s (PEP) lists. These initial searches are then augmented
by ongoing monitoring that triggers alerts if a person or entity becomes the subject of new sanctions.
Monitoring can be performed daily, weekly or monthly depending on the preferences of clients, and is supported by industry leading
www.CCRMagazine.com
Yet although the world’s biggest democracies are working together and the days of toothless sanctions against Russia are clearly over, if the complete package of sanctions is to make the impact intended then ongoing due diligence will be vital
suppressions and automated enhanced due diligence. This means signifi cantly fewer false positive matches, and ensures that our subscribers only have to investigate alerts that matter rather than wasting time and resources on ones that turn out to be unrelated to their clients.
Ongoing automated monitoring is likely to become increasingly important to businesses, given the likelihood of the introduction of further sanctions. At present, out of a list of 35 alleged
oligarchs and enablers of the Putin regime drawn up by the Russian opposition leader Alexei Navalny only two have so far been sanctioned by the government. However, these two are unlikely to be the
last given the increasing pressure mounting on the government to widen sanctions on more Russian oligarchs and close down what has been described as the ‘London laundromat’ because of the amount of dirty money fi ltered through it. CCR
March 2022
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