The Rising Importance of Sanctions Compliance: A Deep Dive into Our Latest Report 

Vincent Gaudel, Financial Crime Compliance Expert at LexisNexis Risk Solutions 

In recent years, the landscape of international sanctions has shifted dramatically, becoming a critical concern for businesses worldwide. 

With the onset of the war in Ukraine, sanctions have moved to the forefront of global policy discussions. Our latest research, “Taking the Pulse of Major Sanctions Lists: A Look Back on 2023 with Predictions for 2024,” aims to shed light on these developments and their implications for businesses. 

The impetus for our latest report stemmed from the unprecedented wave of sanctions that emerged in 2022, a year we termed the “sanction storm.” As we entered 2023, our primary question was whether this storm had subsided or continued unabated. The findings were clear: while the sheer volume of new sanctions had slightly decreased, the overall use and enforcement of sanctions remained extensive. Notably, we observed significant growth in the major sanctions lists and frequent updates from Western regulators, emphasising the need for businesses to stay vigilant and up to date with these changes. 

Troubling fragmentation – One of the key trends highlighted in our report is the stark disconnect between the United Nations (UN) sanctions lists and those of major Western regulators, such as the US, UK, and EU. The UN sanctions list, which reflects international consensus, has seen a decline in new actions, indicating a troubling fragmentation and polarisation within the global community. This lack of consensus at the UN level contrasts sharply with the more aggressive stance of Western nations, particularly in response to regional and national issues. 

For international businesses, navigating this fragmented regulatory environment poses significant challenges. The extensive reach of US sanctions, particularly those enforced by the Office of Foreign Assets Control (OFAC), cannot be overstated. The US employs secondary sanctions, compelling even non-US entities to comply with their measures or risk being sanctioned themselves. This approach has seen practical enforcement, with the US targeting businesses and individuals globally who facilitate sanctions evasion. 

In the financial services sector, compliance with these complex and far-reaching regulations is paramount. Organisations must undertake thorough risk assessments to identify their exposure to sanctions risks, considering their activities, geographic reach, and customer base. This risk assessment serves as a crucial compass, guiding the development of robust policies and procedures to mitigate these risks. 

Effective compliance requires a multi-faceted approach. It begins with establishing clear policies and procedures, followed by rigorous controls to verify customer identities, monitor transactions, and ensure that no sanctioned entities are involved. Utilising advanced tools and up-to-date data is essential for uncovering potential sanctions risks. However, technology alone is not a silver bullet. Investing in human expertise and providing comprehensive training for staff are equally critical to ensure they understand the nuances of sanctions regulations and can make informed decisions. 

FATF signals urgency – The recent addition of South Africa to the grey list by the Financial Action Task Force (FATF) underscores the importance of robust compliance measures. While leading financial institutions in South Africa are generally well-versed in these requirements, there remains a need for broader adherence to international standards across the spectrum of financial services firms. Enhancing customer due diligence processes and investing in effective compliance tools are essential steps toward improving the country’s standing. 

Moreover, compliance is not solely the responsibility of the private sector. Regulatory authorities must also play a proactive role in supervising and enforcing adherence to these standards. This dual approach ensures that both private and public sectors work together to mitigate financial crime risks, including money laundering and terrorism financing, which are intrinsically linked to sanctions compliance. 

The evolving sanctions landscape presents both challenges and opportunities for businesses worldwide. Staying informed and compliant with international sanctions is crucial for maintaining financial integrity and fostering economic growth. 

By adopting a comprehensive and proactive approach to sanctions compliance, businesses can navigate this complex environment effectively and contribute to a more secure global financial system.