The war in Ukraine has highlighted not only the importance of having effective sanctions screening and control processes in place, but also the compliance challenges of modern sanctions regimes.
Within the space of days, far-reaching restrictions were placed on individuals, organisations, companies and states covering large parts of the Russian economy and authorities, with the sanctions coming from a multiplicity of Western jurisdictions.
Thhis placed huge burdens on compliance teams that were expectdd to respond quickly and effectively to avoid penalties. In highlighting the huge amount of work that must now go into sanctions screening processes, the war demonstrated the importance of having good data and good data management systems deployed early to ensure companies are ready to respond to the sudden imposition of international injunctions.
“Ukraine was really unprecedented, the pace of these new sanctions being issued – we really have to stay up on our game,” said Oliver Oliver Bodmer, senior product maager at SIX.
Complexity and Rapidity
Bodmer was speaking at a recent Data Management Insight webinar, which examined how companies can add value and improve efficiencies to sanctions screening.
The panel discussion covered a multitude of issues on which the Ukraine war had a shone a light, particularly challenges financial institutions face in complying with sanctions. Among the toughest, the panellists agreed, was the complexity and frequency with which sanctions have been imposed in recent years, and the granularity of their targeting.
“Screening has been made difficult by the volume of data needed to keep up with all the changes,” said Jan Ulrych, VP of research and education at MANTA. “A lot of the challenges related to sanctions are actually to do with our internal data management and the ability to quickly understand whether we are screening the right data, whether we have a complete and consistent set of data that we screen against, and how fast we can identify the elements that we need to add if there’s a new sanction or new type of sanctions structure.”
Compounding the issue is the wording of sanctions and their different interpretations across jurisdictions. Igor Sumkovski, senior nanager, financial crime advisory at Santander bank said that a restriction in the US may be differently applied in Europe. Nevertheless, corporate compliance teams must satisfy the demands of each. “There is not always the level of clarity that we would expect, and there are severe consequences if things go wrong,” Sumkovski said.
The strain put on financial institutions by the rapid application of sanctions in the wake of Russia’s invasion of Ukraine also brought into the open the dangers of generating false positives in screening processes.
This particular issue is the result of trying to balance effectiveness of screening processes against their efficiency – how to capture all the right people and entities quickly. The immediate application and extent of the most recent sanctions offered no room for error, the panel said.
While Sumkovski said financial institutions had to make trade-offs between the two, putting firms in danger of breaching new rules, Shabbir Husain, director financial crimes compliance at a Silicon Valley bank, said the solution could be found in data management.
He explained: “A strong and effective sanctions governance framework with well-defined systems policy along with associated procedures, well configured systems, and ongoing systems tuning is essential for improving the efficiency, effectiveness and compliance of financial institutions’ sanctions compliance programmes.”
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