What is a sanction?

What is a sanction?

Sanction is a restriction a country (or a group of country) puts on another country as a part of an attempt to stop financial crime, terrorism, and human rights abuse. They are imposed to see a change in behaviour of the other country.

There are different forms of sanctions which include economic, trade, financial services or international movement of people in form of travel bans. US sanctions on Iran, North Korea, Syria, Cuba and Venezuela are few examples of USA’s foreign policy objectives. The US and EU (including the United Kingdom) also enforced sanctions against Russia in 2014 because of the Russia-Ukraine conflict.

Sanctions can be issued against:

• Countries or nationals of a country living anywhere in the world
• Individuals
• Sectors like financial sector or Oil & Gas.
• Private or state-owned entities
• Ships, Oil tankers or Aircrafts
• Trading activities like shipment of arms or precious metals

Like most jurisdictions in UK it is a regulatory requirement for financial institutions to have controls and systems in place to combat money laundering, terrorist financing and sanctions. Financial institutions need to take correct action to meet both domestic and international sanctions and should ensure that they do not perform financial services for those subject to sanctions without this being authorised by the appropriate authority.

There are some waivers also like when U.S. President Donald Trump renewed sanctions against Iran in 2018, some buyers could continue buying limited volumes of Iranian oil under a six-month waiver. India and China continued to buy oil from Iran under this waiver.

Which are the key international sanctions bodies and regimes?

• United Nations (UN) Sanctions
• European Union (EU) regime
• The Office of Foreign Assets Control (OFAC)
• US sanctions via 'Patriot Act'
• UK sanctions via The Foreign and Commonwealth Office (FCO)

Why should firms use sanctions screening systems and controls?

Complygate sanction screening uses data from 300+ databases which is regularly filtered and monitored to detect designated connections for customers. It can scan all relevant information including individual or business entity name, date of birth, address, country etc. A robust sanctions programmes should ensure screening of all prospective and current employees including contractors, vendors, clients, and all payment activity.

With Complyagte sanctions screening on-going monitoring can be requested and the records can be retained in accordance with UK laws. Financial Conduct Authority (FCA) has advised that firms should carry out regular reviews of their screening systems which should be up to date and effective. Any suspicion of sanctions breaches should be reported to the Money Laundering Reporting officer (MLRO) as soon as possible. HSBC was fined $1.9 billion in 2012 of which $375 was related to sanction breaches. BNP Paribas $8.9 billion in 2015 for sanction breaches and was forbidden from clearing US dollar transactions in some locations and sectors.