In the first part of our ‘Ask the Expert’ series, we ask Saskia Rietbroek, Executive Director of the Association of Certified Sanctions Specialists (ACSS), about the complexity of navigating the 2019 sanctions landscape.
Sanctions are essential tools employed by governments in order to achieve certain foreign policy goals and set an example to the world. Sanctions can help governments advance respect for human rights, safeguard democratic institutions, and protect the financial system from illicit financial flows.
As the world continues to shrink, connections and financial interactions become all the more important. Sanctions carry an important message to corrupt officials, criminals and terrorists: if you continue to flout international law, there will be consequences, including being cut off from the U.S. and EU financial systems.
Which countries or groups of countries are most active?
The United Nations Security Council is very active in imposing sanctions, however, in terms of enforcement, it is a paper tiger. It cannot impose penalties for non-compliance. The enforcement of its regimes is done at the national level.
The U.S. and EU are very active on the sanctions front, with the U.S. particularly active on enforcement. U.S. sanctions are imposed by Presidential Executive Order, and unlike many European leaders, the U.S. President has the direct power to influence foreign policy with just the stroke of a pen.
Do you believe sanctions can work?
Yes. Among the sanctioned people that you cannot do business with, there are criminals such as Weapons of Mass Destructions (WMD) proliferators and drug traffickers. We must keep in mind that crime is driven by one thing and one thing only: money. The amounts are staggering. All that cash does no good stored in stash houses or suitcases; criminals have to move it and spend it. Sanctions can make it more difficult for them to do so. Banks can flag their names and freeze the money. There are also hefty prison terms.
Is there a good enough understanding of sanctions in financial services?
It is not an easy topic and the landscape can change overnight. It’s hard to keep up. There are plenty of examples of deficiencies in the programmes at financial institutions. Compliance officers have told us “it’s like swimming upstream, it’s hard to keep up with sanctions.” This is one of the reasons that we launched the Association of Certified Sanctions Specialists to offer them the support, resources and best practices they need to do their vital jobs.
What are the main loopholes in sanctions today?
Offshore companies are great to hide behind. The recent case involving Mr. Sadr, sometimes referred to as “the Bill Gates of Iran”, shows this. Last year, he was indicted in the Southern District of New York for sanctions and other violations. He allegedly took steps to hide the role of Iranian parties when sending money through the U.S. financial system. According to the indictment, he used UAE, BVI and Turkish front companies. These companies then opened bank accounts in Switzerland and the U.S. Fifteen payments involving $115M went through.
Finally, I think that unilateral sanctions are less effective than multilateral sanctions. If only one country is imposing sanctions on a group, the money will go elsewhere. Sanctioned money is like water, it follows the path of least resistance.
What can financial services firms do to close loopholes?
Due to recent guidance from enforcement agencies, such as OFAC’s 50% Rule, sanctions compliance has evolved from pure name screening to more involved customer due diligence (CDD). The guidance says that even if a company is not on the blacklist, it can be designated because of its ownership by a designated entity. Financial institutions conduct CDD on entities to determine who owns them. It’s not an easy task. Sometimes it’s like peeling an onion – sanctioned persons will hide behind many layers of corporate veils.
How is the use of sanctions changing in a technology-based world?
What we see now is that designated persons (those subject to an asset freeze) can use virtual currencies to try to stay under the radar. For a bank or credit card company, in some instances, involvement with designated persons and sanctioned activities may be more difficult to detect when cryptocurrencies are involved. Citizens from countries such as Cuba or Iran, who are prohibited from obtaining credit or debit cards for international use, may switch to cryptocurrencies to shop online or for other business transactions. It is a way to be able to conduct transactions that otherwise couldn’t happen.
On the other hand, sanctioned individuals first need to get access to cryptocurrencies. Most transactions go through centralised exchanges which do sanctions screening, so it is difficult for sanctioned individuals to get access to crypto in the first place.
About Saskia Rietbroek, Executive Director, Association of Certified Sanctions Specialists (ACSS):
Saskia is an industry leader in financial crime topics, with over 15 years of experience in the U.S., Latin America and Europe. Her global footprint enables her to apply valuable expertise and insight into international training and financial crime compliance projects. Previously, Saskia was the founding executive director of another industry group, the Association of Certified Anti-Money Laundering Specialists (ACAMS).