The seminal events surrounding Russia’s invasion of Ukraine and the subsequent global sanctions response are a watershed moment for financial crime compliance. The impacts of the swiftly implemented and still-evolving plurilateral sanctions against Russia and expansive import and export bans are ricocheting through the energy sector, commodities markets and the global economy. Businesses in Capital Markets are facing relentless pressure to effectively respond to a shifting situation that remains fluid on multiple fronts. This article explores sanctions compliance strategies to consider as the collective world awaits the answer to “What is next?” Read on to learn why being proactive is a prerequisite for successfully navigating today’s global sanctions environment.
Evaluate Customer and Supplier Relationships Using a Risk-Based Approach
The uncertainty of the Russia-Ukraine conflict and the echoing macroeconomic fallout is disrupting nearly every global industry. Your compliance team cannot control the direction of global Gross Domestic Product (GDP), but it can control the cost efficiency and overall effectiveness of your sanctions compliance program. A risk-based approach enables your team to focus resources on the individuals and entities representing the highest compliance risks and work to preemptively prevent those risks from impacting your business. Operating from a proactive, risk-based approach increases transparency at the front-end of customer and supplier relationships. It also empowers your team to dynamically respond to the sanctions and regulatory risks inherent in today’s volatile geopolitical and economic climate. Your compliance team is under immense pressure—a risk-based approach provides a framework to manage productivity and resource allocation, prioritize business performance and prevent sanctions and compliance risk upfront.
Embrace the Realities of a Near Real-Time Sanctions Environment
The net count of Office of Foreign Assets (OFAC), Office of Financial Sanctions Implementation (OFSI) and European Union (EU) sanctions designations against Russia-related programs totaled over 2,300 in the first 41 days following the Russian invasion of Ukraine.1 Sanctions actions extend well beyond U.S. sanctions on Russia to encompass a coordinated, plurilateral response characterized by unprecedented levels of velocity, scale and complexity. Near-constant regulatory changes create operating burdens and delays that can open opportunities for risk to enter customer and supplier ecosystems. It is important to assess your screening and ongoing monitoring processes and adjust the frequency and scope of these processes to reflect today’s dynamic risk realities. Scalable screening technologies optimized for high-volume screening can help your business keep pace with increasing and still-evolving sanctions demands. Data efficacy plays a determining role in decisioning efficiency, alert remediation workloads and the overall effectiveness of your sanctions compliance program. It is essential to ensure the sanctions, Politically Exposed Persons (PEP) and enforcements intelligence you utilize is updated in near real time and delivers robust and relevant global coverage.
Recognize Increasing Digital Sanctions Evasion Risks
Continuing pressures from worldwide sanctions on Russia combined with the removal of Russia’s access to global financial services are only exacerbating the digital sanctions evasion threats that were already on an upward trajectory in recent years. The LexisNexis® Digital Identity Network® recorded a 250% increase in payments made on devices using The Onion Routing (TOR) browser or Virtual Private Network (VPN) in the days immediately following the Russian invasion of Ukraine.2 Demand for VPNs in Russia increased 2,692% between Feb. 24 and March 24, 2022.3 TOR Browser or VPNs can be used to obfuscate or hide a consumer’s identity or location during a transaction. TOR and VPN usage from devices operating in Russia declined in March only to be quickly followed by a more than 225% increase in April.4 Regulators are responding to these recent developments with sanctions, enforcements and guidance emphasizing the need for heightened vigilance around potential location-based sanctions evasion. Keeping up with these accelerating risks and tracking the complex technologies helping facilitate digital sanctions evasion requires a level of immediate risk visibility and responsiveness that retroactive risk management tools cannot provide. Confirm that your compliance tools are equipped to dynamically assess digital identities, device intelligence and location-based risk to prevent digital sanctions evaders from entering digital ecosystems.
Increase Vigilance Across Vendor, Third-Party and Customer Due Diligence
Knowing your customer takes on an entirely new level of significance in the wake of the global Russia sanctions response. Avoiding regulatory and reputational risks demands a near real-time understanding of risk across your customers, vendors, third-party suppliers and the critical connections represented by those relationships. Knowing your customer means knowing your customer’s customer and knowing your customer’s business to help proactively uncover potential hidden risks in associates or family members, second-tier business relationships, fake business entities or shell companies. The unpredictability of today’s geopolitical climate and rapidly changing sanctions updates underscores the importance of utilizing continuously updated, inclusive and relevant intelligence on consumers and business entities and automated risk assessment tools to help accelerate screening, investigation and ongoing monitoring. A risk-based approach to due diligence is the foundation of sustainable relationships that support optimal business performance. Proactively understanding exactly who you are doing business with and identifying the risks they may represent at any given point in the relationship enables your business to recognize and reduce exposure to sanctions and compliance pitfalls.
Tame an Overwhelming Global Sanctions Outlook with an Optimal Compliance Strategy
Multiple operating challenges and expanding economic concerns are converging as the Ukrainian conflict remains unresolved. Increasing global economic and regulatory pressures mean your compliance program has to contribute measurable enterprise value and effectively control risk exposure in an evolving geopolitical climate. Operating your sanctions compliance program from a proactive position takes an ongoing commitment. Putting in the extra effort to adjust your sanctions compliance response is easier than recovering from the fines, long-term reputational damage and shareholder impacts that a sanctions violation can inflict on your business.
Our dynamic compliance solutions are helping businesses better navigate an unpredictable global sanctions outlook. We offer proven compliance expertise, flexible tools and categorized, more comprehensive global risk intelligence to fuel a more agile and responsive sanctions compliance strategy. Connect with us to learn how we can help accelerate critical compliance decisions so your business can proactively manage the challenges of today’s unprecedented global sanctions and regulatory climate.
This document is for informational purposes only. LexisNexis® Risk Solutions does not represent nor warrant that this document is complete or error free.
2. and 4. LexisNexis® Risk Solutions Internal Research Analytics
3. Sun, Menqui, “Compliance Pros Rethink use of IP Addresses to Enforce Sanctions Amid Russia Ukraine Crisis”, Wall Street Journal, April 1, 2022