Violating sanctions can be deadly for a business. Compliance is the answer, but how can corporates – traditionally less regulated than their banking counterparts – ensure this?
While there have been several major sanctions violations making the news in the past few years, the bulk of these stories have been focussed on banks, mainly as they are more heavily regulated than private companies.
The results of these violations can be quite dramatic, with fines running up to several billion dollars, and often coupled with severe and potentially long term reputational damage from the resulting headlines.
However, corporate players – both large and small – are equally as capable of breaching regulations, and losing the trust of both customers and the government institutions. How, then do businesses ensure compliance to sanctions, and protection of their hard-earned reputation?
Of course, there is a simple solution to prevent sanction violation – investing in a rigorous compliance process. This is something banks have done for years.
Now it is time for corporate teams to play catch up. This is especially true now that, following high profile cases, regulators are working their way up the payments lifecycle and are actively pursuing the originator of the illegal payment – including both individuals and corporates.
For a case in point, the US Treasury’s Office of Foreign Assets Control (OFAC) recently announced it had fined Alcon Labs more than $7 million for selling medical equipment to customers in Iran and Sudan between 2008 and 2011.
The US Treasury found that the company had demonstrated what it called a reckless disregard for US sanction requirements, saying that the company had no compliance programme despite it exporting its goods globally.
This also meant it had, the report says, failed to take adequate steps to investigate a third party freight forwarder’s cessation of shipments to Iran on behalf of Alcon.
All in all, this was a heavy fine to pay for something that could have been so easily avoided.
Are you prepared?
Alcon is not the only example. In 2016 alone, there have been a further five corporates that have been fined for breaching OFAC regulations. This marks a paradigm shift, as regulators are clearly demonstrating they are spending their resources on going after corporations.
It also means that corporates can no longer hide behind their bank’s compliance systems. Instead, they will have to invest in their own.
The heavy fines dealt to Alcon and others could have been easily avoided through a solid compliance programme. By utilising technology, corporates can also ensure that the whole process is automated, therefore reducing both the resources required to run such a programme without having to compromise the results.
So, the billion-dollar question is – if you are working in treasury for a multi-national corporate that does business anywhere near a sanctioned country, are you prepared if the regulator comes knocking?