Accuity, the leading global provider of financial crime screening, payments and know your customer (KYC) solutions, has revealed new research into the current sanctions landscape that demonstrates a significant increase in complexity for organisations involved in global trade. At the same time, the stakes have never been higher; almost $1.3 billion worth of fines have already been issued by OFAC for breaches to U.S. Sanctions in 2019 – more than in any previous year.

Accuity, which collects, validates, and enhances caution lists from all major sanctioning bodies, law enforcement agencies, and financial regulators worldwide, has analysed records that show that over the past five years, the number of entities sanctioned by OFAC increased by 37% (the consolidated list grew from 6,403 to 8,755). This increased use of sanctions, implemented to enforce foreign policy decisions, can be attributed, in part, to shifts in international relations during the period.

Industry Trends

Significant events that triggered changes to the number of sanctioned entities included the implementation of the Joint Comprehensive Plan of Action (JCPOA) in January 2016, when sanctions on Iran were lifted by China, Russia, United States (U.S.) and the European Union (EU) and the subsequent action by the U.S. to re-impose Iranian sanctions in 2018. On 18^th September 2019, the U.S. President tweeted that he had instructed the Secretary of the Treasury to further increase sanctions on Iran, following an alleged attack on Saudi Arabian oil facilities.

Saskia Rietbroek, Executive Director at the Association of Certified Sanctions Specialists (ACSS), commented, “Sanctions can help governments advance respect for human rights, safeguard democratic institutions, and protect the financial system from illicit financial flows. For the most part, U.S. sanctions are imposed by Presidential Executive Order and, unlike many European leaders, the U.S. President has the power to influence foreign policy with just the stroke of a pen. In addition, the U.S. is especially active in terms of enforcement; if you violate sanctions laws, there’s a risk you could go to prison.”

The list of entities sanctioned by OFAC far outweighs those issued by other major sanctioning bodies, including the EU, the United Nations (UN) and Her Majesty’s Treasury (HMT). As of August 2019, the consolidated OFAC list included 8,755 entities – more than four times the amounts issued by the EU (2,136), HMT (2,123) or the UN (1,057).

While OFAC operates on behalf of the U.S. government, it has extra-territorial reach that means any cross-border transaction taking place in U.S. dollars (USD) will eventually pass through the Federal Reserve and is therefore within scope of OFAC regulation, regardless of where it originates or clears. Since USD is the de facto currency for the majority of global trade, OFAC (and ultimately the U.S. government) has a unique level of regulatory control over the global financial system.

Sophie Lagouanelle, VP Financial Crime Screening at Accuity, said, “Since financial institutions hold assets, move funds, and help finance trade activities, they have always shouldered a greater responsibility than other entities for preventing sanctioned targets from using the international financial system. However, as criminals have found new loopholes, we are beginning to see this responsibility spread to other industries, such as cargo, legal, insurance and gaming. Like financial institutions, organisations across these sectors are increasingly obligated to screen customers and transactions to ensure they do not engage with a listed entity.”

Sanctions Enhancements

The requirement for financial institutions to screen their customers and transactions against official sanctions lists extends beyond the government-issued lists; any entities owned 50% or more by a blocked entity must also be blocked according to OFAC rules (other regulators stipulate different thresholds). Additional entities such as subsidiaries, countries, cities, aliases, alternative addresses, bank branches and routing codes, are considered within the scope of the regulations but are not extensively captured in official lists issued by competent authorities.

Lagouanelle commented, “The standard lists issued by government bodies or regulators do not include supplementary information that is necessary to maximise coverage and prevent regulatory breaches. Our highly skilled team of analysts quickly collects, validates, and enriches screening data as sanctions change so organisations have a stable foundation, offering far greater and more accurate coverage.”

Sanctioned Vessels

Accuity data also highlighted a 164% increase in the number of sanctions issued by OFAC against maritime vessels, from 221 in July 2018 to 583 in July 2019. Vessels play a major part in facilitating international trade, and over the last year there have been multiple examples of sanctions breaches, enabling goods to be shipped to and from various sanctioned geographies.

Lagouanelle commented, “As regulatory focus on international trade magnifies, we are seeing significant growth in demand from banks carrying out trade finance activities, but also from cargo carriers, freight forwarders and other members of the broader trade ecosystem. Increasingly, to meet regulatory expectations, all parties involved in a trade transaction must be equipped to screen for sanctioned entities throughout the lifecycle of the trade; this includes screening the sender, recipient, the goods themselves, as well as monitoring the journey of the shipment to ensure there are no sanctioned entities or suspicious circumstances that could pose a risk.”

To address the ever-expanding scope of sanctions requirements while tempering compliance costs, financial institutions rely on data-enabled technology solutions that improve the effectiveness, efficiency and explainability of their sanctions compliance frameworks.

Accuity introduced the world’s first OFAC screening filters in 1994 and has constantly innovated to provide industry-leading solutions for global due diligence and regulatory compliance. Recent innovations include the launch of an AI-powered financial crime screening solution that helps organisations detect and prioritise high risk individuals and a first-to-market trade compliance solution that identifies dual-use goods and provides data on the movement of vessels around global ports (including those sanctioned by OFAC).