Sanctions checks - the essentials

As sanctions against Russia ramp up in response to the military conflict in Ukraine, firms must ensure they comply with the rules quickly and efficiently.

Sanctions are financial penalties and restrictions that a government places on a country, firm, or individual. A government can impose sanctions to prevent war, violent aggression, and law-breaking, or because international law has been broken or a military conflict is taking place.

The aim of sanctions is to change the behavior of the target country’s regime, individuals or specified groups. By imposing sanctions swiftly, a government hopes to create immediate impacts and challenges to a country’s way of functioning or an individual’s way of life that compels them to change their behavior or begin negotiations.

Sanctions against Russia in 2014…

Russia’s invasion of Ukraine is bringing sanctions into the news every day. Heavy restrictions have been imposed upon Russia, its banking system, and individuals associated with the government. 

The sanctions being imposed in 2022 can be seen as a development of those introduced by the United States, the European Union and other countries after Russia annexed Crimea in 2014. Recent events in Ukraine have prompted radical updates to these sanctions. 

Many countries are applying penalties against Russia. The consequences for regulated firms are profound, as the network of businesses and business owners implicated reaches far and wide. 

…and in 2022

Restrictions on economic relations are in place against Russia and Belarus, as well as the separatist areas in the Donetsk and Luhansk regions of Ukraine, which have been under Russian control since 2014. Financial restrictions have been applied to a growing list of individuals too. Assets have been seized or frozen, oil trading banned, flights and airspace restricted, bank transactions through the Swift system halted, communications stopped, and shops and restaurants closed. 

Regulated businesses around the world need to consider several sanctions regimes when doing business with Russia and Belarus or any individual or entity in the network of business ownership and supply chains associated with those countries. Firms need to comply with a large swath of complex regulations that can change daily.

Which countries are applying sanctions?

Almost every country has responded to Russia’s invasion of Ukraine. The US and UK have been particularly quick to act. The EU has also been swift and decisive; however, the requirement to seek approval from all member states means it has been slower than the US or UK. Sanctions have also been brought into force by Australia, New Zealand, Japan, and Switzerland. 

United Nations sanctions are notable by their absence. The UN needs agreement from all members of its Security Council to impose restrictions, and Russia is a permanent Security Council member.

How to ensure you comply

As soon as a sanctions list is updated, firms need to act. They must screen against lists every day, and most firms do so. Transactions and dealings with sanctioned entities have to stop as soon as the sanctions are introduced. There are some exceptions to the “act immediately” rule. Firms were given a small window to wind down activity with Russian banks, for example.

Regulated firms have always had to understand and apply sanctions lists. Understanding corporate structures, supply chains and the nexus of global operations has always been a legal requirement. But since the invasion of Ukraine, the pace of change has increased. KYC alone isn’t enough, firms can’t wait for renewal checks to rerun. 

Automating enhanced due diligence processes and ensuring they are connected to reliable, accurate sources of data will mean that appropriate decisions can be made swiftly about off-boarding a customer or suspending a contract with a supplier. This ensures businesses remain compliant with the latest sanctions. 

Sanctions monitoring

If your company is monitoring sanctions, PassFort checks with your data provider to see if any new matches for sanctions have been discovered. If a new match is discovered, the task is marked as incomplete.

The new match is displayed in the Potential matches list, where it’s then possible to confirm or ignore it.

How often new matches are imported into PassFort depends on your data provider. With Moody’s Analytics GRID: Any new matches are updated and displayed in PassFort.

For more information on performing enhanced due diligence in PassFort, read our article “Rerun due diligence checks when collected data changes”. And if you have any questions, please get in touch, we would love to hear from you.