Accuity, the global provider of financial crime screening, payments and know your customer (KYC) solutions, has revealed 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 US$1.3bn worth of fines have already been issued by OFAC for breaches to US Sanctions in 2019 - more than in any previous year.

The records analysed by Accuity 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, the US and the European Union and the subsequent action by the US to re-impose Iranian sanctions in 2018. On 18th September 2019, the US 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.

“Sanctions can help governments advance respect for human rights, safeguard democratic institutions, and protect the financial system from illicit financial flows," commented Saskia Rietbroek, executive director at the Association of Certified Sanctions Specialists (ACSS). For the most part, US sanctions are imposed by Presidential Executive Order and, unlike many European leaders, the US President has the power to influence foreign policy with just the stroke of a pen. In addition, the US 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 US government, it has extra-territorial reach that means any cross-border transaction taking place in US dollars 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.

“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," said Sophie Lagouanelle, VP Financial Crime Screening at Accuity. "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.