Compliance in an era of sanctions and monitorships

A sharp rise in money laundering activities, bank frauds and terrorist financing has led to an unprecedented number of sanctions levied over the past few months. Given the current regulatory environment, sanctions compliance has emerged as probably the only recourse in the struggle against financial crime. The rapid expansion of sanctions has led organizations, beyond financial institutions, to adopt and implement a sophisticated risk-based approach to compliance. But staying compliant with the continually changing regime of regulations is no easy feat.

To discuss the key trends and ways to manoeuvre through the complex global sanctions landscape, EY Forensic & Integrity Services conducted a webinar with leading law firm, Eversheds Sutherland LLP.

Arpinder Singh, Partner and Head – India and Emerging Markets, EY Forensic & Integrity Services, who has significant experience in multi-jurisdiction investigations in India, US and other regions commenced with introductory remarks. He set the context by covering the uptick in sanctions enforcement to achieve strategic geopolitical goals and likelihood of the US Department of Justice (DOJ) viewing institutions more favourably if they self-report, akin to FCPA investigations.

International sanctions include a range of economic and trade restrictions levied on states or organizations by countries, multilateral or regional organizations. Companies see considerable merit in taking the international conduct of sanctions into consideration. The Office of Foreign Asset Control (OFAC) is an agency within the United States Department of Treasury tasked with implementing and enforcing economic and trade sanctions. OFAC has the authority to implement sanctions granted by Presidential Executive Orders and Congressional legislation. It publishes various public sanctions lists, including the “Specially Designated Nationals” list and views active enforcement of sanctions programs as a crucial element in preserving and advancing US national security, foreign policy, and economic objectives. OFAC has been increasing focus on foreign firms for violations over the years, and the role of the new treasury department framework is important to boost sanctions compliance.

Providing a legal perspective, Sarah Paul, Partner, Eversheds Sutherland explained OFAC’s enforcement guidelines and its application to potential violations. Enforcement agencies take a zero-tolerance approach to sanctions violations. Sarah further elaborated on the practical implications of the OFAC framework. Organizations are expected to implement appropriate policies and procedures to ensure compliance with their legal obligations.

Sharing a viewpoint on the DOJ “Piling on Policy”, Andrea Gordon, Associate, Eversheds Sutherland covered the basic principles of the policy and how it aims to achieve “an overall equitable result.” Andrea discussed the practical implications of the policy, key takeaways for companies under investigation and recent settlements. The DOJ’s policy is non-binding and does not specify how it will be applied and implemented. Some of the criteria that the DOJ will consider are subjective but co-operating with the authorities during an investigation is very important for a company seeking credit. She also discussed recent trends of monitorships, which are imposed as part of a negotiated settlement between an enforcement agency such the DOJ and an organization that has engaged in misconduct.

My session focused on Corporate Compliance Programs (CCP), a journey that organizations need to embark on and mature quickly to demonstrate their commitment to overall compliance. As a part of the negotiated settlement when a monitorship program is put in place, the goal is to ensure the company’s compliance with the settlement’s terms. Monitors are in place to evaluate the CCP and make recommendations on keeping the them in good health. To survive a monitorship, companies should prepare in advance, co-operate and regularly communicate with the monitors.

To conclude, we covered an industry perspective on the CCP guidance. Companies should understand that merely being aware of probable sanctions is not enough. It is equally significant to have systems and internal processes in place to accurately collect and translate voluminous amounts of information and data to identify company portfolios that may impose risks of violations of sanctions. Organizations can design, apply and practice the program, and note some key considerations such as risk assessment, confidentiality reporting structure, commitment by senior and middle management, and investigation of misconduct.