Rapidly Changing Russian Sanctions Landscape – Are You Keeping Up?

Adam McLaughlin, Global Head of Financial Crime Strategy & Marketing, AML
Rapidly Changing Russian Sanctions Landscape – Are You Keeping Up?

With the ongoing conflict between Russia and Ukraine, many countries around the world, including the G7 members, have introduced unprecedented financial sanctions. These sanctions aim to isolate Russia’s financial system, create significant economic consequences, and put pressure on Russia for ongoing activities in Ukraine.

In this blog, we will explore the ongoing developments regarding these sanctions and what they mean for Financial Institutions.

Sanctions Landscape

In the past couple of months, sanctions, the extent of which have never been seen before, have been implemented against Russia.  The ongoing sanctions situation remains in flux, with new sanctions being announced almost daily from countries looking to limit Russia’s ability to participate in the global economy. You don’t have to look further than the Society for Worldwide Interbank Financial Telecommunications (SWIFT) message-related sanctions to realize that these sanctions are unprecedented. For the first time ever, several banks have been blocked from using the SWIFT global messaging system – a system that facilitates on average over 42 million transactions daily – to facilitate payments.  

Some of the most significant sanctions seen in recent months include:

  • Freezing assets owned by and stopping transactions to and from the Russian Central bank, finance ministries, national wealth funds, and several financial institutions
  • Barring several institutions from accessing the SWIFT network
  • Banning Russian oil and gas imports or putting in place phase out plans for Russian-sourced oil and gas, and stopping oil and gas-related development projects
  • Placing travel bans on and freezing assets of high-ranking government officials, parliament members, and wealthy business people with connections to the government
  • Restricting military, transport, sport, and luxury goods-related business activities

A detailed list of the various sanctions was created by Reuters and can be found here.

What These Sanctions Mean For Financial Institutions

These sanctions create a significant challenge for FIs, who have to comply with the sweeping and dynamic restrictions. From validating the identities of different individuals and corporates to unraveling complex banking relationships and much more, adhering to the new reality requires a clear understanding of each FIs exposure to sanctioned assets, individuals, and entities.

Governments are updating sanction lists daily, with more sanctions likely coming in the near future. FIs must quickly adapt to maintain compliance with who and what is listed in each jurisdiction. Many FIs are questioning whether they can move quick enough to ensure they understand and are stopping all sanctioned activity and hold accurate, updated blacklists. Some organizations are choosing to simply redline all Russian-related activity and operations.

To continue operations, FSOs must look to comprehensively evaluate all existing customers. This includes checking sanctions lists, understanding their existing clients and their relationships, further evaluating their customers networks or ultimate beneficial ownership structure of corporates using their services, and continually assessing whether any client transactions are linked to sanctioned individuals/entities.

FIs found breaking the new sanctions face severe consequences with considerable fines and damage to their reputation. Acting Director of the Financial Crimes Enforcement Network (FinCEN) Him Das recently discussed the need for vigilance against sanction evasion, stating:

“In the face of mounting economic pressure on Russia, it is vitally important for U.S. financial institutions to be vigilant about potential Russian sanctions evasion, including by both state actors and oligarchs.”

With many governments making greater use of sanctions as a foreign policy tool, many FIs have significantly increased resources and focus on sanctions compliance, ensuring they can quickly adapt and manage their exposure to new restrictions. However, even with enhanced compliance controls, many organizations are struggling with the current pace, volume, and changing complexity in the sanctions landscape.

Take for example, the situation in Donetsk and Luhansk. Russia has recognized these as independent “peoples’ republics.” In response, the US government placed the regions under comprehensive sanctions, preventing transactions and trade with individuals and entities there. However, there isn’t a list of specific individuals or entities operating in these regions, and IP addresses are not precise enough to identify if activity is originating from these regions. So instead, some FIs are blocking services based on geographic location using software and maps to ensure they aren’t facilitating payments into or from the embargoed regions.

The Technologies Available to Streamline Compliance

In this time of sanctions diplomacy, FIs need to protect themselves with effective and fast-acting compliance technology that can keep up with the expanding restrictions and sanctions lists. There are a range of solutions that can help FIs better analyze their clients and associated relationships. These technologies include:

  • Identity resolution – Removes duplicate records and uncovers each clients’ hidden relationships allowing FIs to gain a consolidated view of each entity. This higher-quality deduplicated view enhances screening inputs for improved match confidence and hit accuracy and reduced alert volumes.
  • Network analytics – enables FIs to evaluate the relationship network of an entity. Network analytics help FSOs identify related entities which are sanctioned or represent a financial crime risk. Identifying, with accuracy, direct and indirect entity sanction exposure and those individuals trying to circumvent sanctions by utilizing third parties.
  • Payment and party screening with advanced name matching and biometric capabilities– Intelligent analytics including fuzzy matching, payments message parsing, biometrics, free text expansion, and edit distance algorithms can boost accuracy when screening parties and payments for sanctions. These technologies can catch typos, transpositions, cultural name differences, and spacing issues in account or payment information, identifying previously missed matches, removing unnecessary noise and extracting only the most relevant data fields. Biometrics can also mitigate data inaccuracies with video profiles and facial images, reducing false positives and identifying sanctioned individuals earlier.
  • Predictive Scoring –Helps FIs focus attention on the strongest screening hits by using historical outcomes and machine learning to triage screening matches based on the likelihood a match is a true hit.

Conclusion

In light of the current geopolitical climate, financial institutions need to reevaluate their current screening processes to ensure they are always complying with the latest sanctions and identifying and stopping all sanctioned entities ultilizing their organization for their financial activities. Given the complexity and unprecedented nature of current sanctions, FIs might face challenges accurately implementing controls to manage and monitor all sanctions. Luckily, several advanced technologies exist that can streamline processes, bring organizations in line with requirements, and minimize the risk of violating sanctions.  Check out this brochure to learn more about the latest screening technologies.

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