The Evolving Landscape of Sanctions

Adam McLaughlin, Global Head of Financial Crime Strategy & Marketing, AML
Sanctions in Financial Crime

The international sanctions landscape has undergone a significant transformation in recent years, particularly in response to the escalating tensions between Ukraine and Russia. This blog explores the unprecedented increase in sanctions imposed by major global powers, primarily highlighting the strategic responses of the United States (US), the United Kingdom (UK), and the European Union, and the pivotal role of technological advancements in addressing sanction evasion.

The US – A Sharp Increase in Sanctions

The US has dramatically intensified its sanctions regime in the wake of the Ukraine/Russia conflict. In 2021, 743 persons were added to the Specially Designated Nationals and Blocked Persons (SDN) list, targeting individuals and entities across Belarus, Burma, China, and Russia. This action underscored the US’s commitment to leveraging sanctions as a tool against geopolitical adversaries.

However, the following year marked a significant escalation. The US added 2,275 persons to the SDN list, with 1,698 of those directly linked to Russia in response to its further invasion of Ukraine. This substantial increase reflects a strategic effort to exert economic pressure on Russia and its supporters. Additionally, the inclusion of 519 entities on the Entity List, which prohibits them from receiving US-origin technology and goods, further tightens the noose, mainly targeting Russia and China.

The US has maintained the pressure and in February 2024 they added a further 500 parties, including individuals and entities to sanctions list. This addition was added, in part as a result of the death of Russian opposition leader Alexei Navalny.

The UK’s Strategic Approach

The UK has also taken significant steps in imposing sanctions on Russia and Belarus, designating over 1,000 individuals and entities under its Russian sanctions regime since the conflict’s inception. These measures have targeted a wide array of influential figures within Russia, including oligarchs such as Mikhail Fridman, Petr Aven, and German Khan, as well as political allies of President Putin like Prime Minister Mikhail Mishustin, Defence Minister Sergei Shoigu, and former President Dmitry Medvedev.

The UK’s sanctions extend beyond individuals to encompass major banks, defence sector organizations, and the phasing out of Russian oil imports. The expulsion of selected banks from the SWIFT international payments system and banning Russian aircrafts and ships from UK ports are among the various measures employed to exert economic pressure on Russia.

A particularly notable moment came on March 15, 2022, when the UK announced over 370 additional sanctions under the Economic Crime (Transparency and Enforcement) Act. This historic round of sanctions, targeting oligarchs and political allies with a combined net worth exceeding £100 billion, signified the UK’s unwavering stance against Russia’s illegal actions in Ukraine.

With continued geopolitical tensions the UK is continuing to use the sanctions regimes to put pressure on foreign parties and governments. Not only have they continued to add parties to their sanctions lists relating to the Iran regime, Libya regime and the Myanmar regime, UK also added a further 50 parties to sanctions list relating to the ongoing Russia/Ukraine war. A number of these parties are believed to be facilitating sanctions evasion, identifying a new approach by government sanction regimes to target sanctions evasion. The European Union’s Collective Response

The European Union has adopted a comprehensive sanctions package in response to Russia’s military aggression against Ukraine and the illegal annexation of Ukrainian regions. These sanctions, aimed at weakening Russia’s economic base and depriving it of critical technologies and markets, have targeted 877 individuals and 62 entities involved in the invasion, including Russian politicians, military officers, oligarchs, and propagandists.

In addition to asset freezes and visa bans, the EU has imposed sanctions against Belarus for its involvement in the invasion and against Iran in relation to drone manufacturing and supply. The EU’s ongoing efforts and recent developments underscore its commitment to holding Russia accountable and supporting Ukraine’s independence and territorial integrity.

Along with US and the UK the EU adopted a 13th package of sanctions in February 2024, an unprecedented package. In this they added a further 194 designations, with 106 individuals and 88 entities. This package included names of entities engaged in sanctions evasion, showing a strong focus by governments to put pressure on those facilitating the evasion of sanctions.

Navigating Sanction Evasion with Technology

As the complexity of sanctions increases, so does the challenge of evasion. Sanctioned entities have employed sophisticated methods to maintain their interests in the West, often transferring assets through third countries that have not imposed similar sanctions. This evasion underscores the necessity for advanced technological solutions in sanctions compliance.

Technological advancements, such as network analytics and anomaly detection, play a crucial role in identifying and preventing illicit financial flows. These tools enable organizations to uncover potential links between transactions and sanctioned entities, via third parties, ensuring that financial institutions can effectively block and report restricted transactions and comply with international regulations.

The Legal Dimensions of Sanctions Compliance

The enforcement of international sanctions involves significant legal considerations. The tightening of sanctions legislation in some jurisdictions, such as the UK has made violating sanctions controls a strict liability offense, highlighting the serious consequences for non-compliance, including hefty fines and reputational damage. Financial institutions and businesses must navigate these regulations diligently.

Sophisticated Evasion Tactics

The sophisticated nature of evasion tactics employed by those targeted by sanctions remain a concern. The strategic transfer of assets to third parties, exemplified by the pre-emptive transfer of ownership of a major football club for example, underscores the lengths to which individuals and entities will go to circumvent sanctions. These manoeuvres necessitate a heightened level of vigilance and innovation from those tasked with tracking and preventing such evasion.

Third-Party Countries’ Complicity

Nations that have not aligned their sanctions with those of the West serve as potential havens for sanctioned entities to indirectly engage with Western markets. This dynamic introduces a layer of complexity in sanctions enforcement, highlighting the need for nuanced international cooperation and strategic compliance efforts to navigate this patchwork of global compliance challenges. That being said it is still a requirement for those organizations operating in jurisdictions where sanctions have been applied to ensure full compliance, employing the right technology, people and processes to their screening program to mitigate risk and avoid sanctions breaches. Regulatory authorities are becoming increasingly aggressive in their enforcement of sanctions regulations.

Advancements in Technology for Compliance

Payment screening is pivotal in ensuring sanctions compliance and stopping sanctioned parties from continuing to operate with impunity. Ever increasing sanctions lists, growing complexity in attempts to evade sanctions and ever faster payments means that organizations must race to modernise their screening technology to ensure they do not fall foul of sanctions legislation through sanctions breaches. Accurate real-time payment screening is critical to ensuring only true sanction related transactions are blocked and innocent customers are not affected. When it comes to monitoring and detecting potential sanctions evasion new technology is needed, especially when monitoring intermediaries not yet sanctioned themselves. Network analytics and anomaly detection can aid in identifying potential links between the transaction and a sanctioned party by building relationship links between sanctioned parties, the transacting third party and the transaction if one exists. Showcasing the importance of technological innovation in the ongoing battle against sanction evasion.

Comprehensive Compliance Programs

Comprehensive compliance programs that integrate advanced screening solutions, such as customer and payment screening, into their operations are essential. The sophistication of evasion tactics and the expanding sanctions lists demand advanced technologies, including fuzzy matching algorithms and predictive analytics. These programs are vital for identifying and mitigating the risks associated with sanction evasion, ensuring that institutions can navigate this complex regulatory environment effectively. It is also becoming increasingly important for organizations to integrate their screening, KYC and transaction monitoring solutions, helping to comprehensively understand customers and counterparties, thus better monitoring for potential sanctions connections, whether directly or indirectly.

Future Role of Sanctions

The evolving landscape of international sanctions, especially in response to the Ukraine-Russia conflict illustrates the dynamic interplay between geopolitical strategy, legal frameworks, and technological innovation. The concerted efforts of the US, the UK, and the European Union, bolstered by advanced technological tools, are essential in addressing the challenges of managing sanctions, mitigating the risk posed by sanction evasion and upholding the principles of international law and human rights.

Sanctions will in the coming months and years continue to play a fundamental role in how countries manage geopolitical instability to punish those who do not comply with the internationally recognized rule of law. The global community’s commitment to these principles remains crucial in shaping a peaceful and stable international order. The strategic use of sanctions, coupled with the relentless pursuit of technological advancements in compliance, underscores the collective resolve to confront aggression and promote a world governed by the rule of law and mutual respect among nations.

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