Head of Suntera Forensics, Peter Allwright, has written an article about developing a robust framework to fight sanctions evasion — read the full article to discover the key insights.
The world of international sanctions can be extremely complex, and ensuring sanctions are being adhered to can be a significant challenge.
It is, however, absolutely possible to fight sanctions evasion – but doing so can involve various systems and processes to detect, prevent, and penalise such activities. Here I look at some of the vital systems and specialist methods commonly used to combat the evasion of sanctions.
SYSTEMS
There are a number of different system types that can be employed to detect sanctions evasion, and which can typically be divided into four categories.
1. Transaction Monitoring Systems
• Automated Surveillance: these systems analyse financial transactions in real time to detect patterns or anomalies indicating sanctions evasion.
• Screening Software: financial institutions use this type of software to check transactions against sanctions lists, identifying and flagging prohibited parties or activities.
2. Blockchain and Cryptocurrency Analytics
• Blockchain Analysis Tools: these specialist tools can track and analyse cryptocurrency transactions to identify suspicious activities and connections to sanctioned entities.
• Wallet Screening: monitoring cryptocurrency wallets can help identify links to sanctioned individuals or entities.
3. Database Systems
• Sanctions Lists Databases: such databases maintain and provide up to date lists of sanctioned individuals, entities, and countries. Examples include OFAC's SDN, EU, and UN sanctions lists.
• Beneficial Ownership Registers: these databases can provide information on the real owners of companies, helping to identify hidden connections to sanctioned parties.
4. KYC (Know Your Customer) Systems
• Identity Verification Tools: these tools help verify the identities of customers and beneficial owners to ensure compliance with sanctions regulations.
• Customer Risk Assessment: such systems assess customers' risk level based on their profile and activities.
PROCESSES
Drawing on certain systems is only part of the exercise – going beyond initial detection to then prevent and penalise the evasion of sanctions is the next step and can be achieved by following a number of clearly defined processes.
Enhanced Due Diligence (EDD)
• In-depth Customer Reviews: conducting thorough investigations into high-risk customers and transactions is an important step in ensuring they are not linked to sanctioned entities.
• Ongoing Monitoring: sanctions evasion is not necessarily a one-off occurrence - continuously monitoring high-risk accounts and transactions is vital in detecting changes that may indicate sanctions evasion.
Regulatory Reporting
• Suspicious Activity Reports (SARs): financial institutions have an obligation to report suspicious activities to relevant authorities, such as the Financial Crimes Enforcement Network in the U.S. and the Financial
Intelligence Unit in the UK
• Regular Compliance Audits: internal and external audits, undertaken on a regular basis, can help ensure compliance with sanctions regulations and identify potential evasion schemes. Cross-Border Information Sharing
• Inter-agency Collaboration: coordination between governmental agencies, such as customs, law enforcement, and financial regulators is critical in facilitating the sharing of information and intelligence.
• International Cooperation: agreements and partnerships between countries to share data and collaborate on enforcement actions can also be highly effective.
Training and Awareness Programs
• Compliance Training: regular training sessions for employees of financial institutions, corporate service providers and other businesses on sanctions compliance and detection of evasion techniques is vital in ensuring people are up to sped with the latest skills and knowledge.
• Industry Workshops and Seminars: educational events to keep the private sector informed about new regulations, best practices, and emerging threats are also crucial.
Legal and Regulatory Measures
• Sanctions Enforcement Actions: legal action can be taken against individuals or entities found to be evading sanctions, including fines, asset freezes, and criminal charges.
• Updating Legislation: from a jurisdictional perspective, regularly updating laws and regulations to address new methods of sanctions evasion and close existing loopholes is a critical part of an evolving landscape.
Public-Private Partnerships
• Collaboration Initiatives: sanctions straddle the public and private space, and joint initiatives between government agencies and private companies can play a major part in improving the detection and prevention of sanctions evasion.
• Information Sharing Platforms: similarly, platforms for sharing intelligence and best practices between the public and private sectors can help drive greater insights into combatting sanctions evasion.
EMERGING TECHNOLOGIES
There’s no doubt that the technological revolution can play a significant role in both detecting and preventing sanctions evasion, in a number of ways.
Artificial Intelligence (AI) and Machine Learning (ML)
• Predictive Analytics: the use AI and ML can help predict and identify potential sanctions evasion activities based on historical data and emerging patterns, in ways, at speeds and at a scale that is far harder to do manually.
• Natural Language Processing (NLP): in addition, analysing text data from various sources to identify hidden connections to sanctioned entities is becoming increasingly important as part of the sanctions evasion armoury.
Big Data Analytics
• Data Aggregation: using technology to combine huge amounts of data from multiple sources can mcomprehensively view financial activities and detect complex evasion schemes.
• Real-Time Analysis: using big data techniques to analyse large volumes of transactions and activities in realtime can detect suspicious behaviours immediately.
A ROBUST FRAMEWORK
In a financial services world where risk mitigation, reputation and integrity are absolutely critical, ensuring clients and customers are not violating or evading sanctions has become an important issue – and it’s an issue that can be complex, straddling both the public and private sectors.
Used effectively and appropriately, however, the systems and processes described here can form part of a robust framework for combating sanctions evasion, ensuring compliance with international regulations, and maintaining the integrity of the global financial system.If you are looking into strategies to mitigate the threat of sanctions, please contact our Head of Suntera Forensics, Peter Allwright, to discuss your needs. You can contact Peter on the contact details below or visit our Forensics overview page for more information.
Key Contact:
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Peter Allwright
HEAD OF SUNTERA FORENSICS
