Upload
others
View
5
Download
0
Embed Size (px)
Citation preview
PragmaticStrategiestoManageSanctionsComplianceRisk
JoelAmy,B.Sc.,LL.B.,CAMSSVPFinancialCrimeCompliance&
ChiefAMLOfficer,CanadaMacquarieGroup
SessionOverviewThissessionisorganizedintothefollowingparts:
• Generaloverviewofsanctionsmeasures,includingwhattheyare,whyandhowthey’reapplied,andoutliningkeyprinciples
• Identificationofsanctionsrisktriggersrelatedtoclients,counterpartiesandtransactions,thatcouldpotentiallyexposeyourinstitutiontosanctionsviolations
• Interactivecasestudiestoassistinapplyingyourknowledge
• ConsiderationofhottopicsinCanadianandU.S.sanctionsmeasures
• Financial institutions have faced significant fines and penalties for sanctions violations over the past few years. Some of the more recent and larger fines include:
• And these fines do not reflect the complete picture, there is still:§ Cost of remediation§ Reputational damage§ Personal liability for individuals
The costs of getting it wrong are significant…
SanctionsOverview
WHAT are sanctions?
Legislation, regulation or other binding instruments that prohibit or restrict dealing with certain countries, governments, groups, entities or individuals.
WHO makes them?
Multinational bodies and national governments, including the United Nations, the European Union, Canada, the United States and the United Kingdom, among others. All UN member states are obliged to implement United Nations Security Council (UNSC) sanctions domestically.
WHY are they implemented?Sanctions are aimed at deterring threats to international peace and security and bringing about a change in the policy or activity of the targeted country, government, entity or individual.
Howaresanctionsapplied?
Comprehensive country sanctions – prohibit nearly all activity with the sanctioned country and persons in that country, including its government, government controlled entities, nationals and private companies
List based sanctions – target named individuals, entities or vessels and usually prohibit all activity with the sanctions target. Such targets are referred to as Specially Designated Nationals (SDNs) under U.S. sanctions and Designated or Listed Persons under other sanctions programs
Sectoral sanctions – prohibit specific activity involving a targeted sector or group within a country or region. For example, current Canadian, U.S. and E.U. sanctions against Russia target its finance, energy and defencesectors
Sanctions programs vary by country and situation but will typically fall into one or more of the three categories below:
SomeKeyPrinciples
Any entity that is 50% or more owned or controlled by one or more sanctioned person is also considered sanctioned without having to be specifically named in any sanctions list
Sanctions can have extra-territorial application, i.e. apply outside the country that implements them. For example, they apply to citizens and residents wherever located and to transactions in the currency of the implementing country. In some cases sanctions can also be made to apply to foreign persons.
Sanctions can be breached by directly engaging with a sanctioned person or entity or undertaking prohibited activity (direct sanctions risk) OR by facilitating client activity prohibited by sanctions measures (indirect sanctions risk)
RelevantSanctionsRegimes
Domestic Local Global?Within Canada and abroad In the countries in which
your institution operates or conducts business
With the sanctions programs of certain key jurisdictions(i.e. US, EU, UK)
Pragmaticriskmanagementrequiresyourcomplianceframeworktoconsidervarioussanctionsregimes
CanadianSanctions• TheCanadiansanctionsregimeisoverseenby
byGlobalAffairsCanadaandisenacteddomesticallyunderthefollowingpiecesoflegislation:
- UnitedNationsAct- SpecialEconomicMeasuresAct- FreezingAssetsofCorruptForeignOfficialsAct- ExportandImportsPermitsAct- ImmigrationandRefugeeProtectionAct- CriminalCode
• TheadministrationofCanadiansanctionsiscomplicatedandinvolvesGlobalAffairsCanada,DepartmentofJustice,RCMP,CBSA,OSFI,IIROC,CSIS,Immigration,RefugeesandCitizenshipCanada(IRCC)andDepartmentofFinance
• CanadiansanctionsapplytoallpersonsinCanadaandallCanadiansoutsideCanada,includinglegalentitiesformedunderthelawsofCanadaoraprovince
CanadianSanctions:MinisterialDirectivePower
• WhilenottechnicallyconsideredpartoftheCanadiansanctionsregime,PCMLTFAamendmentsthatcameintoforcein2014provideauthoritytotheMinisterofFinancetoissuedirectiveswhichcouldhavesimilareffect
• TheMinisterhasnotyetexercisedthisauthority,butitallowshimorher:
(i) toissuewrittendirectivesthatrequirereportingentitiesunderthePCMLTFAtoapply“countermeasures”totransactionsoriginatingfromordestinedtodesignatedforeignjurisdictionsandentities; and
(ii) inthemostseriouscases,torecommend,inconsultationwiththeMinisterofGlobalAffairs,issuingregulationsunderthePCMLTFAlimitingorprohibitingreportingentitiesfromenteringintoafinancialtransactionoriginatingfromordestinedtodesignatedforeignjurisdictionsandentities.
CanadianSanctions:MinisterialDirectivePower
• TheMinisterofFinancemayonlyissueadirectiveif:
(i) aninternationalbodyororganizationhascalledonitsmemberstotakemeasuresonthegroundsthattheforeignjurisdictionorentity’sAMLorCTFmeasuresareineffectiveorinsufficient
OR
(ii) theMinisterisoftheopinionthattheineffectivenessorinsufficiencyofthejurisdictionorentity’sAMLorCTFmeasurescouldcauseanadverseimpactorreputationalrisktotheintegrityofCanada’sfinancialsystem
• ThetextofanydirectivewouldbecommunicatedbyFINTRACandalsopublishedintheCanadaGazette.Thedateuponwhichadirectivewouldcomeintoforcewouldbespecifiedinthedirective.Directivesremaininforceuntilofficiallyrevoked,suspendedoramended.
U.S.Sanctions:WhatisOFAC?
• TheOfficeofForeignAssetsControl(OFAC)– anagencyoftheU.S.DepartmentofTreasuryresponsibleforadministeringandenforcingU.S.sanctionsmeasures
• OFACexercisesbroadjurisdictionoverpersonsandactivitiesinexecutingitsmandatetoenforceapplicableU.S.sanctionsmeasures.OFACiswellfundedandzealousinitsenforcementactivities.
• U.S.sanctionsmeasuresapplyto“U.S.Persons”,U.S.-origingoods,andU.S.connectedtransactionsandactivities
U.S.JurisdictionalHooks:Whatisa“U.S.Person”?
• “U.S.Persons”include:
• U.S.citizensandpermanentresidentsworldwide(i.e.regardlessofwhetherresidingintheU.S.)
• AllindividualsphysicallylocatedintheUnitedStates,regardlessofcitizenship
• LegalentitiesdomiciledintheUnitedStates(e.g.corporations,partnerships,etc.),includingU.S.branchesandofficesofnon-U.S.banks
• Non-U.S.branchesofU.S.banks• Incertaincases,non-U.S.entitiesthatareU.S.ownedorcontrolled
U.S.JurisdictionalHooks:U.S.connectedactivities
• EvenifyouareNOTaU.S.person,U.S.sanctionswillapplytoyouractivitiesiftheyareconnectedtotheU.S.,including:
• allUSDdenominatedtransactionsandpayments• transactionsoractivitiesinvolvingU.S.-origingoods• transactionsoractivitiesto,fromorthroughtheUnitedStates
CountrySanctionsPrograms
• Iran• North Korea• Sudan• Syria• Cuba• Crimea
Comprehensive Sanctions
• Afghanistan• Belarus• Burma (Myanmar)• Burundi• Central African
Republic• DR Congo• Egypt• Eritrea• Iraq• Lebanon• Libya• Republic of Guinea• Republic of Guinea-
Bissau• Somalia• South Sudan• Tunisia• Ukraine• Venezuela• Yemen• Zimbabwe
Targeted Sanctions
• Russia
Sectoral
RiskTriggers
PositiveScreeningMatches
Whattolookfor?Matchesagainsttheclient,counterparty,vesselorarelatedpartythatcannotbediscounted
Matchesinvolvingpreviouslysanctionedpersonsorentities
Vesselscallingatportsincomprehensivelysanctionedjurisdictions
Wheretolook?
Sanctionsoradversenewsscreeningresults
OwnershipStructure
Shareholder,UBOorcontrolleroftheclient,counterpartyorvesselis:
vsanctioned;or
vincorporated,domiciledorlocatedinacomprehensivelysanctionedjurisdictionorajurisdictionsubjecttosectoralsanctions
The%shareholdingisirrelevant
• Sanctionsoradversenewsscreeningresults
• Shareholders/directorsregisters
• Financialstatementsorothercontinuousdisclosure
• Dunn&Bradstreetreports(orsimilar)• Yourfirm’sinternalcountryrisklist
CommercialorEconomicTies
Clientorcounterpartyhasoperations,customers,suppliers,agents,subsidiaries,branches,JV’s,investmentsorotherassetsincomprehensivelysanctionedcountriesorcountriessubjecttosectoralsanctions
• Financialstatements,continuousdisclosure,clientwebsite,pressreleases,Dunn&Bradstreetreports(orsimilar),etc.
AlsobeawareofWhereacombinationofthefollowingrisktriggersisidentifiedinrelationtoaclientorcounterparty,youshouldbealerttothepresenceofanydirectlinkstosanctionedcountriesorpersons,thatwouldwarrantfurtherinvestigation:
NeighbouringCountries
Clientorcounterpartycarriesonbusinessincountriesneighbouringcomprehensivelysanctionedjurisdictions
Example
CountriesneighbouringIranincludeTurkey,Azerbaijan,UAEandotherGulfStates
Wheretolook?
Financialstatements,continuousdisclosure,clientwebsite,Dunn&Bradstreetreports(orsimilar)etc.
CountrieswithCommercialties HigherRiskActivities
Clientorcounterpartyisincorporatedinacountrywithknowncommercialtiestocomprehensivelysanctionedcountries
Clientorcounterpartyisinvolvedinsectorsoractivitiesconsideredhigherriskfromasanctionsperspective
Example ExampleCountrieswithknowncommercialtiestoIran,include:• Turkey,UAEandotherGulfstates• China,India• EUcountrieslikeGermany,
Greece,Italy,AustriaandSwitzerland
• Energy(oil&gas)
• Defence• Commoditytraders• Shipping
Wheretolook?Wheretolook?
Financialstatements,continuousdisclosure,clientwebsite,Dunn&Bradstreetreports(orsimilar)etc.
Financialstatements,continuousdisclosure,clientwebsite,Dunn&Bradstreetreports(orsimilar)etc.
IdentifyingRiskTriggers:CaseStudy1
Yourfirm’scommoditiestradingdeskrequestsyoutoon-boardanewclient,HappyRainbowTrading(HRT).YouestablishthecompanyisaprivatelyownedoilrefinerylocatedinIndia.Afterreviewingthecompany’sfinancialstatementsandwebsite,youidentifythatthecompanyimportscertainamountsofcrudeoilfromtheNationalIranianOilCompany(NIOC).
PollQuestion1:
Whichofthefollowingisasanctionsrisktriggerthatwarrantsfurtherassessment:
(a) Thecompanyisprivatelyownedandhasasuspiciousname;(b) ThecompanyoperatesanoilrefineryinIndia;(c) ThecompanyimportscrudeoilfromNIOC;(d) Both(b)&(c)
IdentifyingRiskTriggers:CaseStudy1
WhileestablishingtheownershipstructureofHRTyouidentifythatRuvOil,aRussianstate-ownedoilcompany,isintheprocessofacquiringa51%shareholdinginHRT.YoufurtherestablishfromscreeningthatRuvOil isasanctionedentity.
PollQuestion2:
DoesthependingacquisitionbyRuvOil presentsanctionsriskexposuretoyourfirm?
(a) Yes(b) No
PollQuestion3:
WouldyouranswerchangeifRuvOil wasNOTasanctionedentity?
(a) Yes(b) No
IdentifyingRiskTriggers:CaseStudy2
Your firm’slendingbusinesswantstoextend aUSDloantoaGermanbasedcompanywith officesinBerlin andNewYork. Youdiscoverthata portionoftheloan maybe usedtofulfil acontractthecompany hasbeenawardedtoprovideenergymeterstoa utilitycompanyownedbytheIraniangovernment.The Germancompany’sEUlegalcounselhasconfirmedinwritingthat fulfillingthecontractwouldnotviolateEUsanctions.
PollQuestion4:
CitingtheEUlegalcounseladvice,andthefactthatthecompanyisbasedinGermany,yourinternalbusinesscontactadvisesthetransactionisgoodtogofromasanctionsriskperspective.
Doyouagree?
(a) Yes(b) No
IdentifyingRiskTriggers:CaseStudy3
Yourfirm’sinvestmentfundsdivisionwantstoon-boardaEuropean-basedcompanyasaninvestorintooneofitsfunds.Whileascertainingthecompany’sownershipstructure,youestablishitisusedasaprivateinvestmentvehicleforaRussianoligarch,whoholdsa30%interestinthecompany.YouconductscreeningonthisbeneficialownerandidentifythatheissanctionedbyOFAC.
PollQuestion5:
YourcontactinthebusinesssaysthatbecausetheRussianoligarch’sshareholdingiswellbelowthe50%threshold,youshouldnotbeconcernedfromasanctionsperspective.
Doyouagree?
(a) Yes(b) No
LookingForward:CanadianSanctions
• InApril2017,aCanadianSenateCommittee– theStandingCommitteeonForeignAffairsandInternationalDevelopment– publisheditsreportentitled,“ACoherentandEffectiveApproachtoCanada’sSanctionsRegimes:SergeiMagnitsky andBeyond”
• ThereportwastheculminationoftheSenate’smandatedreviewoftheFreezingAssetsofCorruptForeignOfficialsActandtheSpecialEconomicMeasuresAct
• Thereviewwasconductedvia15meetingswithsworntestimonyprovidedby42individuals,includingprofessors,industrypractitioners,regulators,lawenforcement,borderservices,citizenship&immigration,amongothers
LookingForward:CanadianSanctions
• Thereportsetout13recommendationstotheGovernmentofCanadatoimprovetheCanadiansanctionsregime,includingto:
• ensurethedifferentpiecesofCanadiansanctionslegislationoperateinacomplementaryandcoherentmanner
• providecomprehensive,publiclyavailablewrittenguidanceonsanctionscompliance
• createaconsolidatedCanadiansanctionslist
• ThereportstoppedshortofformallyrecommendingthecreationofaseparateagencytohandletheadministrationandenforcementofCanadiansanctionsmeasures(akintoOFAC),butitdidrecommendtheGovernment,“shouldproperlyresourceandreformthestructuresresponsibleforitssanctionsregime”andstatedthat:
“[T]heimplementationofsanctionsmeasures– andbyextensiontheeffectivenessofCanada’ssanctionsregimes– canbegreatlyimprovedbyrecognizingtheneedtocreateadedicatedsectionthatactsasadomesticregulatorforsanctionsmeasures…”
LookingForward:CanadianSanctions
• NewdraftsanctionsagainstIrancurrentlymakingitswaythroughtheSenate(CommitteereportpresentedonApril4,2017):
• “[whiletheadoptionoftheJCPOA]callsforthescalingbackofnuclearrelatedsanctionsagainstIran,terrorismandhumanrightsviolationsemanatingfromIrancontinuetooccurandsanctionstodetersuchconductmustbestrengthenedandmaintained”
Lookingforward:U.S.Sanctions
• Russia
• Despitepre-inaugurationconcernsthattheTrumpadministrationwouldeasesanctionsagainstRussiaunilaterally,theE.U.andU.S.havesincereconfirmedanyeasingofsanctionsagainstRussiaisdependentonitsfullimplementationoftheMinskagreementsanditswithdrawalofsupportforseparatistsinUkraine
• AsconfirmationofcontinuedU.S.stanceonRussiasanctions,theU.S.recentlydeniedExxonMobil’sapplicationforwaiverfromU.S.sanctions.ExxonMobilhadbeenseekingtoresumeanoilventurewithalargeRussianconglomerateclosetoRussianPresidentVladimirPutin
Lookingforward:U.S.Sanctions
• Iran
• JointComprehensivePlanofAction(JCPOA)wasagreementamongIran,P5+1andE.U.concerningIran’snuclearprogramandeasingsanctions
• EvenafterotherjurisdictionseasedIraniansanctionsafterJCPOAImplementationDayonJanuary16,2016,OFAC’sprimarysanctionsandU.S.exportcontrolregulationscontinuedtoapplytoanyIran-relatedtransactionsinvolvingU.S.nexus
• PresidentTrumphadharshcriticismoftheJCPOAduringhiscampaign,callingit“theworstdealevernegotiated”
• OnApril18,2017,theU.S.StateDept.certifiedtoCongressthatIranwasincompliancewithitsobligationsundertheJCPOA,butthatIranremainedaleadingstatesponsorofterrorandtheU.S.wouldreviewitsinvolvementintheJCPOA
• AsofMay3,2017,theU.S.SenateForeignRelationsCommitteewaspushingthroughabillforadditionalsanctionsagainstIranforthedevelopmentanduseofballisticweapons,supportforterrorismandhumanrightsviolations
Lookingforward:U.S.Sanctions
• NorthKorea(DPRK)
• TensionbetweentheU.S.andDPRKhassteadilyescalatedsincePresidentTrumpassumedofficeonJanuary20,2017
• DPRKhassincefiredseveralmissilesinviolationofexistingUNsanctions
• InApril2017,PresidentTrumpdeclaredthattheU.S.wouldbewillingtogoitalonetorestrainNorthKorea’snuclearweaponsprogram
• InMay2017,PresidentTrumpcalledKimJong-Una“smartcookie”andstatedhewouldbe“honored”tomeetwithhimundertherightcircumstances
• OnMay3,2017,SecretaryofStateRexTillerson saidtheU.S.wasworkingonmoresanctionstargetingDPRKdependingonitsactions
Lookingforward:U.S.Sanctions
• Venezuela
• TheU.S.hasexistingsanctionsmeasuresagainstVenezuelatargetingindividualsfordrugtraffickingandhumanrightsviolationsresultingfromanti-governmentprotestsin2014,aswellasagainstcertainsanctionsagainststateownedoilcompanyPDVSAovertradewithIran
• OnMay3,2017,VenezuelanPresidentNicolasMaduroannouncedhewouldseektorewritethecountry’sconstitution– criticshavecondemnedthemoveasa“powergrab”andtheU.S.announceditmayconsidernewsanctionsinresponse
Conclusion&Takeaways
• Sanctionsmeasureswillcontinueintotheforeseeablefutureasatoolusedbygovernmentstopursuevariousforeignpolicyobjectives
• Stayabreastofinternationalpoliticaldevelopmentstoassistinanticipatingpotentialgeographicandothertargetsoffuturesanctionsmeasures
• Formallyincludesanctionsriskaspartofyourfirm’sinherentriskassessmentprocess
• Integratesanctionscompliancemeasuresintoyourbroaderfinancialcrimecompliancemanagementframework,includingviatraining,creationandmaintenanceofaninternalcountryrisklistandaspartofinitialonboardingandongoingmonitoringprocesses
Questions?
JoelAmy,B.Sc.,LL.B.,CAMSSVPFinancialCrimeCompliance&
ChiefAMLOfficer,CanadaMacquarieGroup