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Sanctions: How robust is your business compliance process?

Sanctions. What are the chances of your company being fined for breaching sanctions regulations? If I was betting man I would hazard a guess that unless your company has adopted a robust integrated approach to ensure it complies with Sanctions regulations, then it is exposed to this risk.

A number of prominent financial institutions have recently been back in the spotlight for sanctions violations and are now potentially facing more damaging publicity and possible fines despite having previously paid out substantial sums for breaching sanctions rules in the last 10 years.

When we hear about sanctions we tend to either think of news such as the U.S. seeking to impose further trade sanctions on Iran or we might think of a global financial institution being fined multi-million dollar penalties for violating sanctions.

It’s all too easy to feel detached and distant from these type of news events in our day-to-day jobs, however, sanctions regulations can and do affect us all. Whether a breach is intentional or not, it can lead to a hefty fine, or worse, imprisonment for the individuals involved and responsible.

The regulatory authorities are increasingly turning up the heat on financial institutions who violate sanctions and embargoes, and the insurance sector is no exception. Since 2010, UK and U.S. enforcement agencies have now issued over $U.S. 14 billion worth of fines¹ against financial services companies.

Ignorance is no excuse

So now we know that Sanctions obligations apply to everyone, it is also important to appreciate that misinterpreting the applicability of the UK´s Office of Financial Sanctions Implementation (OFSI), the U.S. Office of Foreign Assets Control (OFAC) and UN sanctions regulations will not avoid penalties being imposed.

All insurance companies, of course, must now clearly understand their legal and regulatory obligations to comply with all relevant sanctions authorities. The responsibility to comply sits squarely with the company and its staff, and failure to comply could lead to reputational and financial damages as well as possibly negative individual consequences for those involved.

In the UK, OFSI, part of the HMT Treasury, is the regulatory body tasked with enforcing the sanctions regime. A breach of country-specific sanctions can lead to seven years in prison, unlimited fines and regulatory actions. OFSI provides a list of financial sanctions imposed in the UK by country, administration or terrorist group.

However, the obligation to comply is not restricted by location or geography. In the U.S., OFAC will investigate sanctions violations irrespective of where the breach occurred and where it believes the violation imposes a threat to U.S. national security.

Know your customer

With London as the epicenter of the financial and insurance sectors, many foreign companies have established an office in the capital. These organisations must comply with UK legal and regulatory requirements and also U.S., EU and UN sanctions regulations.

The recent high profile statement from the U.S. announcing its intention to leave the 2015 Joint Comprehensive Plan of Action (JCPOA), commonly known as the Iran Nuclear deal, is a good example of how changes to Sanctions can have a major impact on who and where companies choose to conduct their business.

Under the previous agreement in 2015, Iran agreed to curb its nuclear activity in return for the lifting of sanctions imposed by the UN, U.S. and EU and therefore allowed non-Iranian companies with a valid license to commence trading again with Iran. Being one of the largest oil producers in the world, Iran is a major exporter oil and a popular trading partner for many foreign companies. Whilst the U.S. is not a major importer of Iran’s oil, foreign companies and other countries that continue to deal with Iranian companies will now potentially face U.S. sanctions if they fail to reduce or end their trade after the wind-down period.

Understanding who you are doing business with and whether the company and the authorised individuals are on any of the sanctions lists is now a central compliance obligation. Financial compliance now requires that insurance companies conduct their own comprehensive due diligence on every customer they wish to conduct business with.

The OFSI and FCA obligations apply to Broker led business as if you were transacting directly with the end customer and these obligations not only exist at the point of sale but also need to be refreshed regularly to ensure your customer´s sanctions clearance has not changed or altered since you last conducted due diligence.

To help our clients ensure they can adhere to the regulations AdvantageGo has launched a Sanctions screening service which is designed to help clients by automating the process of checking names for potential hits against the designated lists that may require further compliance investigation or due diligence checks. The Sanctions Service is available as a fully system-agnostic Microservice that can be integrated into any platform or system or is available as a fully integrated service within the AdvantageGo Navigator Policy administration system. To find out more about this service please visit our Microservices page.

Understanding and ensuring your business remains compliant with the authorities is now an essential part of any insurer’s fiduciary responsibilities.

Sources:

1. Sanctions and the Insurance Market: Putting in place an effective compliance programme, September 2016, PwC

Sanctions resources

Office of Financial Sanctions Implementation, HM Treasury

Financial Conduct Authority

Office of Foreign Assets Control