IBM RegTech Innovations

Know Your Country: Keeping pace with the sanctions tsunami

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During the last few months, the current U.S. administration has repeatedly utilized economic sanctions to further its foreign policy objectives. This includes the withdrawing from the Joint Comprehensive Plan of Action (“JCPOA”) with Iran, designating a series of Russian oligarchs and government officials and entities owned by those individuals, imposing new sanctions to apply economic pressure on North Korea, unveiling unprecedented sanctions aimed at limiting the Government of Venezuelan from generating revenue and imposing novel, list-based sanctions on individuals throughout the world engaged in corruption and human rights abuses.

According to an analysis by the law firm Gibson Dunn, the current U.S. administration blacklisted nearly 1,000 people and entities last year. That is 30 percent more than were added in the previous administration’s last term year and tripling the number blacklisted during the first term year. The list of individuals and entities sanctioned currently runs more than 1,100 pages. It is possible to be delisted, but far more names are being added than subtracted.

While this policy helps further U.S. strategic goals without the need for direct military intervention – much of the onerous task of keeping up with and enforcing these policies falls on the financial institutions, requiring extensive due diligence to conform and adjust to the ever-changing and ever-growing list.

Non-compliance can be risky. Since 2009, the U.S. has brought about three dozen cases against financial firms for doing business with or handling funds linked to sanctioned countries and individuals –- primarily Iran, Sudan and Cuba – resulting in billions of U.S. dollars in fines and is expected to grow.

Furthermore, increase in sanctions has lead and will probably continue to lead to sophisticated schemes devised to circumvent these sanctions such as mirror trades in London, illicit money flows through Estonia and France.

And all indications appear that the sanctions regime will continue and increase in scope and scale. From the proposed Defending American Security from Kremlin Aggression Act (DASKAA) which was recently put forward in Congress, as well as expanding the Countering America’s Adversaries Through Sanctions Act of 2017 (“CAATSA”) possibly increase existing Russian sanctions with new provisions that target investors in Russian energy and oil projects, investors in new sovereign debt among other entities as well as further sanctions on Iran and Turkey.

But technology provides a solution to alleviate the burden of this constant regulatory change. IBM Financial Crimes Geographic Risk Insight embeds the best practices and regulatory insight from Promontory Financial Group, an IBM Company, to help financial institutions proactively assess and manage their exposure globally. Each country is assigned a risk score, a rank and a rating of high, medium or low based on cumulative weight of factors indicative of money laundering and terrorist financing. Rating compilations include: Comprehensive Coverage which provides geographic risk scores for 281 sovereign and dependent states analyzing 83 data points using either a U.S. or non-U.S. scoring model as well as Authoritative Sources which compiles data from 18+ third-party data sources and seeks guidance and feedback from regulators and leading financial institutions.

Knowing your country has never been so important in complying with the evolving regulatory climate and minimizing regulatory risks. But by understanding regulatory and reputational threats ahead of time, institutions can make informed decisions that keep them in regulators good graces and out of the headlines.

IBM Watson Financial Crimes Offering Manager

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