Safeguarding against International breaches – Establishing Global/Local programmes

Speech in Copenhagen at the InsightFinance AML Conference 8-9 October 2019

There is currently a clear lack of understanding of the true cross-border threat of US sanctions – which implicitly include AML and CTF violations.

The principal misunderstanding is that the US sanctions regime is similar to the UN and EU approach, which is extremely misguided. This is because the US adopts an integrated Sanctions, AML and CTF approach. The key word here is integrated. The US approach operates in cross-border fashion, with severe financial penalties and exclusions in the event of US sanctions breaches.

Worse still, the burden of proof for US sanctions fines is extremely low in global terms. Mere “apparent violations” of US sanctions are sufficient to warrant US authorities forcing major settlements and penalties, and this can occur outside the US, involving non-US dollar transactions and with non-US based firms.

As the EU, the UN and the US do not have aligned approaches, and the US is easily the most aggressive regime, this represents a major threat for non-US firms who will face the harshest US penalties if they do not get in line with the US.

The US has the only credible, integrated Sanctions and AML/CTF programme, and is extremely powerful and far more of a threat than any other multilateral, regional or national Sanctions or AML regime around the world.

One should note that US enforcement agencies are fully coordinated, and there is largely a unilateral-driven approach to policy. In contrast to the EU or the UN, whose efforts have been challenged by a far less coordinated approach in terms of implementation and enforcement. This is due to the need for multinational consensus across numerous member states required by the EU and UN, unlike the US which can operate unilaterally far more easily.

Jurisdictions, governmental, corporate and non profit organisations, as well as individuals risk facing major million/billion dollar settlements from the US, possibly being cut off from US dollars and the entire US market, and major shareholder lawsuits. From 2008-2018, the US issued 91% – in terms of value some $23.52bn – of all KYC, AML, CTF and sanctions-related fines around the world. This included many multi-billion dollar fines as well as actions which led to firms closing down, and entire jurisdictions and firms being cut off from the US dollar and US market.

If non-US firms do not adopt a globally applicable, OFAC sanctions and AML/CTF strategy, they will face major financial penalties from the US – or worse. Currently, there is no workable legal protection from US enforcement globally, and even EU Blocking Statute efforts have proven ineffective.

The current EU sanction on the US claims to deny the US authority to apply its laws with extra-territorial effect – but this has had little impact to date. The best example of the lack of defence came in the 2014 BNP Paribas case, where the French bank was fined $8.9bn in 2014 for US sanctions breaches, despite stating that they had broken no EU nor French laws. The problem is mainly that non-US companies are not used to dealing with extra-territorial international law – which works against international law norms but is very real.

Any connection to US-“designated”, or US-sanctioned, individuals, entities, governments, jurisdictions or transaction types will inevitably lead to breaches of US sanctions policy. It cannot be assumed that US policy is aligned with other major actors, so conflicts are inevitable and must be addressed.

The most workable, real-time solution is to prioritise US sanctions law over others from a risk assessment perspective – as the US represents the greatest threat. This can then be factored into a proper risk/reward paradigm.

US sanctions penalties represent a very real risk, but the US has indicated that a willingness to comply will be taken account of as a mitigating factor in any potential breaches of US sanctions. Therefore non-US players should treat compliance with US sanctions as a major priority.

Moreover US regulatory authorities such as OFAC are actively encouraging non-US players to respond dynamically to the situation and pre-emptively adopt measures to incorporate the integrated US Sanctions regime.

This means that firms must heighten the US sanctions threat as a major element in their risk/reward paradigm and risk assessments, highlighting these factors as a primary, existential business risk. This should sit at the very forefront of any organisational goal-setting and be driven, top-down, from Board level.

High level input and training from Board level down is the most effective way to spread the word and safeguard against major US sanctions breaches. This can be done as a step towards integrating a full local/global policy, which can be easily adopted by entities of all sizes.

Global awareness and implementation of integrated US Sanctions/AML/CTF policy is required…!