With the global movement towards increased financial security that arisen in recent years, limiting the risks facing respective clients and institutions has become a top priority for all individuals working within the financial services industry. This development has also resulted in the evolution of compliance programs into an area of utmost importance for financial institutions around the world in the crusade against financial crime. These programs, if implemented and utilized correctly, have the power to significantly influence the daily operations of a respective institution in a positive manner, allowing a business to run smoothly with little fear of the possibility of negative repercussions in the form of civil penalties, reputational damage, and loss of credibility.
A specific branch of regulatory compliance that has become crucial in the maintenance of appropriate business practices is sanctions screening. Depending on the line of business you are in, sanctions compliance can become an area of potential risk for your institution. This makes the need for adequate sanctions compliance programs and solutions essential to reduce the likelihood of succumbing to violations and resulting monetary fines and penalties. While the Office of Foreign Assets Control (OFAC) does not mandate the implementation of a sanctions compliance program, nor determine the suitability of specific programs for a respective institution’s unique situations, OFAC does suggest that financial institutions “take a risk-based approach when considering the likelihood that they may encounter OFAC issues” (Quantity of Risk Matrix, 2016). Additionally, OFAC will evaluate an institution and the competence of its sanctions compliance program following a violation, and in doing so will determine the penalties that follow.
Recent Penalties Issued
Even with the profound amount of risk involved in this process, and the serious potential for compliance failures that can still occur with a sanctions compliance program in place, many institutions continue to operate without such programs, essentially playing Russian roulette with the health of their business and the security of their customers. This careless disregard for sanctions requirements has led to the enforcement of severe monetary penalties against businesses by OFAC in recent years. According to the U.S. Department of the Treasury, in 2014 a total of 23 penalties were issued to financial institutions in response to multiple violations found in their sanctions programs, totaling a whopping $1,209,298,807 USD (Resource Center, 2016). The largest total for a single institution that year was issued to BNP Paribas SA, totaling $963,619,900 USD for 3,897 apparent violations of sanctions regulations pertaining to dealings with multiple overseas countries. The summary of OFAC Enforcement Information for this case stated that “OFAC determined that BNP-P did not voluntarily self-disclose these apparent violations, and that the violations constitute an egregious case”, and that “for a number of years, up to and including 2012, BNP-P processed thousands of transactions to or through U.S. financial institutions that involved countries, entities, and/or individuals subject to multiple sanctions programs” for countries such as Sudan, Cuba, Burma, and Iran (Resource Center, 2016). Also in 2014, Commerzbank was forced to settle with OFAC their violations of OFAC regulations, dishing out $258,660,796 USD to cover their 1,596 apparent violations dating back to 2010, including the processing of thousands of transactions with countries and groups found on sanctions programs administered by OFAC.
The years 2015 and 2016 have seen a slight reduction in the number of severe penalties issued to non-sanctions compliant businesses, however sanctions compliance issues are still prevalent today. In 2015, a total of 15 penalties were issued by OFAC totaling $599,705,997 USD, and thus far in 2016, 9 cases have been reported equaling $21,609,315 USD in fines (Resource Center, 2016). The largest fines of 2016 have come within the last five months, as prominent United States companies such as Alcon Pharmaceuticals (which was charged with direct exportation of goods to Iran and Sudan), Ball Horticultural Company, and National Oilwell Varco, Inc., have accrued more than 50% of the aggregate sum of the penalties. These violations were undoubtedly impacted by improper sanctions compliance protocol, and OFAC takes this, as well as the lacking of a sanctions compliance program altogether, into account when determining the extent of the fines issued. For the fines seen in 2016, OFAC noted that the “lack of a sanctions compliance program at the time of the apparent violations was an aggravating factor in the calculation of the civil penalty” (Paner, 2016).
It is clear that in order to ensure your financial institutions security and to avoid crippling penalties similar to those seen above, a comprehensive and efficient sanctions screening solution is imperative. The Office of Foreign Asset Control indicates that while there is no prepackaged compliance program that fits the needs of every bank, “some packages are used to interdict sanctioned countries and names on the Specially Designated Nationals or other sanctions lists in wire transfers. Others are used to check the names of new customers or to routinely filter the names of all account holders” (Sanctions Compliance FAQ’s, 2016). Global RADAR Solutions offers each of the aforementioned services listed by OFAC in one complete, cost-effective solution that simplifies your watch list review and sanctions screening processes immensely. Our detailed Watch List Screening module is easily configured and quickly deployed, offering a complete case management tool to simplify the alert generation, routing and clearing processes, all while allowing for management of a variety of regulatory requirements.
Paner, Jeremy. “No Sanctions Compliance Program? Expect Significant OFAC
Penalties.” Holland & Hart’s Trade Sanctions Blog. 26 July 2016. Web.
“Quantity of Risk Matrix–OFAC Procedures.” U.S. Department of the
Treasury. 8 August 2016. Web.
“Resource Center.” Civil Penalties and Enforcement Information. U.S. Department of
the Treasury, 14 Nov. 2016. Web.
“Sanctions Compliance FAQ’s.” OFAC FAQs: Sanctions Compliance. U.S. Department of
the Treasury, 5 Aug. 2016. Web.