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Berezansky Vladimir Trade Sanctions Risk Mitigation Overview

  1. 1. Trade Sanctions Risk Mitigation Overview Vladimir Berezansky May 2016
  2. 2. Page 2 Presentation Overview: ► Sanctions – a brief review of what and why ► Comprehensive vs. sectoral sanctions ► Legal authority ► Sanctions Gridlock ► Sanctions vs. AML/KYC ► Sanctions Regimes as Moving Targets ► Sanctions for Non-Financial Institutions ► Recent Sanctions Violations – FIs ► Recent Sanctions Violations – NFIs Trade Sanctions Risk Mitigation Overview
  3. 3. Page 3 What are sanctions? ► ‘The withdrawal of customary trade and financial relations for foreign and security policy purposes’ ► An economic means for conveying a political/diplomatic message ► Either an end in itself: e.g., occupying a middle ground between diplomacy and war ► Or supportive of other goals: e.g., trading with the enemy sanctions, dual-use technology controls Trade Sanctions Risk Mitigation Overview
  4. 4. Page 4 Intended Purpose: Why Sanctions? ► Intended purpose: ► Coerce ► Deter ► Punish ► Shame ► To advance specific foreign policy goals consistent with globally recognised norms of proper conduct: ► Anti-Money Laundering/Counter-terrorism ► Counter-narcotics ► Non-proliferation ► Human rights promotion ► Cyber security Trade Sanctions Risk Mitigation Overview
  5. 5. Page 5 Comprehensive vs. Sectoral ► Comprehensive: blanket prohibition of commercial relations; e.g., Cuba, Iran (until recently), North Korea ► Sectoral: designed to target specific activities, persons and/or entities ► Modern history of sanctions: Gradual evolution from comprehensive (blunt) toward sectoral (precise) sanctions regimes ► At least in theory, sectoral sanctions are more interactive, coercive Trade Sanctions Risk Mitigation Overview
  6. 6. Page 6 Legal authority for sanctions ► United Nations: UN Security Council can impose mandatory sanctions; member states are required to adopt implementing legislation; commercial entities must comply ► European Union: applies sanctions within the Common Foreign and Security Policy ► Applied on autonomous EU basis, or ► Implements UN Security Council Binding Resolutions ► United States: ► Federal laws (passed by Congress) ► Executive (presidential) Orders ► ‘Pick & choose’ – Switzerland, Canada, Australia, Japan Trade Sanctions Risk Mitigation Overview
  7. 7. Page 7 The Result: Sanctions Gridlock ► Especially for multinational companies heavily engaged in cross- border business activities, the possibilities for inadvertently violating an applicable sanctions control are myriad. ► Many ‘permanent’ sanctions lists are frequently updated; e.g., OFAC lists ► When names of persons or entities are removed from relevant sanctions lists, the sanctions monitor must be timely informed so as not to prohibit a compliant transaction. ► When names of persons or entities are added to relevant sanctions lists, the sanctions monitor must be timely informed so as not to permit a non-compliant transaction. ► The sanctions monitoring function operates between this mirrored pair of threats. Trade Sanctions Risk Mitigation Overview
  8. 8. Page 8 Sanctions vs. AML/KYC ► AML/KYC is an extremely important Compliance function; but if Compliance properly aligns its risk appetite and risk management profiles, the consequences for the overall organisation are properly mitigated. ► One or even two bad apples can slip through a properly gauged and implemented AML/KYC programme that makes proper use of risk- based monitoring. ► For sanctions monitoring, one mistake is one too many. A single violation of an applicable sanctions regime can have dire consequences for all concerned. ► Sanctions monitoring is analogous to a government’s anti-terrorism programme: The anti-terrorist forces need to get it right every time; but the terrorist needs to get lucky only once. ► Unlike AML/KYC Compliance, sanctions monitoring is a zero-sum game: ‘I win, you lose’ or ‘You win, I lose’ Trade Sanctions Risk Mitigation Overview
  9. 9. Page 9 Sanctions Regimes: Moving Targets ► As sanctions are an economic means of enforcing political/diplomatic agendas, sanctions regimes change in sync with changes in the political-diplomatic landscape. ► Iran, Cuba, Burma and Belarus: sanctions regimes gradually easing (or expected to in near future) ► Russia: the applicable (US/EU) sanctions regimes are regularly enhanced with the addition of new names ► This dynamic complicates even further the mirrored pair of threats between which the sanctions monitor operates. Trade Sanctions Risk Mitigation Overview
  10. 10. Page 10 Sanctions for Non-Financial Institutions ► Non-Financial Institutions (NFIs) do not get a free pass; to the contrary, NFIs may have even more perilous terrain to navigate than banks. ► Financial Institutions (FIs) operate in a highly regulatory environment. Whether or not they like it, Boards of FIs know that a robust compliance programme is the sine qua non for maintaining the trust of their regulators and staying in business. ► With certain well-known exceptions – e.g., pharmas, auto, aviation, telecoms – NFIs tend not to perceive ‘compliance’ as such to be a relatively major overall priority. Trade Sanctions Risk Mitigation Overview
  11. 11. Page 11 Sanctions for Non-Financial Institutions (cont’d) ► This inadequate or improperly gauged threat assessment leaves NFIs susceptible to being blind-sided by sanctions violations. ► Even NFIs that do maintain a robust compliance function streamlined for their specific industry sector may not be properly equipped for the painstaking and subtle nature of adequate sanctions monitoring. ► In this context, retaining the expertise of qualified third- party consultants can provide vital insights into otherwise overlooked and/or underestimated potential exposures to violations of sanctions regimes. Trade Sanctions Risk Mitigation Overview
  12. 12. Page 12 Recent Sanctions Violations – FIs ► US$8.9bn – BNP Paribas – June 2014 (largest sanctions fine in DOJ history) ► BNP pled guilty to criminal charges of multiple transactions with Sudan, Iran and Cuba ► French President Hollande personally protested the size of penalty to US President Obama ► US$1.3bn (plus US$665mn in civil penalties) – HSBC – December 2012 ► Per terms of Deferred Prosecution Agreement (DPA) ► Found to have completed transactions on behalf of clients in Cuba, Iran, Libya, Sudan and Burma ► US$787mn – Crédit Agricole – October 2015, for illegal funds transfers, mostly to Iran ► US$619mn – ING – June 2012, for alleged transactions with Cuban and Iranian entities amounting to billions of dollars ► US$536mn – Crédit Suisse – December 2009, CS employees were alleged to have trained Iranian clients how to falsify transfer instructions to avoid triggering US transaction monitoring filters ► US$350mn – Lloyds TSB – January 2009, for transactions with Iranian clients by manipulating correspondent bank accounts so as to evade detection ► US$298mn – Barclays – August 2010, for allegedly stripping wire transfers for clients in Cuba, Iran, and other sanctioned countries ► US$258mn – Deutsche Bank – November 2015, for violating sanctions in both Syria and Iran ► US$227mn – Standard Chartered – December 2012, for stripping identifying information from wire transfers for customers in Iran, Cuba and Burma Trade Sanctions Risk Mitigation Overview
  13. 13. Page 13 Recent Sanctions Violations – NFIs ► US$4,073,000 – Epsilon Electronics – March 2014, civil penalty levied by Office of Foreign Assets Control (OFAC) for violations of Iran sanctions regime ► US$614,000 – CGG Services, SA – February 2016, for violations of Cuban Assets Control regulations ► US$304,000 – Halliburton – February 2016, for violations of Cuban Assets Control regulations ► US$250,000 – Johnson & Johnson – January 2016, for violations of sanctions against Sudan ► US$141,000 – WATG Holdings, Ltd. (UK) – January 2016, for violations of Cuban Assets Control regulations ► US$123,000 – Barracuda Networks (USA) – November, 2015, for violations of sanctions regimes for Iran and Sudan ► US$97,500 – Gil Tours Travel – US$43,000 – October 2015, for violations of Cuban Assets Control regulations and for facilitating travel to Cuba Trade Sanctions Risk Mitigation Overview
  14. 14. Confidential — all rights reserved © Ernst & Young LLP 2016 [TBU] 14 Background ► Vladimir is the one of the first foreign professionals to bring Western (US, UK, EU) regulatory compliance leadership to the Russian/CIS/CEE financial services market. He has more than fifteen years work experience in Russia/CIS and Eastern Europe, as well as Cyprus, Switzerland and London’s financial markets. ► Vladimir is a recognised expert in structured off-shore Russian wealth, including how and why these specific strata of global off-shore wealth were created, their legitimate uses, and indicia of suspicious and/or potentially illegal uses. Most recently, he has been presenting a series of seminars on relevant changes in Russian and other legislation that have caused off-shore Russian structures to reconfigure and often relocate their activities. Professional experience Mr. Berezansky’s expertise includes the following areas of corporate governance, due diligence and compliance: ► Due diligence on Russian/CIS/CEE cross-border holding structures; ► Analysis/assessments of off-shore (tax haven) structures, family offices, SPVs ► Challenges presented by Russian HNWI clientele ► Integrity Due Diligence – dossiers on high-profile (PEP, HNWI) Russians and other Russian speaking nationals ► Expert support to civil disputes (litigation, arbitration) involving Russian oligarchs in US/UK/EU courts ► Review and analysis of Russian/CIS/CEE banking, financial and corporate Compliance infrastructures; ► Gap analysis and similar (e.g., dashboard) assessments of internal policies and protocols as measured by global best practices, US/UK regulatory standards, and local regulatory requirements; ► Russian trade sanctions expertise and experience ► Anti-bribery/anti-corruption expertise and experience Education Bachelor’s (Linguistics), Columbia University (New York); Juris Doctorate (JD), international private law, Washington College of Law, The American University (Washington, D.C.), ► Federal District (Washington, D.C.) Bar (license) ► Russian broker-dealer license (1,0 Certification) ► Regular speaker at conferences, graduate (business and law) schools; meetings with financial regulators ► Languages spoken – English, Russian, French and German Vladimir Berezansky Compliance Thought Leader Fraud Investigation and Dispute Services (FIDS) EY Mobile: + 44 7500 112 534 Email: VBerezansky@uk.ey.com
  15. 15. EY | Assurance | Tax | Transactions | Advisory Ernst & Young LLP © Ernst & Young LLP. Published in the UK. All Rights Reserved. ED None The UK firm Ernst & Young LLP is a limited liability partnership registered in England and Wales with registered number OC300001 and is a member firm of Ernst & Young Global Limited. Ernst & Young LLP, 1 More London Place, London, SE1 2AF. ey.com