Thematic sanctions: What do they mean for sanctions compliance?

In line with its allies in the US and the EU, the UK is shifting away from the traditional, country-based approach to sanctions and moving towards a more thematic framework.

This global change has caused waves within the regulated sector and in particular, within the financial services industry. However, on closer inspection, the practical impact on financial organisations is unlikely to be more onerous.

What are thematic sanctions?

Historically, sanctions have been geographically focused, targeted at individual countries or regions. In contrast, thematic sanctions are those built around a particular issue. Under the new autonomous sanctions regime, the UK now has nine thematic sanctions regimes relating to chemical weapons, domestic and international counter terrorism, cyber activity, global anti-corruption, global human rights, ISIL (Da?esh) and Al-Qaida, unauthorised drilling activities and freezing orders.

While thematic sanctions seem to be the buzzword of 2021, they have in fact been around for decades. For example, a vast number of individuals and entities have been designated by the US, EU and UK in respect of terrorism since the attacks of 11 September 2001. More recently, we have seen a similar joined up approach in respect of global human rights and anti-corruption sanctions.

Drivers of change

Sanctions authorities have recognised the increased flexibility which purpose or issue-based sanctions regimes provide. Implementing country-based sanctions necessitates adopting new legal frameworks for each country. In contrast, a thematic approach creates one umbrella framework under which offenders from any country can be sanctioned. Thematic sanctions also minimise the long-acknowledged human rights impacts on individuals within countries subject to geographic sanctions, who often already face extreme suffering as victims of war, terrorism or corrupt and oppressive governments. They also reduce the geopolitical tension associated with designating trade partners and allies. For these reasons, it is likely that we will continue to see an increase in the use of thematic sanctions.

What does this mean for you?

In some respects thematic sanctions simplify sanctions compliance. The fundamental approach for these types of sanctions is ?names on lists?, so long as organisations ensure their screening lists are up to date, new designations will be covered by existing sanctions screening processes. However, organisations will have to ensure they do not have any exposure to entities ?owned or controlled? by a person designated under these sanctions, where those entities are not designated in their own right.  Sanctions ownership research and due diligence tools will become increasingly important in this respect. Increased flexibility in implementing new designations means that sanctions authorities will be swifter to move and so list updates may need to be more frequent than some current IT systems are calibrated for.

Additionally, to date sanctions risks have been heavily weighted on geography, with the mention of a high-risk country acting as a red flag. Now, compliance teams will have to ensure they look beyond the country and region when assessing possible risks.

In this regard, we anticipate that adverse media will play a more important role in sanctions compliance at the point of onboarding and as part of ongoing monitoring. Where adverse media checks suggest that an individual or organisation may be involved in human rights abuses or corruption, for example, there is an increased risk that the individual or organisation will be designated under those thematic sanctions regimes at a later date. Adverse media screening has long been a key tool for anti-money laundering compliance and so again, organisations should not require significant investment or operational change to address this. If adverse media checks are already being performed in another function of the business, additional reviews for sanctions risks can be added to existing policies and procedures.

Financial services organisations should ensure they keep these issues in mind when reviewing their internal sanctions compliance programs, and, critically, their sanctions risk assessments. Early consideration of these issues will stand organisations in good stead as the global community embraces the move towards a thematic approach to sanctions.

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