The dynamic nature of the global sanctions landscape is vividly illustrated when one considers Brexit, where the United Kingdom may be required to introduce an entirely new and independent sanctions regime once it has exited the European Union; or the United States, where there is increasing focus on secondary sanctions.
Financial sanctions are imposed to combat money laundering, terrorist financing and the development of weapons of mass destruction. Sanctions are primarily imposed by the United Nations, EU, US and UK. Such measures range from comprehensive economic and trade sanctions to more targeted measures such as arms embargoes, travel bans, financial or diplomatic restrictions.
As each country’s sanctions tend to be applicable to citizens of that country, and bodies formed or incorporated under the laws of that country, it is important to understand any obligations that follow from having links to another country.
Bermuda enforces the same financial sanctions imposed in the UK. Sanctions are generally brought into force under the International Sanctions Act 2003. The International Sanctions Regulations 2013 set out all the regime-related sanctions orders in force in Bermuda and are referred to as the Bermuda International Sanctions Regime. All individuals and legal entities who are within or undertake activities within Bermuda must comply.
It can be challenging to comply with multi-jurisdictional restrictions due to the frequency with which they change. It is therefore critical that businesses understand which regimes their entity must observe in addition to the sanctions imposed under Bermuda law. Merely dealing in a jurisdiction’s currency can bring a business within the scope of that jurisdiction’s regime.
Companies must review and test their sanctions screening system to ensure effectiveness, efficiency and responsiveness to the ever-changing sanctions regimes. It is a criminal offence to breach the obligations under the respective sanctions. Penalties for failure to comply vary but, upon conviction, they can include imprisonment and/or a fine. In addition to criminal penalties, non- compliance by an entity licensed by the Bermuda Monetary Authority can lead to regulatory action including cancellation of registration, public censure and a civil fine of up to $10 million.
Consequently, companies must identify and assess the relevant sanctions risks it may be exposed to, whether in respect of certain regimes or entities, and implement a sanctions screening programme proportionate with the company’s nature, size and complexity.
To be effective, consideration should be given to matters such as the company’s location and its proximity to sanctioned companies; the location of its customers; the volume of transactions and distribution channels; and whether the types of products and services offered represent a heightened sanctions risk, for example, foreign correspondent accounts, cross-border transactions, or trade-related products.
Two screening measures are commonly implemented, customer screening and transaction screening. Customer screening is intended to identify sanctioned individuals or entities during the on-boarding process and the lifespan of the customer relationship, while transaction screening is used to identify transactions involving sanctioned individuals or entities.
Together, customer and transaction screening that account for the relevant business specific matters previously mentioned can create a powerful system of controls that will identify targets of sanctions.
Notwithstanding this, screening alone is not sufficient to ensure complete compliance with obligations imposed under financial sanctions. Screening must be implemented alongside other financial crime risk prevention processes and as part of a wider compliance programme.
This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.