Staying on top of the latest global sanctions and trade restrictions

Evolving international relations are creating constant changes in the imposition of sanctions, export controls and trade restrictions. To comply with know your customer (KYC) and pre-trade counterparty risk obligations, firms need to accurately identify entities subject to sanctions, export controls and trade restrictions. Further, they need to absolutely ensure they are not doing business with fully sanctioned entities or are obtaining the requisite export license where applicable. The consequence of non-compliance can be substantial resulting in severe penalties and reputational damages.

Over the last few years, the volume of penalties levied as a result of sanctions violations has grown significantly. This stems from an increased focus on the enforcement of sanctions and export control violations and evasions. For example, the Office of Foreign Assets Control (OFAC) issued civil penalties for sanctions violations in 2023 for nearly $567 million, which is more than thirteen times than the $71.5 million in penalties issued in 2018.  To avoid these penalties and keep up with the latest sanctions, export controls and trade restrictions, firms need access to comprehensive and timely data that has built in automated screening of entities and securities.

Speed and the need for details

To give a sense of how quickly sanctions information can change and the ripple effect of these updates, on May 19, 2023, following the G7 statement on Ukraine, OFAC added 22 individuals and 104 entities to its Specially Designated Nationals (SDN) list. To understand the full impact on entities and securities in an event like this, it requires analyzing a vast array of corporate hierarchy and ownership data. In this example, Bloomberg identified that 264 entities and 400 securities were impacted by analyzing all levels of the corporate hierarchy from the parent down to subsidiaries along with analyzing the respective ownership data based on the 50 Percent Rule. Without being able to analyze the complete corporate hierarchy of an entity subject to sanctions, firms can find themselves inadvertently violating sanctions which puts them at risk.

Bloomberg provides high-quality sanction data for entities and securities through the daily monitoring of sanctions in 10 global jurisdictions, including: the U.S., E.U., U.N., Canada, U.K., Switzerland, Japan, Australia, Hong Kong and Singapore. Bloomberg has a dedicated team of experts to ensure, often by working with local counsel, that legislation is interpreted correctly and data is promptly updated. Bloomberg’s Sanctions Data solution provides comprehensive coverage of entities subject to both explicitly stated sanctions and implicitly sanctioned entities based on ownership. Bloomberg covers more than 105,000 entities and close to 140,000 securities subject to sanctions in the ten jurisdictions globally.

Screening securities is already arduous for many firms, and screening funds increases this task exponentially. To help with this complexity, Bloomberg offers a Funds Exposure to sanctions solution which covers mutual funds and ETFs impacted by U.S., U.K., E.U. and Canadian sanctions. The solution leverages Bloomberg’s proprietary fund portfolio holdings data to look through to the funds’ constituents for more than 414,000 funds daily and identifies constituent level exposure to sanctions. Bloomberg has identified more than 80,000 funds that have exposure to sanctions at the constituent level.

Export controls and trade restrictions

In additions to sanctions, staying abreast with export controls and trade restrictions requires an extensive review of the entities listed and the impact on the securities in connection with these entities. For example, in August this year, the U.S. House Representatives Select Committee launched an investigation into U.S. investments into companies on some of the U.S. trade restriction lists. To ensure compliance with these kind of export controls, firms need to gather various trade restriction lists, ingest it in a systematic way, update their internal system, have an automated process to manage new information, translate what each list means for internal stakeholders and set policy around sanctions and export controls.

Recognizing the complexity of this kind of process, Bloomberg recently launched a new Compliance Screening solution, which provides comprehensive Export Controls and Trade Restrictions Data that allows firms to screen entities on several export controls and trade restriction lists in the U.S. Bloomberg identifies entities, or securities of such entities that are present on at least one of the following lists:

•  BIS Lists
•  UFLPA Entity Lists
• 889 List
• 1260H List
• FCC Covered List
• 5949 List

Ultimately, sanctions, export controls and trade restrictions pose a significant regulatory risk that cannot be ignored and need to be managed. A data driven approach combined with proper workflows, processes and controls can help to mitigate the risks substantially.

For more information on Bloomberg’s solution, please visit our website (https://www.bloomberg.com/professional/dataset/sanctions-data/) or contact your sales representative.