Sanctions show no signs of abating, creating compliance pressure
Bloomberg Professional Services
Sanctions are used to apply economic pressure on governments that are viewed to be out of line with global norms. To be effective, sanctions need to be followed but compliance is not always straightforward. The intricacies of ever-evolving sanctions require firms to routinely perform a risk-based sanctions exposure assessment and ensure they have a reliable sanctions screening system in place. Adding to the pressure, the consequences can be significant even for inadvertent violations.
The Office of Foreign Assets Control (OFAC) in the United States publishes fines they have levied against non-compliant companies, which totaled over $1.54 billion in 2023. To further encourage and standardize compliance, in February 2024, the European Banking Authority (EBA) launched a public consultation on draft guidelines for sanctions compliance. These guidelines mandate that firms are required to maintain up-to-date policies, procedures and controls, and adequate and reliable sanctions screenings by the end of 2024. This includes, among other things, verifying whether an entity is subject to sanctions.
In the life of a multinational corporation, contending with sanctions
Companies with large client bases and sprawling supply chains need to be especially vigilant about any vendors they do business with to ensure they are accounting for the latest sanctions across the globe. For example, in the US alone, a large multinational would need to comply with both OFAC and the Bureau of Industry and Security (BIS) lists, which might sound easier said than done, as these lists are routinely updated.
On February 23, 2024, there was the largest one-day OFAC sanctions package levied against Russia, targeting more than 500 individuals and entities connected to the financial, defense and procurement sectors. To uncover all entities—explicitly and implicitly—subject to these new sanctions, Bloomberg analyzed its extensive corporate structure and subsidiaries databases revealing over 1,000 impacted individual entities. Additionally, BIS added 95 entries to the Entity List, not only including Russian entities but also entities providing support to Russia’s war effort. Without researching the various sanctions postings or combing through comprehensive sanctions data, these types of entities would be very difficult to identify.
In addition to complex sanctions requirements in the U.S., multinational companies and financial firms must also track European Union (E.U.) sanctions, which are also evolving. In February 2024, the E.U. adopted its thirteenth package of sanctions on individuals and entities. Again, this included Russian companies, but also companies providing support to Russia with an aim to limit Russia’s access to military technology. Rounding out geographies, any multinational firm would also need to contend with APAC sanction requirements and have a way to keep track of all these divergent and overlapping sanctioned entities.
Further complicating cross-border sanction requirements is that ownership does not suffice for identifying all potential exposure. An entity controlled by a sanctioned individual would expose itself to sanctions. While overlapping in many ways, separate restrictions have been put into place in Canada, Australia, and other jurisdictions.
Navigating this complex shifting landscape is a pressing challenge for firms today and “best efforts” are often not enough. An automated program that identifies sanctions exposures in real-time is ideal for firms looking to operate their business with as little overhead and with as much assurance as possible.
How can Bloomberg help?
To help clients streamline their compliance program and keep track of all sanctions globally, Bloomberg provides a comprehensive data solution available for enterprise-wide use.
Bloomberg’s global team of regulatory experts actively monitor official sector websites where new sanction packages are announced and use this intel to update Bloomberg’s Sanctions Data Solution as quickly as possible after the publication of new information.
The solution delivers several key pieces of data that are necessary to implement a robust compliance solution. Bloomberg provides a record of sanctions at the entity level to help identify all companies subject to sanctions. The corporate structure database maintained by Bloomberg allows for systemic identification of potential exposures, both explicit and implicit. Further, because of the extensive database of security-level data, Bloomberg can apply the sanctions at the security level. This is important as some sanction regimes differentiate between security types and issuance dates, so while an entity may be subject to sanctions, not all securities issued by those entities are necessarily subject to sanctions. Additionally, Bloomberg also provides look-through analysis for funds to identify exposure at the fund constituent level, which may pose regulatory risk to fund holders. Bloomberg’s data additionally maintains SOC 2 and SOC 3 certifications underscoring the firm’s commitment to data quality.
To learn more about Bloomberg’s Sanctions Data Solution, click here, or request a demo here.