As banks increasingly interact with customers across the globe, they must remain mindful of evolving international sanctions laws. Recently, Bloomberg reported that the Department of Justice (DOJ) sent subpoenas to Credit Suisse and UBS in relation to an investigation into whether banking professionals helped Russian oligarchs evade U.S. sanctions. The requests for information from the Swiss banks came shortly before Credit Suisse sank into crisis and before UBS offered to take over its troubled rival. This situation underscores the importance of compliance with sanctions laws globally and how it affects banks and their clients who may be evading such sanctions. Let’s explore these issues further.
What are Sanctions?
Sanctions are regulations enforced by governments that restrict or prohibit certain activities between countries or individuals. Generally, there are three types of sanctions – economic, political, and diplomatic – each with its own purpose and scope of application. The purpose of economic sanctions is to limit financial activities or block access to financial resources; the purpose of political sanctions is to pressure a government or a particular leader into changing policies; while diplomatic sanctions involve restrictions imposed on diplomatic relations between two countries.
What Are The Risks Of Evading Sanctions?
There are several risks associated with evading sanctions, including criminal penalties as well as reputational damage for both individuals and corporations involved in such activities. In addition, large fines may be imposed by regulators if violations are detected by authorities or if banks fail to comply with applicable regulations when carrying out customer due diligence procedures or other internal control measures related to compliance with the relevant legislation.
Furthermore, banks may face operational risks if they become involved in activities that could lead them to be exposed to potential litigation from third parties affected by such activities. For instance, in March 2020 Credit Suisse was hit with a $10 million fine for violating US sanctions after it processed payments from Iran’s central bank despite being aware that doing so was prohibited under US law at the time.
Finally, there is also a risk that transactions involving sanctioned countries could be subject to extra scrutiny by regulators which could lead to longer processing times for transactions and/or additional costs due to increased compliance requirements imposed on institutions performing such services (e.g., additional reporting). In addition, banks may also be subject to “de-risking” when they decide not to process transactions involving sanctioned countries due their heightened concerns about potential regulatory actions resulting from such activities which could lead them avoid business relationships involving those countries altogether.
It is essential for banking professionals across all industries—and especially those interacting with customers globally—to understand how compliance with international sanctions impacts their day-to-day operations and how any violations can result in serious repercussions both legally and financially for all involved parties. Banks must ensure that they have adequate controls in place within their organizations—such as proper customer due diligence procedures—in order to protect themselves from potential liabilities related to non-compliance with applicable rules governing cross-border transactions including those related to international sanctions laws. Doing so will help ensure that customers receive timely services without having worry about potential legal issues arising from engaging in prohibited activities overseas. By taking these precautions seriously now, banks can better protect themselves against future legal issues stemming from non-compliance with international sanction laws moving forward.
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