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The New Sanctions Compliance Challenge

How the right processes and systems can help corporate treasury mitigate risk.

By Bill North | Updated on February 01, 2018
Last summer, New Zealand aircraft manufacturer Pacific Aerospace was charged with breaking new United Nations sanctions after aircraft it sold to a Chinese company ended up on a runway in North Korea. The company pled guilty. It will be sentenced in January; penalties may take the form of substantial fines or imprisonment of up to 12 months for individual executives.

Sanctions filtering and “know your customer” are not just banking problems. Regulations are perpetually becoming more complex. Companies are expected to abide by all relevant laws in the places where they do business. For example, companies doing business in the United States must ensure they’re not doing business with any U.S.-sanctioned individuals or entities. In practical terms, this means companies should be scanning their customers, vendors, and any payments to or from those entities against the current published government watchlists. Often, companies leave this filtering to their financial institutions, but as Pacific Aerospace can attest, regulatory authorities usually fine the actual initiator of the transaction—the corporate—rather than the bank.

In today’s dynamic geopolitical environment, new trade restrictions and embargoes are emerging with increasing frequency. Sanctions have become an increasingly popular foreign policy tool for governments. What previously were relatively straightforward sanctions obligations and outright trade embargoes against persons or territories are increasingly taking a hybrid and nuanced form, permitting some specific types of commercial transactions but outlawing others. For example, trade may be permitted with companies in a specific sector, while trade with similar businesses is against the law.

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