Robust Enforcement, Due Diligence Concerns Among Growing Sanctions Compliance Challenges, Lawyers Say

Sanctions compliance is increasingly presenting challenges to companies around the world as more countries turn to sanctions as a foreign policy tool, Baker McKenzie lawyers said. Some recent challenges include the growing emphasis on sanctions enforcement and the due diligence issues presented by countries with little publicly available information on ownership chains, the lawyers said.

Since leaving the European Union, the U.K.’s Office of Financial Sanctions Implementation has taken an “increasingly robust approach to enforcement,” said Julian Godfray, a London-based Baker McKenzie lawyer, speaking during a May 25 webinar hosted by the firm. Along with announcing a new OFSI director this year (see 2102090054), the agency has been “busy” updating and discussing a range of guidance documents to illustrate its compliance expectations to industry. OFSI is trying to ensure that its “messages around the U.K. regime and compliance are fully disseminated,” Godfray said.

And although Canada doesn’t publicize its sanctions enforcement work as often as the U.S. does, the country has been active at the border and looking to detain shipments that violate its sanctions and export control laws, said lawyer Brian Cacic, a Toronto-based trade lawyer “Folks often look at Canada’s sanctions program, and they often ask us, where are those headline stories of the companies getting prosecuted under a sanctions legislation?” he said. “I think sometimes that perhaps leads to a perception that our sanctions laws are not being enforced or investigated quite diligently.”

But Cacic warned companies not to “lead yourself into a false sense of security,” adding that he regularly hears about investigations being conducted by the Canada Border Services Agency. “Although we don't see the big headlines, we certainly know that there's an active investigations unit looking into these transactions with sanctioned countries,” he said.

Under the Biden administration, the U.S. has continued to target large financial institutions, said U.S. trade lawyer Meghan Hamilton. But recently the Treasury’s Office of Foreign Assets control has focused on digital money transfer companies, including BitPay (see 2102180029) and MoneyGram (see 2104300004), which were fined earlier this year about $500,000 and $34,000, respectively. “The biggest penalty cases still remain financial institutions that are processing transactions with some kind of sanctioned country or sanctioned party that touch in some way U.S. jurisdiction,” Hamilton said. “That's really where we continually see the bigger enforcement cases.”

She also said industry should expect the relatively slower sanctions pace under the Biden administration to continue, which has been a marked difference from the sometimes unpredictable and unilateral sanctions imposed by the Trump administration. She also said OFAC officials have been “very vocal” about their review of U.S. sanctions regimes that began earlier this year (see 2102230047) and have not rushed to change some regimes that many observers had expected would be quickly revised.

“We were thinking there would be a more immediate change with regard to policy towards Cuba. Haven't seen that. We were thinking maybe something different with regard to Venezuela right out of the gate. That didn't happen yet either,” she said. “So it’s just been a different approach certainly from the last administration.”

But Hamilton does expect the U.S. to continue to actively sanction the Belarusian government, which has already faced designations for its contested elections last year and alleged human rights violations. OFAC recently announced that it plans to revoke a general license that authorizes certain transactions with nine sanctioned Belarusian state-owned entities (see 2104190010). “I would say in the future we're going to see more designations, assuming the political situation stays the same,” she said. “I think that’s fair to say.”

The U.S., along with other countries, has also sanctioned the Myanmar military (see 2104080026) following its coup of the government earlier this year, and complying with those sanctions has been challenging, said Olof Konig, a Stockholm-based trade lawyer. Konig said companies are struggling to conduct due diligence because of the “lack of publicly available information,” in Myanmar, which can cloud ownership chains. “For those companies that are currently relying on the automatic screening programs … please be aware that that information is quite often not complete,” Konig said. “It's often required to collect information from your counterparties and other local sources in Myanmar in order to ensure that those partners that you're dealing with are not owned or controlled by” sanctioned entities.