It is important to note that the jurisdiction of interest is the United Kingdom. Sanction compliance risk evaluation and reporting of suspicious activities are essential obligations under UK law on money laundering. The Office of Financial Sanctions Implementation (OFSI) is the regulatory authority on sanction compliance and reporting, whereas the National Crime Agency (NCA) is relevant for internal affairs. The risks of the cases include under-screening of the clients and failure to report suspicious activities.
The name of the selected jurisdiction for the response is the United Kingdom. Sanctions compliance is one of the most critical elements within the context of international sanction measures. To ensure the latter, it is vital to conduct a sanctions screening to identify violations in terms of prohibited business activities and dealings with the sanctioned parties. Therefore, the assessment and evaluation of key risk factors and problems in the given context need to look into regulated firms operating under the UK jurisdiction. It is stated that “sanctions screening involves screening individuals, groups or companies against designated sanction lists according to the territories in which an organization trades, the currencies they trade in, and their partnerships and alliances” (“Sanctions Screening: A Best Practice Guide” par. 6). In other words, it is up to each organization to make sure that they are complying with sanction restrictions and measures.
The first identifiable risk is the most evident one, which includes customers. The United Kingdom has a list of sanctioned entities and markets, which need to be avoided by the businesses operating in the UK jurisdiction in order not to be penalized and fined. The sanction screening process requires businesses to ensure that none of their direct customers are from the sanctions list or closely affiliated with these parties. The second identifiable risk involves associates and an extended supply chain. It is stated that “firms must ensure that they carry out effective sanctions screening, not only on direct third parties but also their associates, beneficial owners and the extended supply chain” (“Sanctions Screening: A Best Practice Guide” par. 5). Therefore, businesses must screen for both the sanctioned entities as well as the associates and supply chain links on the way to these prohibited recipients.
To be effective at evaluating these risks, it is critical to consult HM Treasury Sanctions List within the UK jurisdiction. The document includes an extensive list of sanctioned individuals, companies, groups, and entities from nations, such as the Russian Federation, North Korea, Afghanistan, Congo, and others (United Kingdom, HM Treasury, “Consolidated List of Financial Sanctions” 190). Another potential risk is under and over-screening, which pertains to the balanced approach. The under-screening can result in false negatives, which means that sanctioned parties are not identified and isolated. However, over-screening creates false positives, where “non-sanctioned entities are flagged as potentially sanctioned. These false positives need time and resources to remediate to confirm they are not sanctioned” (“Sanctions Screening: A Best Practice Guide” par. 8). The evaluation reveals that having adequate customer data and automating the process through machine learning enables a higher degree of accuracy.
Moreover, there is an equivalency risk of sanctions screening, where one cannot rely on a third party’s compliance with sanction measures. In the UK, organizations must screen their partners and collaborators as well to ensure that they are not violating the sanctions. It is stated that “whilst previously commonplace, relying on a third party for sanctions compliance or ‘equivalence’ is no longer acceptable” (“Sanctions Screening: A Best Practice Guide” par. 9). Therefore, all of the transactions and interactions need to be assessed and screened, which includes the equivalent parties.
Divergence is a risk that takes place when different sanctions are imposed by divergent bodies. It is stated that “when transacting with an entity sanctioned by one body but not another, you should exhibit extra caution and implement additional controls” (“Sanctions Screening: A Best Practice Guide” par. 10). The evaluation of the risk reveals that best methods to ensure sanction screening effectiveness and compliance is to have good data, utilize proven technology, and use sanctions data. In the UK jurisdiction, all of these risk elements are present, which is why businesses need to prepare their customer data first by organizing and processing them for convenient use. Only proven and effective sanctions screening instruments must be utilized to ensure reliability. The screening needs to be conducted against the comprehensive sanctions list data provided by the HM Treasury Sanctions List.
The name of the selected jurisdiction for the response is the United Kingdom. When it comes to customers with ties to the Russian Federation, the implications of an incomplete investigation of sources of funds and wealth are significant. The UK Financial Intelligence Unit has an extensive list of sanction evasion activities, which can be utilized to assess the identified customers. An example of indicators of sanctions evasion risk is “Russian clients communicating changes to the beneficial ownership of their private investment companies (PICs) to non-Russian or dual national family members” (“UK sanctions regime” par. 5). Another example involves “requests to transfer assets between Russian national/dual-national family members” (“UK sanctions regime” par. 5). Therefore, the mere fact that the sources of wealth and funds were not established indicates an under screening within the sanction screening process.
One major implication of sanction non-compliance and poor sanction screening is CompCo working with sanctioned clients or their associates. It is stated that “Russian high net worth individuals who are already on international sanctions lists (but not UK list) and/or who anticipate they may become a sanctions target, transferring assets to … close associates” (“UK sanctions regime” par. 5). Since the sources of their resources are unknown, they can pass the direct sanctions screening measures at the company, but still be the prohibited customers. In other words, CompCo has a high risk of being punished for the violation of the sanction measures due to poor screening and investigative procedures. CompCo should have submitted the Suspicious Activity Reports (SARs) on the identified clients with links to Russia following the Sanctions Act. It is stated that “this requirement applies to relevant firms in the UK or under UK jurisdiction including individuals working for them” (United Kingdom, HM Treasury, “UK Financial Sanctions” 21). Since CompCo operates under the jurisdiction of the United Kingdom, it is critical to report duly and promptly.
There are four implications of such actions, which include monetary penalties, serious crime prevention orders (SCPOs), deferred prosecution agreements (DPAs), and custodial sentences. It is stated that the OFSI “has the power to impose monetary penalties for breaches of financial sanctions under powers in the Policing and Crime Act 2017” (United Kingdom, HM Treasury, “UK Financial Sanctions” 45). In addition, the OFSI may impose offenses under the category of SCPOs and DPAs. The latter applies to firms located in Wales and England, whereas the former is comprised of targeted prohibitions and extensive restrictions. Lastly, custodial sentences can be carried out concerning any UK business with “a maximum of 7 years imprisonment” (United Kingdom, HM Treasury, “UK Financial Sanctions” 44). Therefore, CompCo must investigate, analyze, and establish the sources of funds and wealth of the identified Russia-linked clients to ensure sanction compliance.
The name of the selected jurisdiction for the response is the United Kingdom. In the case of clients becoming aggressive and defensive about more information collection, the implications of sanction non-compliance are more severe compared to the potential loss of these customers. In addition, if these clients are identified as sanction-eligible individuals, they have no say in their assets being frozen for further notice from the authorities. The facts presented in the bullet point constitute the prevention and hindering of the adequate and justified sanction screening process. CompCo has reporting obligations under the Sanctions Act to “inform OFSI as soon as practicable if they know or reasonably suspect a person is a designated person or has committed offenses under financial sanctions” (United Kingdom, HM Treasury, “UK Financial Sanctions” 21). The reporting should include information based on suspicion, identifying information about the persons, reasonable causes, as well as the number of funds and economic resources involved (United Kingdom, HM Treasury, “UK Financial Sanctions” 21). Any form of hesitancy from CompCo must be consulted with independent legal advice providers to ensure the absence of violations.
The implications are significant in terms of potential penalties, fines, and criminal charges in the case of a violation. Since CompCo is a financial service firm, it falls under the category of Part 4A of the Financial Services and Markets Act 2000 (FSMA 2000) of the Sanctions Act (United Kingdom, HM Treasury, “UK Financial Sanctions” 21). The penalties can range from monetary penalties, serious crime prevention orders, and deferred prosecution agreements to custodial sentences (United Kingdom, HM Treasury, “UK Financial Sanctions” 45). The case is a clear demonstration of the under-screening within the mandatory sanction screening process, and the hindrance caused by the clients is no justification for the halted data collection. Non-compliance from the aggressive customers should have been reported as SARs to the OFSI as soon as possible.
The name of the selected jurisdiction for the response is the United Kingdom. When it comes to businesses that involve different entities and the lack of information, CompCo is at risk of sanction non-compliance due to poor sanction screening. In the case of an inability to investigate clients further, it is critical to report to the OFSI the suspects and suspicious activities involved. It is critical to report the barriers for further data collection since it constitutes a basis for a valid suspicion. The report is especially mandatory due to CompCo being a financial service firm, which falls under the category the Part 4A of the Financial Services and Markets Act 2000 (FSMA 2000) of the Sanctions Act (United Kingdom, HM Treasury, “UK Financial Sanctions” 21). The compliance analyst and relationship managers (RMs) are obliged to report such cases by including information based on suspicion, identifying information, reasonable causes, as well as the number of funds and economic resources involved (United Kingdom, HM Treasury, “UK Financial Sanctions” 21). The failure to do so jeopardizes the company’s position and adherence to the sanction regulations.
The facts reveal that not only CompCo is showing sanctions non-compliance by under screening, but additionally violating the equivalence element. The managers and the company is operating as if the equivalence is still acceptable as it was in the past. However, this no longer holds due to changes in the sanction regulatory changes. It is stated that “firms should seek the advice of their professional advisers, where appropriate” (“Sanctions Screening: A Best Practice Guide” par. 6). A hesitancy to report to the OFSI needs to promptly act upon either a direct reporting or consultation of a professional advisor on the matter. SARs on the RMs should have been submitted to the National Crime Agency under the Proceeds of Crime Act 2002 (United Kingdom, HM Treasury, “UK Financial Sanctions” 29). SARs on the poorly investigated clients should have been submitted to the OFSI, and legal professionals should have been sought.
The name of the selected jurisdiction for the response is the United Kingdom. Although the first two sections primarily dealt with clients, and the third one was about both clients and RMs, the last section involved the company only. The fact that there is a small number of internal money laundering reports proportionate to the firm’s size does not justify conducting reporting. Further investigative analysis needs to be conducted by Roberta to assess the existing procedures and protocols. In other words, the rate of reporting does not constitute the reason to report to the NCA. It is stated that the reporters need to “know, or suspect or have reasonable grounds for knowing or suspecting, that a person is engaged in, or attempting, money laundering or terrorist financing” (National Crime Agency par. 8). The low rate of reporting cannot be a basis of reasonable ground since it has no identifiable person or specific activity.
Therefore, Roberta should further review the files and identify the responsible people behind the low report rate to ensure that the SAR to the NCA contains a reasonable basis for the suspicion. The given action is aimed internally, which is why the NCA is the key authority rather than the OFSI. Some members of the company may be engaged in money-laundering assistance to the sanctioned individuals or groups, but these individuals have not sanctioned themselves. Therefore, the NCA comes first in the reporting priority, whereas the OFSI comes next if justifications are identified.
In conclusion, the United Kingdom was selected as the jurisdiction of interest. It should be noted that sanction compliance risk evaluation and reporting of suspicious activities are critical obligations under the UK’s regulatory framework. The OFSI is the core regulatory authority on anything related to sanction compliance and reporting. However, the NCA needs to be consulted and reported to as well for internal issues. The risk factors involved in the cases are under-screening of the clients and failure to report suspicious activities.
“Sanctions Screening: A Best Practice Guide.” LexisNexis Risk Solutions Group, 2022, Web.
“UK sanctions regime.” The Law Society, Web.
National Crime Agency. Suspicious Activity Reports. Action Fraud, 2022. Web.
United Kingdom, HM Treasury. Consolidated List of Financial Sanctions Targets in the UK. The Office of Financial Sanctions Implementation, 2022. Web.
United Kingdom, HM Treasury. UK Financial Sanctions: General Guidance for Financial Sanctions Under the Sanctions and Anti-Monetary Laundering Act 2018. The Office of Financial Sanctions Implementation, 2022. Web.