In the midst of escalating global conflicts casting uncertainty upon the global status quo, companies cannot lose sight of compliance. One situation that has become somewhat more obscured in favor of reporting on newer emerging conflicts is the Russia-Ukraine war. After more than a year of escalating sanctions, we take a high-level look at the current landscape and what companies need to know to protect their third-party networks in a compliance-based framework.
The individual element
After many years of tension on the world stage, the conflict in Ukraine has resulted in Russia becoming one of the most sanctioned countries in the world. As countries continue issuing sanctions in an effort to dissuade Russia’s actions with strong economic impacts, it’s becoming increasingly clear that lack of coordination is hampering international efforts.
At the time of writing,
more than 13,600 sanctions have been imposed by the US, UK, EU, Canada, Switzerland, Australia and Japan. Many compliance leaders are surprised at the breakdown of the sanctions, which is as follows:
- 0.7% against aircraft
- 1.2% against vessels
- 25.4% against entities
- 72.7% against individuals
While most compliance experts are well-equipped to screen for entities, the second-largest group of sanctions, it’s easier for individuals to slip through the cracks and infiltrate the third-party networks of companies operating in the issuing countries. We’ve seen
unprecedented levels of sanctions evasion revealed in reports published in the past several months–significantly driven by sanctioned individuals who manipulate ultimate beneficial ownership (UBO) information to obscure ownership of assets and entities.
Uneven enforcement
Another element of confusion in navigating compliance is a lack of unification in what countries have imposed sanctions on which individuals, entities etc., and what consequences result from violating said sanctions. For example, an individual could be sanctioned in the EU but not the U.S.
Additionally, punishments for sanctions breaches vary by government. Despite issuing rounds of sanctions as a collective, the EU relies on a patchwork with different consequences in each country. A company that operates in three different EU countries is still beholden to compliance even though the penalties they would receive could vastly differ based on the country–changing the way risk is assessed when conducting due diligence.
To combat the non-uniform application of enforcement, the EU has voted for a mandate that will
introduce a standardized definition of violations and establish a baseline minimum of penalties. Dutch lawmaker Sophie In ‘t Veid said of the proposal: “So many rich Russians are able to continue living their luxury lifestyle and companies are making enormous profits, by violating and circumventing the sanctions.”
With intensifying enforcement potentially on the horizon, companies must consider how to scale up due diligence on third parties in every EU member state to keep sanctioned individuals and entities from putting them in breach.
Leveraging UBO information
As the conflict drags on, it’s reasonable to expect that further rounds of sanctions will further increase the risk of companies committing accidental breaches. With more sanctioned individuals using more advanced UBO tactics, third-party networks can easily become rife with blind spots.
That’s why Ethixbase360 developed
Premium Corporate Data to be used as part of our platform. Premium Corporate Data provides the information you need to remain compliant with sanctions by confirming business information on associates to verify UBO. Contact us to learn more about how Ethixbase360 is your ally in the uphill battle of sanctions compliance.
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