The European Union is taking a page from the U.S. sanctions rulebook. But can banks manage the new restrictions without making significant missteps?
The number of potential bank sanction breaches is about to rise precipitously New lists triggered by Russia’s invasion of Ukraine have likely been fed into IT systems and, potentially, the first alerts are beginning to hit.
Particularly egregious cases have probably prompted an initial back-and-forth between bankers and sanctions teams about imposing partial or full account blocks. Everything else will need to be distilled and analyzed.
Determinations as to whether the specific alert involves a direct or indirect relationship, and whether the level of beneficial ownership is high enough or not. It could result in months of internal jostling before anything is reported to authorities as a breach.
In some cases, it could be years before a decision is made to exit a relationship. If the Swift cut-off remains in place, banks may not even have the channels to return the assets from exited relationships not directly under government-imposed freeze orders.
Sanctions Inflection Point
Even before the Swift step was announced, the EU’s sanctions against Russia were unprecedented in scale. It is more than justifiable given the events in Ukraine. Still, it poses a long-term headache for any internationally active bank. And particularly Swiss ones this time around, given the federal government’s decision to fully enforce the EU’s regime for the first time in history.
The EU has been explicitly transparent about its sanctions. Each name is provided in full on their lists, which includes their date of birth and other identifying information, such as nationality and function, as well as a clear, concise reason for the addition.
This not only takes a cue from the U.S., but is a step up from the Treasury’s Office of Foreign Asset Control’s (OFAC) regular barrage of emails (17 Ukraine-related at last count) and its uninterrupted three columns of pdf block text detailing the latest version of its Specially Designated Nationals (SDN) list.
Difficult to Find
The initial wave of EU sanctions affected 680 individuals and 53 entities, comprising full travel bans, asset freezes and fund blocks.
On the face of it, that might not sound like much, but it bears remembering the expanded scope of all that. The sanctioned individuals have many distant and close relatives, many who do not share the same family name. A few of them, realizing what was going to happen, have potentially been stashing money with friends and acquaintances. None are likely to show up at a nearby bank to emphasize their connection to a sanctioned person anytime soon.
The entities themselves are likely to have numerous minority-owned subsidiaries, units, and affiliates, many well below stipulated thresholds, not to mention confusing names and impossible-to-decipher layers of ownership. Some of them have probably already been transferred to anything that doesn't have a tangible connection to the sanctioned vehicles.
Many Lists and Nowhere to Go
We are at a new stage when it comes to specific unilateral sanctions levied by a major economic power as the U.S. stood largely alone in that regard until recently.
Given that, there are likely to be any number of unforeseeable and unintended consequences. The potential for banks to make significant missteps has increased tremendously.
The only thing anyone can predict with any accuracy is that it will take a very long time to get to the bottom of everything. And that there is going to be, understandably, very little patience for breaches that are not dealt with promptly.
