The famous song by the Scorpions took on a whole new meaning when the war in Ukraine unleashed a hurricane of unprecedented sanctions against Russia’s kleptocratic elites. In the 90s, “Wind of Change” was a soundtrack to a political and cultural revolution. It became synonymous with hope, change, and a better future for coming generations. The winds that are now blowing across Russia spell toughening sanctions and greater political and economic isolation.
In this article, we try to understand what sanctions are and how they work. We explain how you can stay compliant with the latest sanctions imposed on Russia, and how you can make sanctions more effective with the help of sanctions screening.
What are sanctions and how do they work?
Sanctions are penalties imposed on a country, its officials, or individual citizens, as a form of punishment for violating international commitments and obligations. Sanctions seek to force a change in political behaviour through a series of restrictive measures, such as asset freezes or seizures, trade sanctions, travel restrictions, capital and export controls, and embargoes. The purpose of sanctions is to change the behaviour of the target country. The success of sanctions depends on the support of the global community, which means that sanctions backed by a group of countries will be more effective than sanctions imposed unilaterally.
What sanctions have been imposed on Russia over Ukraine?
Sanctions have been blowing holes in the Russian economy for years. Russia’s recent recognition of the two separatist regions in eastern Ukraine, Donetsk and Luhansk, followed by a failed blitzkrieg attempt, sent Russia into a downward spiral of economic isolation and escalating restrictions. With every passing day, the war in Ukraine brings a new, unimaginable round of horrors. This war is not just an attack on Ukrainian sovereignty and territorial integrity. It is a humanitarian disaster of historic proportions.
Economic warfare against Russia pales in comparison to the damage it is doing in Ukraine. According to Reuters, the damage sustained by Ukrainian infrastructure in the three weeks of Russian invasion amounts to about $10 billion. The number is growing by the minute.
The initial sanctions targeted Vladimir Putin and his inner circle, including oligarchs, government officials, their overseas businesses and property. Russian state-owned and key strategic private companies were excluded from the UK financial markets, their UK assets were frozen, and so were the overseas assets of the Russian Central Bank. A select group of Russian and Belarusian banks were cut off from SWIFT – the world’s most widely used international payment system.
Transparency International has identified at least £1.5 billion worth of UK property owned by Russians accused of financial crime or with links to the Kremlin. Certain loopholes in UK law allowed corrupt individuals to launder money for years. Recently, the UK government has moved to look for an appropriate legal basis to justify the property seizures. When asked if they would use such property to house Ukrainian refugees, British Deputy Prime Minister Dominic Raab said: “Yes, absolutely.”
Seizing property from Russian oligarchs presents challenges for global regulators and lawmakers: in many jurisdictions, infringing on property rights may place them outside the law. Identifying beneficial owners and the origin of assets involves a close inspection of shell companies and complex ownership structures. The process is riddled with complexities. However, it didn’t stop Italy from arresting £126 million-worth villas and yachts connected with four high-profile Russians.
Reuters has published an exhaustive list of sanctions on Russia, updated in real time.
Are sanctions effective?
Sanctions can be an effective tool of foreign policy, but history teaches us that sanctions fail as often as they succeed. The six decades under US sanctions have cost the Cuban economy about £97 billion, resulting in a severe economic crisis and crippling inflation. The sanctions against Venezuela have caused considerable damage, leading to extreme poverty and humanitarian health crisis. At the same time, widespread economic sanctions imposed on South Africa during the 1980s sped up the collapse of apartheid. In 2015, targeted sanctions against Iran helped bring Iranian authorities to the negotiating table, leading them to scale back their nuclear programme.
It’s our duty to catch money launderers and tax evaders. But how do you measure your crime-fighting effectiveness?
The effectiveness of sanctions depends on proper implementation. One essential part of making sanctions effective is conducting regular sanctions screening checks.
What is sanctions screening?
Sanctions screening is used to identify individuals and entities who may be subject to sanctions. In order to comply with the latest sanctions lists, organisations rely on sanctions screening to proactively identify sanctions exposure and establish ongoing screening for specific targets. Sanctions screening is an important tool for compliance professionals, who must ensure that their organisations are not unwittingly involved in financial crime. When used effectively, it can help to mitigate the risk of sanctions exposure and protect both businesses and individuals from the potentially devastating consequences.
How is sanctions screening conducted?
Salv screens persons and transactions against sanctions lists provided directly by Dow Jones. The sanctions lists are updated on a daily basis, so we make sure that sanctioned groups and individuals are swiftly cut off from the global finance system.
With sanctions screening, organisations ensure that their existing or potential customers are not present in any of the sanctions lists, politically exposed persons (PEPs) and adverse media lists. You can minimise risks to your organisation knowing which of your customers are located in, or are sending money to a sanctioned country. At Salv, we believe that sanctions screening should be a cornerstone of your anti-money laundering (AML) compliance programme.
Sanctions screening is a reliable way of checking transaction references, senders and beneficiaries, and making sure the latter are not sanctioned in any jurisdiction. Salv automatically screens transaction counterparties based on transaction details. By screening, monitoring, and analysing transaction data, we identify risk and stop risky transactions before they can harm your business.
You may or may not have heard of screening auto-resolution rules. Every time we encounter a suspicious customer or transaction, an alert is generated meaning that the entry must be investigated further. In some cases, it can be just a false alarm that, nevertheless, will occupy your compliance specialist for a while. In compliance, we call these false alarms ‘false positives’.
Reducing false positives has always been a major pain point of many compliance teams. At Salv, we use screening auto-resolution rules to automatically close false positive screening alerts. To make it even better, compliance specialists can make drafts of screening rules, test them on the past data, and build up their own intelligent screening processes.
What is the next big trend in AML? Read about Salv’s counterparty monitoring.
The flurry of sanctions is the first step in the long process of alienating Russia and severing its access to the global financial markets and the banking system. More than ever before, the pressure is on all of us. Screening your organisation’s customers and transactions will let you reduce alert lifecycle, while improving general effectiveness of the screening process.
Everyone wants to catch criminals red-handed, which is totally possible but requires more time and resources. At Salv, we identify pre-crime patterns to detect and prevent financial crime and money laundering before it occurs. We put crime-fighting first and we hope you do too. If you need help, let us know.