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Don’t be that company

Violating sanctions can be deadly for a business. Compliance is the answer, but how can corporates – traditionally less regulated than their banking counterparts – ensure this?

While there have been several major sanctions violations making the news in the past few years, the bulk of these stories have been focussed on banks, mainly as they are more heavily regulated than private companies.

The results of these violations can be quite dramatic, with fines running up to several billion dollars, and often coupled with severe and potentially long term reputational damage from the resulting headlines.

However, corporate players – both large and small – are equally as capable of breaching regulations, and losing the trust of both customers and the government institutions. How, then do businesses ensure compliance to sanctions, and protection of their hard-earned reputation?

Ensuring compliance

Of course, there is a simple solution to prevent sanction violation – investing in a rigorous compliance process. This is something banks have done for years.

Now it is time for corporate teams to play catch up. This is especially true now that, following high profile cases, regulators are working their way up the payments lifecycle and are actively pursuing the originator of the illegal payment – including both individuals and corporates.

For a case in point, the US Treasury’s Office of Foreign Assets Control (OFAC) recently announced it had fined Alcon Labs more than $7 million for selling medical equipment to customers in Iran and Sudan between 2008 and 2011.

The US Treasury found that the company had demonstrated what it called a reckless disregard for US sanction requirements, saying that the company had no compliance programme despite it exporting its goods globally.

This also meant it had, the report says, failed to take adequate steps to investigate a third party freight forwarder’s cessation of shipments to Iran on behalf of Alcon.

All in all, this was a heavy fine to pay for something that could have been so easily avoided.

Are you prepared?

Alcon is not the only example. In 2016 alone, there have been a further five corporates that have been fined for breaching OFAC regulations. This marks a paradigm shift, as regulators are clearly demonstrating they are spending their resources on going after corporations.

It also means that corporates can no longer hide behind their bank’s compliance systems. Instead, they will have to invest in their own.

The heavy fines dealt to Alcon and others could have been easily avoided through a solid compliance programme. By utilising technology, corporates can also ensure that the whole process is automated, therefore reducing both the resources required to run such a programme without having to compromise the results.

So, the billion-dollar question is – if you are working in treasury for a multi-national corporate that does business anywhere near a sanctioned country, are you prepared if the regulator comes knocking?

 

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Comments: (4)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 18 October, 2016, 17:55Be the first to give this comment the thumbs up 0 likes

As a seller, Alcon Labs would be the receiver of payment. Why did it get pursued by regulators going after originators of payment?

Bill North
Bill North - Pelican - New York 18 October, 2016, 18:01Be the first to give this comment the thumbs up 0 likes

It was not an actual payment that violated the sanctions. It is against regulations to do business at all with blacklisted entities/countries. Alcon Labs could have avoided this by screening their customer and vendor databases against the blacklists.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 18 October, 2016, 19:29Be the first to give this comment the thumbs up 0 likes

Okay. Since you mentioned regulator going after originator of payment and gave Alcon Labs example "For a case in point", I thought Alcon was caught for originating payment to banned parties. With that out of the way, AFAIK, Iran and Sudan are both on US export watch list. Do you really think Alcon Labs would need specific customer and vendor databases to know it was illegal to sell to *anyone* in those two countries?

Bill North
Bill North - Pelican - New York 18 October, 2016, 19:33Be the first to give this comment the thumbs up 0 likes

Practically, you wouldn't think they would...but US regulations cover individuals/entities in many countries so to have a proper compliance process you would need to continually screen not only payments but also business partners no matter where they are.

Banks do not screen only payments going to sanctioned countries. They screen every cross border payments and oftentimes every domestic payment.