Keys to Successful Sanctions Compliance
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During their final session on Tuesday afternoon at the 34th Annual ACFE Global Fraud Conference, Enterprise Content Manager Rabihah Butler, Esq., and Jacob Denman, product marketing manager of risk, compliance and governance at Thomson Reuters discussed the nature of major sanctions trends and advocated for proper screening and controls when it comes to sanctions compliance.
Butler and Denman began their session, “Who Benefits from Sanctions? Trends in Sanctions and Beneficial Ownership,” by explaining that beneficial ownership refers to the person who benefits from a company and controls a company. A company may be under a family member’s name, but the beneficial owner is the person who actually enjoys the benefits, regardless of the title name a property is under.
Proper screening and knowing the beneficial owner are critical for Certified Fraud Examiners (CFEs) for due diligence. This includes Know Your Customer (KYC) and Customer Identification Program (CIP).
Sanctions, said Butler and Denman, are a way for governments to put pressure on other governments. They’re essentially monetary pressure put on a country to stop that country from continuing to engage in bad behavior. They can have good consequences, such as the sanctions the U.S. placed on Russia to deter it from attacking Ukraine. But they can also have negative, unintended consequences. Sanctions restrict trade and prevent access to banking systems. Not everyone affected by sanctions is directly guilty; sanctions impact a whole population. People can lose their jobs, which can create an unintended consequence of increasing fraud, since more people are in desperate situations.
A misconception is that sanctions merely apply to people with weapons. Denman relayed an example in which a colleague had ordered solar panels for their home. The panels were seized by border patrol because they contained materials manufactured from a supplier in a specific region in China associated with forced labor [the Uyghur Forced Labor Prevention Act (UFLPA)]. A proper understanding of sanctions is essential for everyday life, and not something only relevant to government officials.
Initial investigations are key for complying with sanctions. Butler reiterated that in order to get good results, you need good information. This includes collecting and verifying personally identifiable information (PII). Know your customers’ names, addresses, and corporate documents to get a clear picture of who actually owns the company. Verify Social Security numbers. Know who you’re doing business with. And, just because you’re not a nefarious actor, said Butler, that doesn’t mean you won’t have relationships with people who are.
Complying with sanctions also requires perpetual investigations and screenings. Because sanctions change often with little notice, it’s necessary to conduct proper screening and ongoing monitoring. “The best offense is a good defense,” said Denman. When you need to conduct an investigation, know that you have a solid program in place. Verify documents and look for forgeries. Ensure that you have a good investigative team that can step in and conduct interviews.
The biggest mistakes that companies make, said Butler and Denman, is not having any controls. People often don’t realize the implications of a lack of controls until a problem happens. Not being educated is a problem. The very worst thing a company can do is actively try to cover things up. For CFEs, the main task is designing controls. CFEs need to understand where sanctions take place, when they change, and how to create risk profiles. Understanding where the risks are in your supply chains and being able to account for that will allow companies to protect themselves from potential risks. The key is “trust, but verify,” said Butler. “It’s the one thing that keeps you from being susceptible to implicit behavior.”
