Sanctions, Sanctions, Sanctions!

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Since February 24, 2022, there has been a huge jump in individuals and organisations being sanctioned, turning into a nightmare for MLRO’s and compliance professionals (as well as most businesses) . The constant updates  with varying countries and jurisdictions bringing in sanctions has just grown rapidly and isn’t showing signs of stopping.  
 
Often it may be one or more countries acting, or it could be a conglomerate of countries such as the EU working on their own and not all but a few nations. 
 
Just in the last couple of weeks at the time of writing, the US has sanctioned several Cypriot corporate service providers/ Lawyers and accountants for facilitating the movement or protection of assets for Russian sanctioned individuals. 
 
The US sanctioned 10, including a couple of businesses and the UK sanctioned 2. However, this resulted in the Cypriot and Greek governments freezing all their bank accounts automatically even though their own jurisdiction of the EU had/has done nothing to sanction the Cypriots. 
 
This form of sanction has quite a knock-on effect as the two main firms in question are linked to many non-Russian companies and trading companies within many on-shore jurisdictions. The ramifications of this new sanctions list will not show itself immediately as some of these entities that are involved may also be linked to offshore entities and difficult to connect.

Many banks around the world will be affected by this in a way a specific individual would not. The ripple effect of sanctioning lawyers, accountants or TCSP’s involved in trust and corporate services means potentially thousands of companies and bank accounts may be affected. The structures would have been created over many years as these sanctioned Cypriots would have been the corporate service providers and company administrators.  
 
All this linking will need investigating and it will be up to compliance professionals and even the relationship managers to flag and decide how to react to these clients. Many of the firms will only just have used them or will be using them in a lawful way.  
 
The very fact that these firms are sanctioned could cause a massive problem, especially as in some cases they may be signatory to some of the bank accounts of lawful and compliant companies. 
 
The sanctions net is a difficult one to traverse as not only businesses that on the face of it are clearly linked to a Russian Oligarch, but normal high street stores could be attached to someone sanctioned. Whilst Roman Abramovich was trying to offload Chelsea a UK High Street chain and Spanish supermarket group nearly collapsed as no one could have officially traded with them. 
 
Holland and Barrett, a High Street health and food store as well as many other firms such as the Spanish supermarket chain were ultimately controlled by a company LetterOne founded and owned by Mikhail Fridman, Petr Aven, German Khan, and Alexei Kuzmichev who were all sanctioned.

According to the FT ”the Russian owners were cut off from any of the group’s decision making and operations following sanctions imposed after Russia invaded Ukraine, with their shares effectively frozen and dividends stopped. Staff with personal links to the Russians left immediately.”

Had they not done this, tens of thousands across Europe would have lost their jobs. Would the banks be so patient today? Could you risk it? 
 
The banks acted against the Cypriots immediately even though their own jurisdiction had not sanctioned them! 
 
If you take the world as a whole, probably around 5000 people sit on the top and own, control, or have links to most major businesses in the world. They range from Bezos, Gates and Musk in the US, Arnault, Dyson and Ortega in Europe, Ambani, Shanshan and Yanai in Asia.. squeezed in between come Russians like Usmanov, Fridman and Lisin. All have very little to do with the middle and lower tiers of their businesses. Yet many of them will be interlinked by the very fabric of globalisation and the movement of goods. They sit together like interlinked fingers and the tearing apart of those fingers is difficult and painful. 
 
Many people including thousands of workers within Third World countries have their livelihoods, depending in some way on these firms 
 
So it’s not just first world countries that get affected, but this runs down the whole chain. That’s not to say the sanctions are not correct; they are placed there for a reason and it is the compliance professional and all those around them in regulated businesses that have to deal with the ramifications and fallout. You, if you are reading this will be touched by it and have to make the decisions to deal with the sanction. I started with 3 words and I end with 3.  
 
Comply, Comply, Comply! 
 
Manny Cohen May 2023

Manny Cohen is Founder and CEO of Armadillo, a Regtech100 business with Armadillo Dig Deeper, a Sanctions, PEPs, Connections and adverse media checking system.