Securities firms must comply with U.S. government sanctions policies. The hard part is finding the hidden links to sanctioned companies and individuals.
Grygo is the chief content officer for FTF & FTF News.
While there have been many profound issues raised during the 2024 U.S. presidential and Congressional elections, the concerns over economic sanctions compliance involving Russia, China, and Iran have been growing. It’s clear that two different policy paths have emerged and one of them will prevail on Election Day.
It’s also clear that a new sanctions problem is stirring with Russia, namely its evasion of the price cap economic sanctions imposed by the Group of 7 nations against it after the invasion of Ukraine. “Nearly 70 percent of the Kremlin’s oil is being transported on ‘shadow tankers’ that are evading the restrictions, according to an analysis published Monday by the Kyiv School of Economics Institute, a Ukraine-based think tank,” as reported by The New York Times and other major media outlets. This “shadow fleet” is going to be a growing issue for financial services firms trying to maintain sanctions compliance.
One of the ongoing problems with economic sanctions is that while firms need clarity from government authorities and industry sources, they may not be getting it. There are so many gray areas that could cause steep fines and reputational harm because of problematic securities tied to sanctioned companies and countries, and these securities are buried in options, futures, ETFs, conventional funds, and derivatives.
To get some clarity on economic sanctions, I reached out to Tom Cardamone, who is the president and CEO of Global Financial Integrity (GFI), a Washington, D.C.-based think tank that’s focused on illicit financial flows, corruption, illicit trade, money laundering, and related matters. Cardamone oversees the strategic planning and promotion of organizational goals and policy positions to key audiences, including high-level government officials, multilateral institutions, and potential donors.
In my outreach to Cardamone, I wanted to find areas where there might be clear divergences and areas of agreement. The only certainty is that there is little policy agreement on economic sanctions between former President Donald Trump and Vice President Kamala Harris as they run for the White House.
For instance, I asked if there might be some policy agreement between Trump and Harris on sanctions for Iran, North Korea, Nicaragua, Somalia, South Sudan, Syria, Venezuela, and other countries.
“As was seen in the first Trump administration, his approach to policy making and relations with other countries was so erratic it is difficult to hypothesize on where there may be a like-minded approach between a Trump or a Harris administration,” Cardamone says.
I had other questions for Cardamone and he kindly provided answers:
Q: What are your policy predictions for a second Trump administration and economic sanctions against Russia? How would the U.S. and E.U. handle the sanctions regime that exists now against Russia?
A: Given Trump’s evasive response to how he would like to see the Ukraine war end (during his recent debate with Kamala Harris) suggests that he would likely lessen or eliminate sanctions on Russian firms and individuals. If that occurs the E.U. would likely ignore such a move and would maintain or possibly increase its sanctions.
Q: If Kamala Harris wins, what are your predictions for how a Harris administration would manage economic sanctions against Russia? How would a Harris administration interact with the E.U. on this matter?
A: I believe a Harris administration would increase sanctions particularly on Russia’s ‘shadow fleet.’ And to effectively implement those sanctions the administration would reach out to our European allies to harmonize sanctions on Russia between the U.S. and E.U.
Q: What input can U.S. financial services firms have upon sanctions policies?
A: Financial institutions have little say on what sanctions are applied or how they would be applied. Their responsibility is to comply with U.S. government sanctions on companies and individuals.
Q: Looking ahead to 2025, what are the top policy issues that may influence the creation of new sanctions?
A: Continued sanctions evasion by Russia’s ‘shadow fleet’ would be the most likely impetus for new sanctions on individuals and companies.
Tom Cardamone
Q: Financial services firms are very concerned about compliance with economic sanctions and the results of the 2024 U.S. presidential election. What are some basic steps that firms should have in place regardless of who wins in November?
A: The Treasury Department’s Office of Foreign Assets Control (OFAC) has clear guidelines for financial services firms on how to comply with sanctions regulations. These include (1) management commitment; (2) risk assessment; (3) internal controls; (4) testing and auditing and (5) training.
So, my attempt to find clarity on the compliance front is a work in progress as I suspect it is for most firms. The consequences of the U.S. elections to control the White House, the Senate, and the House of Representatives might provide some new clarity or may muddy the waters even more. My hope is that after this rocky election cycle, there will be enough clarity to help firms avoid pitfalls and formulate effective sanctions compliance strategies.
Join Schwab, Deutsche Bank, SIX and the Institute for Financial Integrity for our webinar on Nov. 7th, Avoid Exposure to Securities Tainted by Sanctions, to learn how your firm can:
- Navigate changes to sanctions policy based on U.S. Election Results
- Manage the massive data volumes resulting from increased sanctions and complexity of regulatory programs
- Understand your full exposure with more complex instruments like ETFs
- Strategies for finding hidden links to risks tied to sanctioned entities and individuals
