Webinar Recap: 2021 Sanctions and Corporate Compliance


What’s inside?

    Deloitte has been running the Compliance Agenda for over eight years, leading the conversation on the most relevant areas of importance for corporations. This year, the disruption Covid-19 caused, the release of the OFAC and OFSI regulations, the change in U.S. government policies, and the rapid adoption of digitization solutions changed the risk landscape, led Deloitte to focus the compliance agenda on corporates and sanctions.

    Tony Johansen, Director and Head of Regulatory Risk at Deloitte D.K., moderated the webinar, driving the conversation towards trends within sanctions and how technology can aid corporations to manage the new regulations.

    Amelie Korning Wedege, Arnaud Romme, Jeff Neilson, and Andreas Rune Nielsen joined Tony, discussing the risks and changes within sanctions, particularly noting the new White House administration’s role and bringing to light the way corporations can ensure, protect and control procedures to mitigate the new risks.

    Following the discussion on key trends shaping the global sanctions risk landscape was a follow-up discussion on simplifying sanctions compliance through technology. Monika Silkart led the second-panel discussion, and she was joined by Jan Persson-Tryggedsson and Ami Daniel, Windward Co-founder and CEO.

    The crystal ball of maritime 

    The last few months’ events have led risk and sanction professionals to try and predict the future to understand better how their organization may be impacted. Critical events, such as the ramp-up of sanctions during the last part of the Trump administration and the ongoing divergence between the United States and the European Union regarding how to implement sanctions programs, have posed a growing challenge for corporate risk management. 

    The Trump administration went to great lengths to lock in far-reaching sanction policies before the administration changed. The operating assumption was that the new Biden administration would undo many of these actions. However, the reality has proven quite different. 

    Amalie Korning Wedege, Head of Sanctions & Embargo from Danske Bank, spoke on the matter, noting that the sanctions community may expect to say a change in the level of enforcement, directed explicitly towards maritime and the shipping sector. This will come alongside an increased focus on Russia and potentially Venezuela, depending on how recent events play out. 

    The question that remains unanswered is how aggressive the E.U. and U.K. will use their designation authorities. 

    Arnaud Romme, Head of Compliance for the Netherlands and Sweden at Barclays, provided insight into the difficulties financial institutions face now. The expectation, according to Arnaud, is that banks will be able to identify all potential sanction violations due to the critical role payments have. However, that is not always the case. 

    Using the recent New York Times expose as an example, Arnaud noted how they explicitly tracked this particular vessel for several months and analyzed it in-depth before confirming that it violated sanctions. Financial institutions cannot do that at such a large scale when dealing with hundreds of thousands of transactions across all sectors relating to maritime. The new bar of expectation forces financial institutions to reexamine how they manage compliance at a large scale and to determine if they have the right tools to play their part in preventing sanction violations. 

    New car, same highway

    If the focus on Russia and China instead of Cuba is like shifting gears in a car, the post-Trump government policies are like changing carmakers – but we are all still driving “on the same highway, and we’re still heading in the same direction.”  

    The U.S. Treasury Department is currently reviewing the sanctions program, as done at the start of every new administration, and has released a statement indicating that sanctions will remain a high priority tool, and the global community should therefore not expect an unwinding of sanctions. 

    Jeff Nielsen, Senior Legal Counsel, Foreign Trade Controls, from Maersk, believes that sanctions ad export controls will become increasingly coordinated in the months to come and will serve as a prominent tool for foreign policy in the upcoming years. The level of sanctions and regulations will become more complex, according to Nielsen. The way the OFAC and OFSI advisories change maritime in the coming months will set the course of compliance level in maritime for years to come. Recent events, such as the FedEx export control case in the United States, signal a higher level of enforcement actions, leading to deeper due-diligence requirements. 

    While the maritime industry turns to sanction and export controls, advanced screening tools, and automated due-diligence solutions, risk appetite and regulatory interpretation differ between companies, leading to complications. According to Andreas Rune Nielsen, Global Trade Compliance Officer at Haldor Topsoe, to change this, coordination will need to start at the policy level, and policymakers in the E.U. and U.S. must work together to set sanctions expectations. The collaboration will need to trickle down for compliance to be effective; organizations will have to work together with business partners, adopt transparent communication lines, and avoid violating sanctions. 

    While there is an improvement in the alignment between the financial and shipping sector regarding what an activity is, the question of risk appetite still impacts how information is processed. Therefore, organizations must have mature sanctions compliance programs that clearly define risk appetite and adherence policies. 

    Amalie Korning Wedege expanded on the financial institution perspective on risk management, noting that banks have more clients and more transactions. This has led them to have more restrictive sanctions policies and risk appetites than what the law dictates. This is mainly due to the fact that banks have been at the forefront of enforcement efforts for many years, and they have stricter sanction policies to ensure their operations remain clean.  

    This may prove challenging for the maritime domain since the industry is incredibly complex and diverse, comprising distinctly different sectors. Port operations have various regulatory applications than customs, different types of cargo carriers have different risk appetites, etc. What everyone has, however, is a desire to work together to avoid aiding sanction violations. 

    To navigate the complex sanctions space, banks and corporations will have to make a “good faith effort” to understand one another and create room for genuine, meaningful dialogue. If the banks understand the shipping sector’s nuances better, they may not feel the need to police them as strictly as they do, creating a more streamlined operation for all. As sanction enforcement increases, financial institutions and corporations with a global footprint will find themselves dealing with an increasingly complex sanctions environment. Adhering to sanctions will become a political and regulatory act, and it will be crucial for senior management to be aware of and support sanction management policies, ensuring it percolates down throughout the whole organization.  

    Amelie Korning Wedege closed off the discussion with a perfect Segway into the follow-up panel discussion, quoting attendee and former treasury official Tyler Nelson who once said that organizations will “pay for compliance one way or another… either you’re going to pay upfront by investing in the right controls, or you’re going to pay when you have a violation on your hand; And sometimes it is conceivably cheaper to make the investment up-front rather than deal with it, post-fact.” 

    Simplifying sanctions compliance through technology 

    As noted by the speakers during the first panel discussion, sanction compliance is incredibly difficult to manage at a large scale. To do so in today’s dynamic regulatory environment, it is necessary to incorporate real-time monitoring and cutting-edge technology.

    Panel moderator and Deloitte director Monika Silkart emphasized this by noting that over 68% of poll respondents said the most important aspect of third-party risk management is technology.
    Jan Persson-Tryggedsson, Senior Customer Success Manager at Refinitiv, started the conversion by stressing the importance of data. The financial and shipping sectors are both dealing with an increase in regulation and feel pressure to change their operations. Many are therefore turning to data to gain better insight into the changing environment they operate in. However, if that data is not of the highest quality, it will not help corporations make the decisions they need to make to ensure seamless operations.

    As Jan noted, the U.S. and E.U. are not the only ones issuing new advisories and regulations. Every country has its own foreign policy strategy, and many are taking action to protect their borders and citizens with sanctions that relate to their needs. Australia, Canada, and even Pakistan recently issued new regulations, further complicating the regulatory environment and the compliance work organizations must execute. To put things into perspective, in 2017, there were over 21,000 explicit sanctions worldwide, and in 2020 that number increased to over 34,000. The sheer number of sanctions makes it impossible to be fully compliant if not relying on technology.

    Windward founder and CEO Ami Daniel took the stage at this point, focusing on the shift in regulations and the true role of maritime in compliance. Today, over 90% of global trade is handled by the maritime sector, requiring processing a magnificent amount of information.

    There are multiple financial institutions to finance global trade, including ship finance banks, trade finance banks, and correspondent banks. All of these bodies have a different risk appetite, different needs, and, of course, different regulations they must follow. That is why good data must be a given for any organization today.

    Taking a holistic approach to maritime screening involves all vessel aspects, including characteristics, ownership structure, cargo information, and more. All of these elements provide a true understanding of the dynamic risk profile of a vessel. To analyze each vessel a corporation wants to trade with is unrealistic for any corporation or financial institution to execute when handling millions of transactions on a routine basis.

    Organizations must integrate automation tools and use technology to gain actionable recommendations and insights to optimize risk and sanctions. The problem that arises when using technology is the fact that not every organization has the same risk appetite or exposure level. The different needs of corporations require a dynamic approach to risk management and risk profiling.

    Taking this approach will enable organizations to shift their perception of compliance, viewing it as an advantage instead of necessary evil. This can be done if artificial intelligence (A.I.) becomes a key aspect of technological tools in shipping.

    Using A.I. to manage risk enables corporations to get customized recommendations and a personalized view of risks, providing corporate entities with full control of their risk management.

    The compliance officer of the future 

    With automation and artificial intelligence leading the way in risk management and compliance, Monika asked Jan and Ami how they think the role of compliance officers will change with these new tools.

    While there is a common misconception that digitization will reduce the need for human counterparts, the goal of automation in maritime is to enhance human experts and provide them with clear insight to make actionable decisions. Corporations will still need active decision-makers to transform the data into actions, which is something technology will never replace.

    AI-based tools can enhance the due-diligence process and provide better decision-making data, but as each company operates in a different area with different goals and different risk appetites, human counterparts will always have to interject. As Jan noted, organizations may make some replacements due to the increased efficiency technology can create, yet the risk of relying on human resources is greater. Not only is the scale of the work tremendous, but there may be severe ramifications if human error leads to violations.

    Ami strengthened this by saying that the maritime domain will always need good people at the second and third lines of defense; technology can just become the first line of defense.

    With the right tools in place, organizations will not need to source as many experts and train them to understand their specific needs. The talent crunch in shipping is felt throughout all industries, and lack of available talent is not an excuse for failure to adhere to sanctions.

    Ultimately, compliance officers will not disappear – on the contrary, increased use of technology will elevate the professionalism of compliance officers and provide them with the right data they need to make the precise decisions for their individual corporations’ goals.

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