Approaches and techniques to ensure a consistent compliance program and managing changes globally

Victor Cardona, Senior Vice President, BSA Officer, Golden State Bank

Below is an insight into what can be expected from Victor’s session at Fraud & Financial Crime USA 2023.

The views and opinions expressed in this article are those of the thought leader as an individual, and are not attributed to CeFPro or any particular organization.

What are the potential new compliance challenges with the new sanction regimes?

When we all hear of, or think about sanction regimes, I think we all collectively think of the various wide range or broad sanctions, as well as the specific or targeted sanctions. Whether at the macro-level based on geographical locations, or at the micro-level with specific industries or individuals, this is the foundation of any sanction screening program regardless the genesis of the sanction lists – the U.S., the UK, the UN, etc. Consistent sanction interdiction system upgrades and tunning is also a foundation and essential from an overall model governance perspective.

With that said, in my opinion, I would say that sanctions evasion is the main compliance challenge to the ever-changing sanction regime landscape. While investigating potential sanctions evasion transactions, one will not only have to understand the specifics surrounding the sanction programs in place, but must also think like a criminal with the typologies in order to commit the sanctions evasion. For example, if I can’t move money out of my specific country to another specific country, I’ll have to divert the money to another “friendly” country as a pass-through (correspondent bank?) before it gets to the ultimate destination. What if the money is not moved via funds transfer, rather artwork or crypto? What would be the red flags indicators to look for? Rapid movement of funds? For what purposes? Shell companies?

In what ways can banks ensure a consistent compliance program?

Just like with anything from a compliance perspective, where does your sanctions risk reside? Does the risk assessment properly identify the inherent and residual risks? Often too many times I hear that since a financial institution doesn’t have a foreign location in another jurisdiction, they don’t have to scrub against that specific jurisdiction’s sanctions lists. However, moving away from the technical “sanctions” perspective, what about “due diligence”? Wouldn’t it be proper due diligence to know if your client (or prospective client) is sanctioned by another jurisdiction?

How can the development of KYC program help to detect sanctions evasion?

Identifying the clients background will assist immensely while performing proper due diligence. Knowing their background will assist in assessing the specific red flag indicators of sanctions evasion from that part of the world. Sanctions evasion red flags may differ slightly from the Middle East to South America to Europe. Having that KYC knowledge could focus one’s review first on those specific geographical red flag indicators before thinking outside the box for other sanctions evasion red flags.

How can banks ensure they effectively manage transactions for terrorist financing?

Ensuring their transaction monitoring system – manual or automated – has been updated, calibrated, tuned, and most importantly independently tested to ensure its robust enough to identify and report any suspicious activity based on one’s risk exposure and appetite. Outside of this, consistent training is essential to ensure AFC professionals are up to date on the latest terrorist financing trends, especially tailored to their geographical and client risk exposure.

In what ways have sanction lists evolved over the last five years?

Although there is constant conflict across the globe, the evolution of sanctions has shifted more broadly from comprehensive to targeted sanctions. However, the focal point is still the same in the sense of threats to economic stability in any capacity, such as peace, security, human rights, or humanitarian aid. This also can play a role in accomplishing foreign policy and national security goals (geo-political conflicts?). Regardless of the reasons why the sanctions are in place – comprehensive or targeted – sanction lists will always shift due to the constant global conflict of nations. All we can do as AFC professionals is stay up to date on the ever changing sanctions landscape and adapt as the sanctions do; ensuring all of our sanctions ‘tools’ are sharpened at all times.