CGSS Chapter 1: Governance and Enforcement

What is a sanctions regime?

A sanctions regime is a set of sanctions that have a common nexus or theme. Sanctions regimes are either referred to by the issuer of the set of sanctions or by the intended purpose of the set of sanctions. For example, the "OFAC sanctions regime" or the "North Korea sanctions regime." Depending on the context, a sanctions regime may be limited to unilateral sanctions or may include multilateral sanctions.

Define batch screening.

Batch screening is the process of screeninga firm's entire customer base and other associated entities, such as vendors, with automated screening tools (ASTs) on a periodic basis.

How do blockades differ from sanctions?

Blockades involve the deployment of military resources by land, air, or sea, by a country or coalition to prevent the movement of goods or people into or out of a targeted country. Sanctions, on the other hand, involve legal actions that are punitive or restrictive.

List at least five controls used within a sanctions compliance program to mitigate orreduce inherent risks

Controls used within a sanctions compliance program to mitigate or reduce inherent risks include: Governance Policies and procedures Know Your Customer/due diligence (including beneficial ownership) Management information Recordkeeping and retention Sanctions blocks/rejections Monitoring Training and awareness Independent testing

What is delisting, and which UN offices are involved in the process?

Delisting is the process of removing a sanctions target from a list after the restrictions imposed on them have been removed. The UN adopted the Focal Point for Delisting to ensure that fair and clear procedures exist for (1) placing individuals and entities on the sanctions lists, (2) removing them, and (3) granting humanitarian exemptions. Individuals and entities, except for those on the ISIL (Da'esh) and Al-Qaeda sanctions list, may petition for removal from the UN sanctions list through the Focal Point process or through their state of residence or citizenship. Entities on the ISIL (Da'esh) and Al-Qaeda sanctions list must submit their petitions for delisting through the Office of the Ombudsperson.

List at least three examples of prohibited transactions in the context offacilitation.

Examples of prohibited transactions under a facilitation "umbrella" include: - US parties may not approve, finance ,or guarantee any transaction in which they themselves are prohibited from engaging. - US parties may not provide merchandise to be used in connection with a prohibited transaction or make a purchase for the benefit of a prohibited transaction. - US parties may not provide services in support of or in connection with prohibited activity. - US parties may not provide guidance on prohibited activity. - US parties may not alter their corporate policies to allow for prohibited transactions. - US parties may not refer business to a foreign person that would involve a prohibited transaction.

What is the role of OFAC's enforcement guidelines in cases of noncompliance?

In the US, OFAC uses its enforcement guidelines to determine how to respond to a sanctions violation. In such cases, OFAC may take no action, or may take a number of actions, including requesting additional investigation, issuing a caution, imposing a civil monetary penalty, or referring the case for criminal prosecution. The guidelines also establish a payment schedule that may be imposed based on violations.

What is the risk formula suggested by the Wolfsberg Group for sanctions risk assessment?

Inherent Risk - Control Effectiveness = Residual Risk

What is the significance of reputational risk to financial firms?

Reputational risk is the potential that adverse publicity regarding a financial institution's business practices and associations, whether accurate or not, will cause a loss of confidence in the integrity of the institution. Banks and other financial institutions are especially vulnerable to reputational risk because they can become a vehicle for, or a victim of, illegal activities perpetrated by customers. Such institutions may protect themselves through Know Your Customer and know-your-employee programs.

Explain the concept of risk appetite.

Risk appetite is the amount of risk that a firm is willing to accept in pursuit of value or opportunity. A firm's risk appetite reflects its risk management philosophy and comfort level for undertaking business in situations in which there could be an elevated sanctions risk. In turn, risk appetite influences the firm's culture and operating style and guides resource allocation. An organization's risk appetite is determined through the risk-assessment process and formalized in a Risk Appetite Statement or Framework. A business should determine its risk appetite based on the resources it has to invest in controls, staffing, and measures to protect its reputation. Firms can have an overarching risk appetite (i.e., enterprise- wide) and/or have risk appetites defined on amore granular level (e.g., by department).

Why is it important for firms to perform real-time screening?

Sanctions are generally strict liability, and the regulatory expectation is that transactions will be screened prior to their execution, i.e., via real- time screening. Real-time screening may be manual or automated (i.e., using ASTs).

For a financial institution or jurisdiction, what is the consequence of being designated a primary money laundering concern?

Section 311 of the USA PATRIOT Act directsthe Treasury to designate a financial institution or jurisdiction as being of "primary moneylaundering concern" based on numerous factors, including the extent to which the institution is used to facilitate or promote money laundering. Although Section 311 is not technically a sanction, the results of Section 311 measures can be just as severe because they prohibit US financial institutions from providing products or services to other financial institutions that in turn provide products or services to one of the designated institutions or jurisdictions of concern. Moreover, US institutions provide an annual notice to their foreign financial institution customers warning them against maintaining these downstream correspondent accounts. The targeted financial institution is effectively cut off from the US dollar payment system.

Define transaction monitoring and filtering program (TMP).

Transaction monitoring and filtering programs(TMPs) are required of financial institutionsunder the New York State Department of Financial Services (NYDFS) Final Rule Part 504 to monitor transactions after their execution for compliance with the Bank Secrecy Act and AML laws and regulations. It includes requirements for suspicious activity reporting as well as for monitoring transactions prior to their execution to prevent unlawful transactions with targets of economic sanctions administered by OFAC. Filtering programs may be manual or automated, and must be reasonably designed for the purpose of interdicting transactions that are prohibited by OFAC.

What is the benefit of voluntary self-disclosure of a sanctions violation?

When determining the consequences of a sanctions violation, OFAC considers whether the entity voluntarily self-disclosed the potential violation. If a company determines that it has violated OFAC sanctions, it may file a voluntary self-disclosure, taking the position that the violation only constitutes a civil violation as opposed to a criminal violation. However, a company may file a voluntary self-disclosure and OFAC may disagree with its filings or the nature of the violation (civil or criminal).

Define Export Administration Regulations (EAR).

he Export Administration Regulations (EAR)comprise a set of regulations administeredand enforced by the Bureau of Industry andSecurity (BIS), a division of the US Department of Commerce. They apply specifically to physical goods or commodities such as technology, software, and other items subject to export controls.

What four options does a firm have for managing its residual risk?

A business has four options for managing its residual risk: accountability for sanctions compliance to someone else, this is not alwaysa good option. The firm would need to ensure the vendor is qualified and has effective controls. 1. It can transfer the risk. However, because firm cannot transfer accountability ror sanctions compliance to someone else, this is not always a good option. The firm would need to ensure the vendor is qualified and has effective controls. 2. It can avoid the risk. If the level of risk exceeds itsrisk appetite, the firm may decide to discontinue orfail to pursue a given line of products, or decide not to accept business relationships with customers who, for example, undertake business in certain countries. 3. It can seek to further mitigate the risk by, for example, decreasing "fuzzy logic" thresholds, increasing monitoring, adopting other controls, and/or strengthening current controls. 4. It can accept the risk.

What is an exclusions list?

An exclusions list is a list of customer names that are excluded from the sanctions screening process. These are names that the compliance team has verified do not actually match a name on a sanctions list.

Define license.

A license is a written authorization issued by a sanctions regulator that permits an activity that otherwise might be prohibited or restricted under a particular sanction. A general license is an exemption that all persons may transact under—an example would be transacting for purposes of humanitarian aid. A specific license is an exception for the applicant of the license and establishes the circumstances in which the applicant may transact if the license is granted. The EU distinguishes between economic resources, which are subject to sanctions, and consumptive use, which is not prohibited "owing to [the] consumptive nature and lack of transferability." These exemptions apply to domestic supplies such as gas, electricity, telephone, and other utilities.

Describe a sanctions compliance program (SCP), includingits five essentialcomponents.

A sanctions compliance program (SCP) is aprogram run by a firm to comply with regulator expectations concerning sanctions complianceand to manage the firm's sanctions risk. OFAC encourages organizations subject to US jurisdiction to use a risk-based approach to sanctions compliance by developing, implementing, and regularly updating SCPs. SCPs follow a similar methodology to that adopted by anti-money laundering compliance programs. According to OFAC, the five essential components of an SCP are 1) management commitment, (2) risk assessment, (3) internal controls, (4) testing and auditing, and (5) training.

What are sectoral sanctions?

A sectoral sanction is a form of restrictionfocused on targeting key entities and sectors ofa country's economy. Sectoral sanctions prohibit certain types of transactions with certain people or entities in the targeted country within a targeted sector of the economy. Sectoral sanctions are very dependent on facts and context when applied.

Explain the scope of the terms "property" and "property interest" in the context of sanctions.

Although economic sanctions apply to property, the term "property" is very broadly defined to include much more than money and trade goods. In the US, the terms "property" and "property interest" include checks, merchandise, trademarks, annuities, and a broad array of other interests as defined in US law.

Define embargo.

An embargo is an official government action to ban trade or commercial activity with a specific country, sometimes involving a specific trade product (e.g., a grain embargo or an oil embargo).

How does a whistleblower policy function within a sanctions compliance program?

An established whistleblower program shouldbe a core aspect of a sanctions compliance program, providing an anonymous channel through which to escalate identified issues. It also should establish a policy of non-retaliation for the identification and exposure of issues. he whistleblower program should be part of the firm's code of conduct and should be included as a regular part of training. Employees should understand how the whistleblower process works. Often this takes the form of a hotline managed by an external third party and routed internally to the proper escalation channels.

In the context of sanctions, what is the significance of Articles41, 25, and 48 of ChapterVII of the UN's founding charter?

Article 41 of Chapter VII of the UN's founding charter establishes the right to impose sanctions as a measure to achieve international peace and security. After the UN Security Council adopts a resolution, it is legally binding under Articles 25 and 48 of the UN Charter. Article 25 requires Member States to "accept and carry out the decisions of the Security Council in accordance with the present Charter." Article 48 of the Charter constitutes an affirmation of states' obligation under Article 25 of the Charter to accept binding decisions by the Council. Article 48 (1) allows the Council to limit such duties to selected members, and (2) makes an attempt to co-opt other international organizations into the UnitedNations peacekeeping system.

What is the purpose of asset freezing/blocking?

Asset freezing, also referred to as asset blocking, is the practice of removing an individual's or legal entity's access to assets during, or as the result of, an investigation into a sanctions violation. This prevents a person who is targeted by sanctions from accessing or using his or her bank account or other financial assets.

What do automated screening tools (ASTs) do?

Automated screening tools (ASTs) aresoftware systems used by large financialinstitutions to facilitate the screening process,as opposed to manual screening. In general,ASTs are designed to screen against sanctions lists. ASTs generate hits against sanctions lists that maybe consolidated into alerts based on, for example, a customer record. For one customer record there may be multiple hits against sanctions lists that are consolidated under one alert.

Why is a risk-based approach to sanctions compliance important, and what tool can firms use to implement such an approach?

Complying with sanctions requires using a risk-based approach. OFAC encourages organizations subject to US jurisdiction to usea risk-based approach to sanctions compliance by developing, implementing, and regularly updating sanctions compliance programs (SCPs). However, within an SCP, financial institutions cannot avoid all risk when it comes to doing business. So it is important that they take a risk-based approach. A risk assessment is an important tool that allows a business to identify and assess the extent to which it may be exposed to risk. In global banking, risk assessments form the foundation of a sound SCP.

How are comprehensive sanctions different from targetedsanctions?

Comprehensive sanctions prohibit all transactions and activity with a sanctioned country by the sanctioning country except in rare, specific instances (e.g., exemptions for humanitarian purposes). Comprehensive sanctions also include a full trade embargo and a cease of diplomatic relations. Different sanctions regimes have different comprehensively sanctioned countries because sanctions are a matter of foreign policy. Comprehensive sanctions do not discriminate between the individuals in a country who are shaping and implementing policy and the uninvolved residents in that country; as such, they can be viewed as unhumanitarian. In contrast, targeted sanctions are sanctions against a specific target, generally with a goal of a specific outcome. They allow for greater discrimination in imposing sanctions, especially considering that a particular geographic location can contain many different ethnicities ,minorities, and other groups.

Define control effectiveness.

Control effectiveness is the measurement of the quality of controls used to mitigate a business' inherent risks (also referred to as mitigation measures or quality of risk management). These controls should be both appropriate and effective to mitigate the identified sanctions risks. That is, they must be proportionate. Where there is an elevated risk, the controls should be more comprehensive to mitigate that risk.

Explain the concept of delivery channels, including its relationship to sanctionsrisk.

Delivery channels are the ways in which products and services are provided by a firm to its customer (also referred to as servicing methods and distribution channels). For example, reliance upon brokers, intermediaries, and other independent third parties poses a higher sanctions risk than when a business interacts directly with customers and suppliers. The absence of face-to-face onboarding presents a higher risk than when customers are onboarded directly or through a domestic affiliate. Other delivery channels without face-to-face onboarding, such as internet banking and money services businesses, are also considered to pose a higher inherent sanctions risk. A delivery channel that processes payments quickly is also a higher risk.

What is the intended impact of economic sanctions on targets?

Economic sanctions, which can include trade sanctions and financial sanctions, are intended to impact targets by limiting the target country's exports, restricting its imports, or impeding finance (including reducing aid). Economic sanctions apply to property, a term that is very broadly defined to include much more than money and trade goods. In the US, the terms "property" and "property interest" include checks, merchandise, trademarks, annuities, and a broad array of other interests, as defined in US law. This broad definition includes virtually all financial or commercial activity. Although there are sanctions, such as travel bans, that do not involve property, economic sanctions have by far the most implications for sanctions compliance programs.

Why is it important for a firm to demonstrate a culture of compliance throughout the organization?

Embedding a culture of compliance intothe overall structure of a firm is critical to the development and ongoing administration of an effective sanctions compliance program. Firms that have strong commitments to ethical values, such as honesty and integrity, tend to stay out of trouble and attract the best talent and the most desirable clientele. Although creating a culture of compliance cannot resolve all current or future issues, an effective compliance program focused on identifying and controlling risks is critical to the overall success of an institution. In fact, adopting a culture of compliance is the most effective way to prevent small issues from becoming systemic problems.

What is extraterritorial jurisdiction, or extraterritoriality?

Extraterritorial jurisdiction, also referred to as extraterritoriality, describes a state making, applying, and enforcing laws, regulations, and other rules of conduct in respect to persons, property, or activity beyond its territory. The US is the primary government engaged in applying extraterritoriality to its sanctions regime. The EU, believing that the practice of extraterritoriality violates international law, does not allow for the concept of extraterritoriality in relation to the sanctions restrictions it imposes. The EU describes extraterritorial sanctions as sanctions that "non-US citizens and companies are also expected to comply with" outside the jurisdiction of the US.

What does FATF Recommendation 6 specify regarding due diligence?

FATF's Recommendation 6 specifically addresses sanctions due diligence by requiring countries to implement targeted sanctions regimes to comply with UN Security Council resolutions that are relevant to sanctions.

What are the six Financial Crimes Enforcement Network (FinCEN) suggested guidelines for strengthening a compliance program?

FinCEN suggests six guidelines for strengthening compliance culture in financial institutions, including: 1. Leadership must actively support and understand compliance efforts to manage and mitigate compliance deficiencies 1a. risk must not be compromised by revenue interests. 2. Relevant information from the various departments within the organization must be shared with compliance staff to further the institution's compliance efforts. 3. The institution must devote adequate resources to its compliance function. 4. The compliance program must be effective. One way to ensure this is by using an independent and competent party to test the program. 5. Leadership and staff must understand the purpose of its compliance efforts and how its suspicious transaction reporting (STR) is used.

What does the New York State Department of Financial Services (NYDFS)Final Rule Part 504 require?

Final Rule Part 504 is a regulation issuedby the New York State Department ofFinancial Services (NYDFS) on June 30, 2016, to emphasize the need for sound transaction monitoring and filtering programs (TMPs). The Rule requires regulated institutions to maintain TMPs reasonably designed to monitor transactions (1) after their execution for compliance with the Bank Secrecy Act and AML laws and regulations, i.e.TM and (2) prior to their execution for compliance with the US treasury department's Office of Foreign Assets Control (OFAC) - Sanctions The regulation includes suspicious activity reporting requirements and prevention of unlawful transactions with targets of economic sanctions administered by OFAC.

Define the concept of globalization.

Globalization refers to the integration of national economic, trade, and communication operations by businesses engaging in international trade. Globalization generally includes the enlarging of national perspectives to international and interdependent perspectives of society. It advocates a freer transfer of goods, services, and assets across national and international boundaries. It is believed that globalization may limit the effectiveness of sanctions because a globalized market makes it easier to replace and reroute trade channels.

What precipitated passage of the Magnitsky Act in the US?

In the US, the Magnitsky Act allows forunilateral, global sanctions to be imposed on human rights offenders and corrupt actors. Assets can be frozen and offenders can be barred from entering the US. The act originated from the mistreatment of attorney and auditor Sergei Magnitsky by Russian officials while he was in a Moscow prison for investigating fraud related to Russian tax officials. The law allows the US to sanction foreign government officials involved in human rights abuses anywhere in the world, including those found involved with the assassination of the Washington Post reporter Jamal Khashoggi in 2018.

What is inherent risk, and what are the four main inherent risk categories?

Inherent risk is the level of sanctions risk that exists before controls are applied to mitigate them. There are four main inherent risk categories: • Customers • Products and services • Countries• Delivery channels These categories of risk are similar to those considered in AML and terrorist financing risk assessments.

Define the concept of money laundering.

Money laundering is the process ofconcealing or disguising the existence, source, movement, destination, or illegal applicationof illicitly derived property or funds to make themappear legitimate. Money laundering typically involvesa three-part system: placement of funds into a financial system; layering of transactions to disguise the source, ownership, and location of the funds; and integration of the funds into society in the form of holdings that appear legitimate. The definition of money laundering varies in each country where it is recognized as a crime.

What are multilateral sanctions?

Multilateral sanctions are restrictionssupported by more than one country orentity. These can be imposed by allies againsta common enemy or for the purpose of realizinga greater economic and punitive impact. Multilateral sanctions, such as those imposed by the UN, are generally more effective than unilateral sanctions in achieving a foreign policy objective.

What is the purpose of a Mutual Evaluation Report (MER)?

Mutual Evaluation Reports (MERs) provide an in-depth description and analysis of a country's systems for limiting financial crimes based on FATF recommendations. Although the reports are not sanctions, they have the potential to influence the risk a financial institution will take when dealing with a particular country or region.

Are autonomous sanctions only implemented by single governments? If yes, give an example of asingle government that has autonomous sanctions. Ifnot, give an example ofa different entity thathas autonomoussanctions.

No. Autonomous sanctions can be employed by a single entity or government, such as Australia, or a coalition of governments, such as the EU, acting to enforce a sanctions regime. Most countries have their own version of autonomous, unilateral sanctions. However, the EU also has autonomous sanctions. These occur when its Council decides to impose sanctions on its own initiative. Although most countries in the EU do not rely on autonomous sanctions, choosing instead to rely on the EU framework, EU member countries, in turn, can have their own autonomous sanctions, such as when Latvia passed a version of the US's Magnitsky Act in 2018, imposing travel restrictions on 49 Russian citizens.

Who/what is included on the Specially Designated Nationals and Blocked Persons (SDN) List, and how is the list used?

OFAC's Specially Designated Nationals and Blocked Persons (SDN) List is a list of individuals and companies that are owned, controlled by, or acting on behalf of a targeted country. The list also includes groups and people, such as terrorists and drug traffickers, who are associated with a specific crime versus a country. The US Treasury maintains the list and may name a person or company as an SDN. When the government identifies a person or company as an SDN, it blocks their assets and forbids US persons to do business with them. The government may also impose fines and imprison lawbreakers, and individuals may lose their export privileges. The US government may put the person or business on a list of blocked, denied, or debarred individuals and institutions.

How can sanctions serve to prevent the misappropriation of state resources?

One of the purposes of sanctions is to freeze and return resources that have been misappropriated by kleptocrats (i.e., corrupt leaders who exploit the people and resources of a state for personal gain). As such, sanctions can aim to prevent corrupt officials from embezzling and from accessing financial services in order to illegally launder money taken while they were ruling their countries.

What are secondary sanctions, and what is their purpose?

Secondary sanctions are sanctions that apply to non-US persons who are involved in transactions with individuals and entities in other countries. The purpose of secondary sanctions stems from globalization weakening the impact of primary sanctions as alternative finance and trade become more available. Secondary sanctions are an example of a state exercising extraterritorial jurisdiction.

What is the purpose of sanctions?

Sanctions are measures or actions taken against a target to influence its behavior, policies, and/or actions. Sanctions can restrict trade, financial transactions, diplomatic relations, and movement. Also referred to as restrictive measures, sanctions can be specific or general in their implementation and enforcement.

How do thematic sanctions differ from economic sanctions?

Sanctions can target activities or geography. Thematic sanctions focus on particular issues or concerns that may cut across geographic boundaries, such as counter-narcotics sanctions. Examples of thematic sanctions include the strengthening of human or labor rights, freeing of captured citizens, and reversal of land captures. Although the EU has historically imposed geographic sanctions, in recent years, it has also adopted thematic sanctions, including those promoting human rights. In contrast, geographic sanctions target specific countries or regions, such as North Korea and Crimea.

What is sanctions compliance?

Sanctions compliance is the act of adheringto the sanctions-related legislation, regulations, rules, and norms that make up the complex sanctions landscape.

Explain the principle of strict liability.

Strict liability is the principle that an organization is liable even if it did not intend to violate or knowingly violate a sanction. Organizations are liable even if they have robust sanctions compliance programs in place.

How are UN and EU sanctions implemented by members?

The UN and EU rely on members to enforce sanctions regimes. The US is best known for its enforcement of penalties and the resulting fines; however, other nations have begun issuing more severe penalties for sanctions violations.

Define targeted/smart sanctions.

Targeted sanctions (or "smart" sanctions)are sanctions against a specific target, generally with the goal of a specific outcome. Targeted sanctions can exist in the form of financial or trade restrictions focused on restricting movement, and they can be applied unilaterally by one country or multilaterally by many countries. Targeted sanctions allow for greater discrimination in imposing sanctions, especially considering that a particular geographic location can contain many different ethnicities, minorities, and other groups. The idea is that the policy and behavior of the government is not necessarily reflective of the attitudes of the people being governed. Targeted sanctions also reject the philosophy that causing civilian pain and unrest leads to political change, or hold that if it does, such a trade-off is not acceptable.

How do sanctions relate to terrorist activities?

Terrorist organizations require funding for training, recruiting, and paying stipends to terrorists and their surviving family members. Although terrorist groups may not be dissuaded by sanctions from pursuing their agendas, the use of economic sanctions can dissuade states from providing refuge and material support to terrorist groups. In 1999, the UN Security Council established a sanctions regime that targeted individuals and entities affiliated with Al-Qaeda and the Taliban. These sanctions have been expanded to include individuals and entities affiliated with ISIS. Following the attacks of September 11, 2001, the UN passed UNSCR 1373, which obliged all of its Member States to sanction terrorist activity. Subsequent resolutions have built on UNSCR 1373 for the purposes of countering terrorist financing.

What is the Bureau of Industry and Security (BIS), and what does it do?

The Bureau of Industry and Security (BIS) isa section of the US Department of Commercethat is responsible for ensuring that financial sanctions are properly understood, implemented,and enforced in the United States. Among other tasks, BIS regulates the import and export of sensitive, dual- use, and controlled goods and materials. BIS also maintains the Entity List, the Denied Persons List, and the Unverified List. The mission statement of BIS is: "Advance US national security, foreign policy, and economic objectives by ensuring an effective export control and treaty compliance system and promoting continued US strategic technology leadership."

What is the role of the EU's Common Foreign and Security Policy (CFSP) in terms of sanctions?

The EU adopts sanctions through decisions made by the Common Foreign and Security Policy (CFSP). Prior to going to the CFSP, the proposed sanction is examined and discussed by a regional preparatory body. Next, it works its way through the Working Party of Foreign Relations Counsellors (RELEX), the Political and Security Committee (PSC), and the Committee of Permanent Representatives (COREPER II). After making it that far, the resolution must be unanimously adopted by the CFSP. Upon being published in the Official Journal of the European Union, the sanction goes into effect.

How does the EU use blocking regulations as a countermeasure to US extraterritorial sanctions?

The EU's blocking regulations (Regulation No. 2271/96) essentially ban Member States from complying with or assisting the US in enforcing restrictions imposed under extraterritorial sanctions Article 5 of the blocking regulation provides a mechanism for EU companies to ask the European Commission for an exemption to the regulation "if they can demonstrate that compliance with the regulation would 'seriously damage their interests' or the interests of the EU." Additionally, the EU blocking regulation allows Member States to impose sanctions when there is a breach of the EU's blocking regulation. It also allows an EU person impacted by extraterritorial sanctions to recover damages for losses resulting from"the application of [extraterritorial sanctions] or actions based thereon or resulting therefrom."

What is the difference between the FATF blacklist and individual firms' blacklists?

The FATF blacklist is a list of countries that FATF has determined are noncooperative in the international fight against money laundering and terrorist financing. Member countries of FATF are expected to apply countermeasures against blacklisted countries to guard the international financial system from the risks arising out of those jurisdictions. Firms can also maintain an internal blacklist, i.e., names (including places, persons, entities, and individuals) that are screened to identify any sanctions exposure, in addition to government and vendor- maintained sanctions lists. Other potential additions to a firm's internal blacklist may come from OFAC advisories and other warnings that list entities that did not merit being placed on the SDN list but are still considered high risk.

What is the FATF greylist?

The FATF greylist is a list of countries thatdo not merit inclusion on the blacklist, buthave strategic deficiencies in their anti-money laundering and counterterrorism financing regimes. Additionally, these countries have not made sufficient progress or otherwise committed to action plans to address the deficiencies identified by FATF. Ongoing failure to address these deficiencies could eventually result in being moved from the greylist to the blacklist.

What is the Financial Action Task Force (FATF)?

The Financial Action Task Force (FATF)was chartered in 1989 by the Group of Seven(G7) organization to foster the establishment of national and global measures to combat money laundering. It is an international policy-making body that sets anti-money laundering standards and counterterrorist financing measures worldwide. Its recommendations do not have the force of law. Thirty- five countries and two international organizations are members. In 2012, FATF substantially revised its 40+9 Recommendations and reduced them to 40. FATF develops annual typology reports showcasing current money laundering and terrorist financing trends and methods.

What is the purpose of the International Convention for the Suppressionof the Financing of Terrorism?

The International Convention for the Suppression of the Financing of Terrorism was adopted by the UN General Assembly in 1999 to criminalize the financing of terrorism. The treaty calls for international cooperation in the detecting and freezing of assets that are used, or intended for use, to finance terrorism.

What powers does the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA) give the US president?

The International Emergency EconomicPowers Act (IEEPA) and the Trading with the Enemy Act (TWEA) are US federal laws authorizing the president to impose sanctions by executive order during a state of emergency. Statutes and executive orders are then further implemented by enacting regulations. Most sanctions regimes are authorized via the IEEPA.

What is the Joint Comprehensive Plan of Action (JCPOA)?

The Joint Comprehensive Plan of Action(JCPOA) is a detailed agreement with five annexes reached by Iran and the P5+1 (China,France, Germany, Russia, the United Kingdom, and the United States) on July 14, 2015. The nuclear deal was endorsed by UN Security Council Resolution 2231, adopted on July 20, 2015. Iran's compliance with the nuclear-related provisions of the JCPOA is verified by the International Atomic Energy Agency (IAEA) according to certain requirements set forth in the agreement. On May 8, 2018, President Trump announced that the United States would withdraw from the JCPOA and reinstate US nuclear sanctions on the Iranian regime.

What is the goal of the Kimberley Process Certification Scheme?

The Kimberley Process Certification Scheme was established by the UN in 2003 to establish trade controls over conflict diamonds (i.e., uncut diamonds mined in an area of armed conflict and traded illicitly to finance the fighting). Within the process, governments are required to implement controls on the import and export of diamonds to certify and control the trade, as well as create a documentary trail as to the extraction and refinement processes.

What is the Office of Foreign Assets Control (OFAC)?

The Office of Foreign Assets Control (OFAC)is an agency within the US Department of theTreasury that is responsible for administering and enforcing economic sanctions issued as part of US foreign policy and by international organizations, suchas the United Nations, against targeted foreign countries. It often works in consultation with other agencies, such as the Department of State, to oversee national security goals. A core component of the agency's responsibilities is the creation and maintenance of the Specially Designated Nationals (SDN) list.

What is the Office of the Superintendent of Financial Institutions (OSFI)?

The Office of the Superintendent of Financial Institutions (OSFI) is the primary agency regulating financial institutions in Canada.

What is the Sectoral Sanctions Identification (SSI) list?

The Sectoral Sanctions Identification (SSI)list is a list of individuals and entities targetedby sectoral sanctions. The SSI list is not partof the Specially Designated Nationals (SDN) list. However, individuals and companies on the SSI list may also appear on the SDN list. The SDN list is very broad, while the SSI list against Russia is very narrow.

What criteria does the United Nations Security Council employ for targeting individuals and entities with sanctions?

The UN uses sanctions as a measure to achieve international peace and security. Its Security Council has established key criteria for targeting individuals and entities, including: -Threats to peace, security, or stability -Violations of human rights and international humanitarian law - Obstructing humanitarian aid - Recruiting or using children in armed conflicts

What is the role of the International Atomic Energy Agency (IAEA)?

The UN's Treaty on the Non-Proliferation of Nuclear Weapons (NPT) established the International Atomic Energy Agency (IAEA) to monitor compliance with the terms of the treaty. The IAEA periodically inspects the facilities and operations of member nations that have concluded nuclear safeguards agreements with the Agency. It seeks to build confidence and trust among member nations, which helps to prevent the development of fissile material for military use.

What is the Non-Proliferation Treaty (NPT)?

The UN's Treaty on the Non-Proliferation ofNuclear Weapons, commonly known as the Non-Proliferation Treaty (NPT), was signed in 1968 and went into effect in March 1970. The NPT solidified the commitment of signing countries to prevent the spread of nuclear weapons. Its goal was to minimize the risk of the use of nuclear weapons in conflict, which could result in significant destruction. Likewise, the NPT sought to keep the weapons out of the hands of rogue nations and terrorists.

What is the significance of the USA PATRIOT Act to the field of anti-money laundering?

The Uniting and Strengthening Americaby Providing Appropriate Tools Required toIntercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act) was enacted on October 26, 2001.This historic US law brought about momentous changes in the anti-money laundering field, including more than 50 amendments to the Bank Secrecy Act. Title III of the act, the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001, contains most, but not all, of its anti-money laundering-related provisions.

What is the objective of the Wassenaar Arrangement?

The Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies, referred to as the Wassenaar Arrangement (WA), includes 42 states that have committed to greater responsibility and transparency in the exports of weapons and dual-use goods. The core objective of the WA is to provide information to members on those entities whose application for export licenses for providing certain goods were denied. The WA assists members to control arms exports and prevent arms from being acquired by terrorist groups.

What happens to a firm's residual risk when its control effectiveness weakens or inherent risk increases?

The residual risk matrix shows that a firm'sresidual risk increases as control effectiveness weakens (e.g., via the loss of strong compliance professionals) or as inherent risk increases (e.g.,the firm launches a high-risk product without competent staff to mitigate the risk).

Define facilitation.

The term facilitation describes actions taken by one person to assist or support another person in engaging in activity. Within a sanctions context, facilitation means when one person (person A), who is not allowed to engage in an activity either directly or indirectly, assists or supports another person (person B) to engage in that activity. The activity does not necessarily need to be prohibited for person B, but only for person A.

What are the five essential components of a sanctions compliance program, according to OFAC's "A Framework for OFAC Compliance Commitments"?

To help firms avoid sanctions violations and penalties, OFAC released "A Framework forOFAC Compliance Commitments," which provides guidance on sanctions compliance programs (SCPs). According to OFAC, the five essential components of an SCP are: Management commitment Risk assessment Internal controls Testing and auditing Training

What are the general goals of trade sanctions?

Trade sanctions in the form of limits on a country's exports aim to reduce its foreign sales and its foreign exchange. Trade sanctions in the form of limits on a country's imports (or the sanctioning country's exports to the target country) aim to deny the targeted country critical goods. Total trade embargoes are rare because of their unintended consequences to the citizenry of a targeted country. Most trade sanctions are selective, targeting, for example, energy, gas, finance, or luxury goods. Moreover, in most cases, the trade is only diverted. Trade sanctions also rarely impact the political elite (who may also benefit from the black market), and their impact is generally diffused throughout the entire population of the country.

Define transshipment.

Transshipment is the shipment of goods through intermediate countries, sometimes involving transfer from one vessel to another, before reaching an intended destination. Transshipment can be used to avoid blockades at the ports of entry for sanctioned regimes or to hide the identity of the country of origin at the destination location. Transshipment is prohibited by some governments and entities.

What are the intended consequences of travel bans?

Travel bans are sanctions that limit wherean individual can travel. They often come in the form of denying visas to individuals, such as political and military leaders of the sanctioned country. These travel bans can undermine leaders' legitimacy, illustrate moral resolve, and also cut off these individuals from accounts that they may hold overseas. Travel bans are most effective when used with other types of sanctions.

Define unilateral sanctions.

Unilateral sanctions are sanctions imposedby a single country against a targeted entity.These types of sanctions are generally considered less effective than multilateral sanctions, although they do serve to target specific offensive practices on behalf of imposing nations. For example, the Magnitsky Act in the US allows for unilateral, global sanctions to be imposed on human rights offenders. Assets can be frozen, and offenders may be barred from entering the US. In the 1980s, Australia autonomously banned shipments of uranium to France. With few exceptions (for example, the EU), unilateral sanctions are typically referred to as autonomous sanctions.

What factors does OFAC consider when determining the civil penalty for a sanctions violation?

When determining whether to initiate a civil enforcement proceeding, OFAC considers factors such as: - whether the violation involved willful or reckless conduct, the - harm the violation caused to the sanctions program objectives, and - the individual characteristics of the violator. These characteristics may include whether the violator has a sanctions compliance program, how sophisticated the program is, and what, if any, remedial measures were taken to address the issue and prevent its recurrence. Other considerations include the egregiousness of the case, the level of cooperation, the quality of the compliance program, whether management was involved in the violation, and whether the entity self-disclosed the violation.