Guide to International Sanctions – Ruth Agius

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This year we have witnessed a comprehensive set of multilateral sanctions imposed on a major world economy, Russia. The United States, United Kingdom and other countries have also taken the leap to implement unilateral sanctions against Russia. But do we really understand the meaning of international sanctions?

Sanctions are a foreign policy tool used by countries to change unwanted behavior. Sanctions are measures that: support peaceful transitions; dissuade unconstitutional changes; limit terrorism; protect human rights; promote non-proliferation; and encompass a wide range of enforcement options that do not involve the use of armed force.

Sanctions can be multilateral and therefore apply to all countries legally linked to an organization, for example the United Nations. They are made enforceable by international treaties and codified in domestic law.

Sanctions can also be stand-alone, often called unilateral sanctions, and apply only to the country applying them. They are given a legal basis through national legislation and how this takes place varies from country to country.

Sanctions can be imposed by the United Nations (UN), the largest multilateral organization in the world. The 27 EU Member States are the most active users of sanctions as a tool of foreign policy in a multilateral environment. In addition, the US, UK and other countries have applied unilateral sanctions that build on relevant UN sanctions.

Sanctions have also moved from country-specific sanctions to thematic sanctions, which target specific issues, such as human rights. Examples are the US Global Magnitsky Act, the Canadian Sergei Magnitsky Act, UK human rights and anti-corruption regulations and EU restrictive measures against serious human rights violations and abuses. man, the most recent of the four to be adopted in 2020.

In Malta, sanctions are implemented under the National Interest (Enabling Powers) Act. This Act provides that UN resolutions imposing sanctions are immediately and directly applicable and enforceable in Malta. EU Council and Commission regulations concerning restrictive measures are directly applicable in Malta, as a Member State of the European Union.

The United States, through the Office of Foreign Assets Control (OFAC), may also require non-US financial institutions to implement restrictive measures, specifically when a transaction is related to the United States. States and is prohibited under their regulations.

Regulated institutions in Malta must implement, operate and regularly update a risk-based Sanctions Compliance Program (SCP) to mitigate sanctions risk. Commitment from senior management (SM) to support a risk-based PCS is critical to determining its success.

Sanctions obligations for organizations are likely to become more onerous-Ruth Agius

While each risk-based PCS may vary based on a variety of factors, including institution size, products and services, customers and counterparties, and geographic location, each program should incorporate:

DM commitment to implement, approve and periodically review the risk-based SCP. Therefore, effective controls must ensure: the commitment of human capital with technical knowledge and expertise; information technology and other resources, as appropriate; the acknowledgment of violations or apparent malfunctions, deficiencies or failures of the establishment and its staff to comply with the law and the regulations governing sanctions; implementation of the necessary measures to reduce the frequency of apparent violations in the future.

Risk assessment to identify potential sanction issues that may arise at top-down touch points with the outside world. Risk assessment should be performed on the institution’s customers, supply chain and counterparties; the services offered; the geographical location of the institution and its operational activity, its customers and its counterparties.

Implement internal controls to include policies and procedures that identify, transmit, report, and maintain records of activities that may lead to regulatory violations. Policies and procedures must: be relevant to the institution; capture the daily operations of the organization; and are easy to follow, to prevent employees from making a mistake.

Internal test and audit functions should be accountable to SM while being independent and having sufficient: authority; skills; skill; resources and authority within the institution. Upon learning of a negative test result, regarding their risk-based SCP, SM should take immediate and effective action to remedy the root cause of the identified weakness.

Training should be provided to all appropriate employees and personnel on a periodic basis. Therefore, SM must ensure that the training: provides job-specific knowledge; communicates sanctions compliance responsibilities for each employee; and holds employees accountable for risk-based SCP training through assessments.

As the world becomes more unstable, organizations’ sanctions obligations are likely to become more onerous. Keeping up with global regulations on anti-money laundering, terrorist financing and international sanctions is an absolute necessity for the regulatory well-being of any economy.

Ruth Agius is a Senior Analyst in the Sanctions Unit at Bank of Valletta.

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