AML POLICY
Exceptions to the rules
It is generally easier to prohibit a wide swath of behavior and to determine the exceptions, than it is to be more granular in specifying what is banned, unless the sanctioned activities are very narrow in scope. Recent history has shown that, sometimes, the seemingly narrowest of prohibitions today can lead to the realization that exceptions are still warranted tomorrow. Consider that one of the first General Licenses imposed under the Ukraine-related OFAC
One more way that regulators can show flexibility is through guidance documents, such as statements of licensing policy
sanctions was to permit business with the Turkish bank DenizBank, which was wholly-owned by Sberbank and thus subject( due to the“ 50 Percent Rule”) to the same sanctions as its parent. Recently, after the Russian Federal Security Service( known in the West as the FSB) was designated under OFAC’ s cyber sanctions. A General License was quickly issued to permit payment of fees to the FSB for forms processing that they perform on a routine basis.
Even General Licenses are not uniform in their operation. Some are time-limited( and often get extended); licenses for dealings with companies in Belarus and firms associated with Panamanian firms owned or controlled by Specially Designated Narcotics Trafficking Kingpins are the most prominent of this type. Others have reporting requirements, which increase the burden( and, therefore, the desirability) of maintaining those business ties. Most notably, the ability as part of the Trade Sanctions Reform and Export Enhancement Act to export certain foodstuffs, medicine and medical supplies to certain sanctioned countries is not a blanket authorization, but requires an exporter to obtain a one-year specific license for these activities. In fact, in 2016, multiple divisions of Alcon received a civil monetary penalty from OFAC for not obtaining that license on a consistent basis.
These additional sanctions program elements serve a number of useful purposes. Reporting and explicit licensing requirements permits a level of control and transparency regarding the limited flow of assets under these programs. They help curtail abuse of the exceptions( which is why these licensing elements are largely only imposed on countries that are compre-
hensively sanctioned), and raise the stakes for those looking to skirt the sanctions regulations in that way.
One more way that regulators can show flexibility is through guidance documents, such as statements of licensing policy. These provide guidance as to what exceptions to sanctions prohibitions will generally be approved for a specific license.
For example, the Statement of Licensing Policy for export or re-export of commercial passenger planes, and related parts and services states, in part that“ the following Statement of Licensing Policy establishes a favorable licensing policy under which U. S. and non-U. S. persons may request specific authorization from OFAC to engage in transactions for the sale of commercial passenger aircraft and related parts and services to Iran.” It then notes that the aircraft being sold must be used exclusively for civil aviation, and that authorized services would include“ warranty, maintenance, and repair services and safety-related inspections” for the aircraft used exclusively for commercial passenger flights. Such statements are intended to make companies less wary in engaging in specific transactions by clearly stating which applications are likely to be approved. The avail-
ability and breadth of such guidance is an additional tool to provide incentives or disincentives for continued compliance with sanctions program objectives.
A thick rule book
Having to deal with the granular nature of sanctions regulations and the exceptions to those somewhat general rules adds considerable time and effort to sanctions compliance efforts. In earlier days, when the U. S. only had blanket sanctions on North Korea, Cuba and North Vietnam, compliance processing was easier to complete in less time with fewer people needed for a proper review of potential violations. However, it came with regulators’ inability to offer intermediate steps between a blanket set of prohibitions and none at all.
In contrast, now is an emergent golden age for finely tuned regulatory carrots and sticks to more optimally achieve foreign policy goals. The only downside is that someone has to pay the bill for the shiny new toys. And, once again, it is the private sector that is stuck with the check, paid every day in extra staff, more involved policies and procedures, more extensive and complex training, and more rigorous program testing.
Eric A. Sohn, CAMS, director of business product, Dow Jones Risk & Compliance, New York, NY, USA, eric. sohn @ dowjones. com
ACAMS TODAY | SEPTEMBER – NOVEMBER 2017 | ACAMS. ORG | ACAMSTODAY. ORG 71