According to an article in the February 5th, 2024, Financial Times, an Iranian state-owned oil company, Petrochemical Commercial Company Iran (PCC), used UK-registered front companies to evade US sanctions and hold active accounts at Santander UK and Lloyds. Leaked documents allege that the companies were represented as owned by UK nationals but were held in trust by the Iranian company via a secret agreement. The listed owner of one of the companies, Pisco UK, served as a director of PCC as recently as 2022. It is important to note that Santander UK and Lloyds have stated that they have met their legal and regulatory obligations.
This case highlights the challenges to banks when complying with international sanctions. Banks are required to verify the ownership of a company and the identity of the owners and directors before opening an account and to monitor those entities on an ongoing basis to determine if they become subject to sanctions.
If a company owner enters into a secret agreement to sell or transfer ownership to a sanctioned entity, how should a bank discover this? In this case, the owner had been a director of a sanctioned company, and that information was public. This information could have and should have been discovered, but the company could have been onboarded and transacted before the sanctions were implemented.
Is it reasonable to expect a bank to do that level of research on all company owners and directors in response to a new sanctions regime?
When new sanctions regimes are implemented, banks must scramble to determine if existing customers are sanctioned or affiliated with a sanctioned entity. This activity is expensive and requires expertise and judgment. The number of potential hits can become unwieldy if you look at the total number of sanctioned entities and follow the chain to their owners, investors, subsidiaries, directors, and officers. Also, matching entity names from ownership documents and account records to the names on the published lists is challenging, as many entities have multiple names, aliases, and different spellings in different languages and alphabets.
Also, many AML gatekeepers quickly devise schemes to help their clients evade detection, making the task that much more difficult.
The potential penalties here are significant. In 2019, Standard Chartered paid a $1B fine, and UniCredit paid a $1.3B fine for breaching US sanctions on Iran.
Recent advancements in data management and artificial intelligence capabilities can help banks meet their sanction screening obligations more effectively by expanding the type and amount of data used in the process. The key is to effectively deploy these capabilities to increase accuracy while reducing the operational burden. Sanctions are not going away as more and more governments choose to use them as a foreign policy tool. #AML #financialcrimecompliance #globaleconomicsgroup #csrigg
