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Risk Fraud & Compliance

Financial institutions having trouble seeing through the fog of Russia sanctions: Podcast

Gregg Wirth  Content Manager / Thomson Reuters Institute / Thomson Reuters

· 5 minute read

Gregg Wirth  Content Manager / Thomson Reuters Institute / Thomson Reuters

· 5 minute read

In the latest Thomson Reuters Institute podcast, we speak to the authors of a recent white paper exploring the challenges that global financial institutions face as they attempt to comply with sanctions imposed by Western countries on Russia

In the months since Russia’s invasion of Ukraine, many global banks and businesses have experienced big headaches as they get into compliance with the wave of sanctions, export controls, and prohibitions against providing certain corporate services to Russia.

For many, these sanctions have meant that they have had to expend considerable resources to know their customers better to keep doing business with unsanctioned parties in Russia. Some financial institutions have opted to “de-risk” and avoid the country entirely, exiting account relationships and disentangling themselves from funds transfers tied to Russia.

In the latest podcast available on the Thomson Reuters Institute channel, we speak to the Rachel Wolcott and Brett Wolf of Thomson Reuters Regulatory Intelligence and the co-authors of a new white paper, The fog of sanctions: Global banks & businesses face unprecedented challenges in applying measures against Russia.

In the podcast, we examine the evolving sanctions environment in several countries, including the United States, the United Kingdom, and the European Union. In addition, the authors also look at the bumpy road to cooperation among allies as they attempt to apply the sanctions that would arguably have the greatest impact.

You can access the latest Thomson Reuters Institute podcast, featuring a discussion about the “Fog of Sanctions” white paper, here.

The authors describe how today’s sanctions environment imposed on Russia is one of the most complex economic punishments ever meted out by the United States, EU, UK, and other nations. And while the U.S. Treasury has been pushing out reams of guidance, other governments have offered little clarity, leaving an information vacuum and major compliance challenges. Not surprisingly, legal, regulatory, and reputational risks faced by banks and businesses have skyrocketed, they explain.

In the podcast, Wolf and Wolcott examine the ways in which many countries are addressing gaps in their anti-money laundering and countering the financing of terrorism (AML/CFT) efforts exposed by the sanctions. The invasion and resulting sanctions have raised scrutiny of private fund managers such as hedge and private equity funds too. With some Russian oligarchs known to be prominent investors in such funds (and some oligarchs subject to sanctions for their ties to Russian President Vladimir Putin), the need to know who is investing in a fund and what it means for compliance are challenges that virtually all private funds face, they add.

The podcast delves into other complex challenges with which governments and global banks are dealing because of the Russian sanctions. These challenges — beyond the application and execution of the sanctions themselves — include everything from the rise of so-called reputation launderers who are working with Russian oligarchs to help them evade the sanctions or obscure their assets, and the problem of asset flight as more global players (both Russian and not) move their assets out of the oversight of regulatory agencies or sanction officers.

Finally, the podcast notes another significant complication stemming from this situation: Many financial services firms within the international finance and trade sectors are finding it difficult to hire financial crime compliance professionals to help meet added demands. In fact, the state firms’ financial crime compliance teams remain in worrisome condition as compliance teams find themselves lacking the resources and the talent to address fully the burdens that the new sanctions regime.

Indeed, those compliance professionals who find themselves short of desperately needed funding may have to make their case to their boards to provide additional resources to beef up compliance teams, the authors argue.

Episode transcript. 



You can access a full copy of the white paper, The fog of sanctions: Global banks & businesses face unprecedented challenges in applying measures against Russia, here.