Governance and Enforcement Flashcards
What was the first recognized global body to impose sanctions?
After WWI - US President Woodrow Wilson aided in the establishment of the League of Nations, a predecessor of the United Nations.
The power to deploy sanctions was included in the League of Nations Covenants.
What is one of the first recorded instances of sanctions?
With the Megarian Decree in 432 BC, the Athenians levied economic sanctions, banning citizens of Megara from accessing markets in the Athenian empire.
What is UN’s Treaty on the Non-Proliferation of Nuclear Weapons?
The UN’s Treaty on the Non-Proliferation of Nuclear Weapons is commonly known as the Non-Proliferation Treaty or NPT
* Signed in 1968
* Effective in March 1970.
* extended indefinitely May 11, 1995.
Its goal is to create a binding commitment of disarmament by the five declared nuclear-weapon states and to promote the peaceful use of nuclear technology while preventing the spread of nuclear weapons and weapons technology.
What is the Magnitsky Act?
The Magnitsky Act, formally known as the Russia and Moldova Jackson–Vanik Repeal and Sergei Magnitsky Rule of Law Accountability Act of 2012, 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.
Which countries have similar legislation to the Magnitsky sanctions?
In chronological order, the countries with similar legislation to the Magnitsky sanctions are:
* Canada
* Estonia
* Lithuania
* United Kingdom
* Latvia.
What is the Kimberley Process Certification Scheme for rough diamonds?
The UN established the Kimberley Process Certification Scheme for rough diamonds in 2003.
The illicit trade in diamonds was found to be linked to various conflicts in West Africa, including in Angola, Côte d’Ivoire, Liberia, and Sierra Leone.
Within the process, governments were required to implement controls on the import and export of diamonds to both certify and control the trade and also to create a documentary trail as to the extraction and refinement process.
Why are sanctions imposed?
Sanctions may be used to:
* protect the financial system from international criminals
* to influence actions that lead to a reduction of money laundering, terrorist financing, and the trafficking of illegal goods by reducing the flow of funds
* to prevent corrupt officials from embezzling and from accessing financial services in order to illegally launder money taken while they were ruling their country
What is the USA PATRIOT Act?
The USA PATRIOT Act of 2001 establishes rules about deposits made into foreign bank accounts. It states that funds deposited in a foreign bank are subject to US jurisdiction if that foreign bank has an interbank account in the US as well.
What is Resolution UNSCR 1267?
In 1999, as a response to the bombing of the US Embassies in Kenya and Tanzania, the United Nations Security Council established a sanctions regime (Resolution UNSCR 1267) that targeted individuals and entities affiliated with Al-Qaeda and the Taliban.
They were expanded in 2014 to include individuals and entities affiliated to ISIS, also known as ISIL or Da’esh
What is the International Convention for the Suppression of the Financing of Terrorism?
The UN General Assembly adopted the International Convention for the Suppression of the Financing of Terrorism in 1999.
It criminalizes the financing of terrorism and calls for international cooperation in the detecting and freezing of assets that are used, or intended for use, to finance terrorism.
What is UNSCR 1373?
Following the attacks of September 11, 2001, the UN passed UNSCR 1373, which obliged all Member States of the United Nations to sanction terrorist activity.
What are three UN resolutions built upon UNSCR 1373?
- UNSCR 1624 in 2005
- UNSCR 2396 in 2017
- UNSCR 2462 in 2019
Describe sanctions against Sudan.
In 1996 the United Nations Security Council decided that countries should impose imitations on:
* diplomatic representation with Sudan
* movement of Sudanese dignitaries abroad.
What is a kleptocrat?
A kleptocrat is a corrupt leader who exploits the people and resources of a state for personal gain.
The EU has sanctioned kleptocrats in relation to:
* Tunisia
* Egypt after the Arab Spring
* ** Ukraine.**
What is UNSCR 1054?
UNSR 1054 imposed sanctions against Sudan in 1996 due to its government’s involvement in supporting international terrorist groups, including hosting Osama bin Laden and a number of his close entourage.
Later, the Security Council expanded the sanctions to include restrictions on the flights of Sudanese officials and aircraft run by the national air carrier.
The sanctions were lifted in 2001 after Sudan acceded to all international treaties related to counterterrorism and ordered the expulsion of bin Laden and his followers.
Who must comply with OFAC regulations?
- US citizens and permanent residents wherever located
- companies and other entities organized under US law
- All people and organizations, whatever their origin, physically in the United States; and
- All branches of US companies and other entities throughout the world.
What are the two categories of those subject to sanctions regulations?
- Individuals and entities required to comply with sanctions.
- Eligible targets of sanctions.
Describe the juridictional nature of sanctions.
- Citizens of a country (and permanent residents) must comply with sanctions regardless of whether they are outside of their home country.
- Regardless of citizenship, all entities and individuals must comply with the sanctions law of any country they are in physically.
Who imposes sanctions?
Governments and intergovernmental organizations, such as the UN and the EU, impose create sanctions through the passing of laws and regulations.
These laws and regulations may also be called “resolutions” in the case of the UN and “restrictive measures” in the case of the EU.
What are the Guidelines on Implementation and Evaluation of Restrictive Measures (Sanctions)?
In 2012, the EU published the Guidelines on Implementation and Evaluation of Restrictive Measures (Sanctions) in the Framework of the EU Common Foreign and Security Policy.
Which of the following best describes the Financial Action Task Force’s Mutual Evaluation Reports (MERs)?
Mutual Evaluation Reports (MERs) evaluate a country’s compliance with FATF’s recommendations.
What is facilitation in relation the US sanctions regime?
According to 31 CFR 506.208:
A US person, regardless of location, may not assist the activities of a non-US person if those activities would violate sanctions if the non-US person were a US person. E.g.:
* 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 are Multilateral Sanctions?
Multilateral sanctions are restrictions supported by more than one country or entity.
These can be imposed by allies against a common enemy or for the purpose of realizing a greater economic and punitive impact.
Examples:
* All sanctions imposed by the UN,
What are Unilateral Sanctions?
Also known as autonomous sanctions, unilateral sanctions are imposed by a single country against a targeted entity.
Examples:
* The Magnitsky Act allows for unilateral, global sanctions to be imposed on human rights offenders.
* In the 1980s, Australia autonomously banned shipments of uranium to France
What is extraterritoriality?
Also known as “secondary sanctions” - Extraterritorial jurisdiction, or “extraterritoriality,” is the ability of a state to make, apply, and enforce 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.
What is the USA PATRIOT Act?
Enacted on October 26, 2001 - The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56) included 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 “Title III”?
Title III is a chapter of the the USA PATRIOT Act.
Its formal title, ““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 are sanctions?
Also known as “restrictive measures,” sanctions can restrict:
* trade
* financial transactions
* diplomatic relations, and movement.
During which period did governments impose sanctions more often than in prior decades?
During the Cold War, governments imposed sanctions more often than in prior decades. The United States, as one of the two superpowers, imposed sanctions significantly more than any other country.
The bombing of which site provoked questions about whether sanctions were an alternative to war or might hasten military force?
US trade sanctions against Japan factored into the Japanese decision to enter World War II and attack Pearl Harbor
The assassination of a Washington Post reporter in Turkey in 2018 resulted in sanctions under the provisions of which of the following?
The Magnitsky Act, formally known as the Russia and Moldova Jackson–Vanik Repeal and Sergei Magnitsky Rule of Law Accountability Act of 2012, 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 are the key criteria the UN Security Council has set for targeting individuals and entities?
- Threats to peace, security, or stability
- Violations of human rights and international humanitarian law
- Obstructing humanitarian aid
- Recruiting or using children in armed conflicts
Which countries are permanent members of the U.N. Security Council?
Also known as the P5+1:
* Russia
* United States
* United Kingdom
* China
* France
What is the Denied Persons List?
The Bureau of Industry and Security (BIS) maintains the Denied Persons List - which is a list of persons for whom export privileges have been denied.
What is Section 311 of the USA PATRIOT Act?
Section 311 of the USA PATRIOT Act directs the US Treasury to designate a financial institution or jurisdiction as being of “primary money laundering concern” based on numerous jurisdictional and institutional factors, including the extent to which the institution is used to facilitate or promote money laundering.
US institutions provide an annual notice to their foreign financial institution customers warning them against maintaining these accounts as downstream correspondent accounts.
Which lists does BIS maintain?
- The Denied Persons List, which is a list of persons for whom export privileges have been denied.
- The Export Administration Regulations (EAR), which applies to commodities, technology, software, and other things subject to export controls.
As a compliance officer at a European financial institution with US correspondent accounts, you receive a notice from your US correspondent. What should you do?
Escalate the notice to senior management and general counsel.
Countries with strategic deficiencies in their anti-money laundering and counterterrorism financing regimes are placed on which of the following maintained by FATF?
Greylist
What is FATF?
Chartered in 1989 by the Group of Seven industrial nations, the Financial Action Task Force (FATF) is an international policy-making body that sets anti-money laundering standards and counterterrorist financing measures worldwide.
What is FinCEN?
The Financial Crimes Enforcement Network (FinCEN) is a bureau of the United States Department of the Treasury that collects and analyzes information about financial transactions in order to combat domestic and international money laundering, terrorist financing, and other financial crimes.
What are OFAC’s five essential compliance components of a Sanctions Compliance Program (SCP)?
- Management commitment
- Risk assessment
- Internal controls
- Testing and auditing, and
- Training
What is the purpose of regular risk assessments?
According to the Wolfsberg Group the key purpose of a risk assessment is to drive improvements in financial crime risk management through identifying:
* The general and specific sanctions risks a financial institution is facing
* The ways in which these risks are mitigated by a firm’s sanctions compliance program controls
* Any additional controls to mitigate the residual risk that remains for the institution.
What is the Wolfsberg Group?
The Wolfsberg Group is an association of 13 global banks that develops frameworks and guidance for managing financial crime risks.
What is the first step toward the determination of a financial institution’s risk appetite?
The firm first needs to define what it considers to be high, medium, and low risk for
* customers
* products/services
* countries
* delivery channels.
What are the three components of the risk formula suggested by the Wolfsberg Group for sanctions risk assessment?
- Inherent risk
- Control effectiveness
- Residual risk
How is inherent risk determined?
The level of inherent risk is determined by examining the probability of occurrence and the severity of the impact of sanctions violation.
What are delivery channels?
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).
Which of the following is an example of controls used within a sanctions compliance program to mitigate its inherent risks?
- Independent testing
How do delivery channels influence risk?
- Reliance on third parties poses a higher sanctions risk than when a business interacts directly with customers and suppliers diligence, especially if those affiliates are in jurisdictions with lower compliance standards.
- Delivery channels that process payments quickly are a higher risk, because there is less time for potential investigation. (ACH payments are a higher risk than an international wire transfer.)
What is residual risk?
Residual risk is the risk that remains after controls to other risk types have been implemented.
Why is it important for risk assessments to be conducted across various assessment units, with all lines of business contributing to the overall risk assessment?
Determining the assessment units, their granularity and complexity, and how they combine with one another is important for an accurate and thorough risk assessment. Often larger, global financial institutions struggle as their various connected entities conduct risk assessments using different methodologies.
Why is it important to continuously monitor sanctions news?
Sanctions are continually changing, and effectively monitoring these changes mitigates the risk inherent in this change.
Keeping current can include requiring vendors to provide updated lists (although this method is not completely reliable), monitoring government websites through subscriptions, and creating tailored news alerts.
What is the role of policies and procedures as aspects of an institution’s sanctions compliance program?
They identify, interdict, escalate, report, and maintain records concerning potentially prohibited activities.
What is the role of the independent audit in a financial institution’s sanctions compliance program?
Auditing assesses the overall integrity and effectiveness of the compliance program, including policies, procedures, and processes.
An effective employee training program is an integral component of a successful sanctions compliance program and generally should:
Hold employees accountable for sanctions compliance training through assessments.
As a sanctions regime in the United States, what is one of the purposes of the Office of Foreign Assets Control (OFAC)?
It enacts and regulates sanctions to mitigate threats to national security, foreign policy, and the US economy.
The European Union sanctions regime is comprised of..
All sanctions imposed by the Common Foreign Security Policy Council and published in the Official Journal of the European Union, and all sanctions imposed by the UN Security Council.
Which US agencies are responsible for issuing licenses that allow financial institutions to do business with companies or organizations that are under sanction?
The Office of Foreign Assets Control (OFAC) and the Bureau of Industry and Security (BIS)
How long does a counterparty relationship last?
For the life of the transaction.
What lesson can financial professionals learn from the 2014 case of Alex and Gary Tsai?
It is essential to have a thorough knowledge of a customer’s identity and his or her connection to other entities.
