Governance and Enforcement Flashcards
1
Q
What was the first recognized global body to impose sanctions?
A
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.
2
Q
What is one of the first recorded instances of sanctions?
A
With the Megarian Decree in 432 BC, the Athenians levied economic sanctions, banning citizens of Megara from accessing markets in the Athenian empire.
3
Q
What is UN’s Treaty on the Non-Proliferation of Nuclear Weapons?
A
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.
4
Q
What is the Magnitsky Act?
A
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.
5
Q
Which countries have similar legislation to the Magnitsky sanctions?
A
In chronological order, the countries with similar legislation to the Magnitsky sanctions are:
* Canada
* Estonia
* Lithuania
* United Kingdom
* Latvia.
6
Q
What is the Kimberley Process Certification Scheme for rough diamonds?
A
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.
7
Q
Why are sanctions imposed?
A
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
8
Q
What is the USA PATRIOT Act?
A
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.
9
Q
What is Resolution UNSCR 1267?
A
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
10
Q
What is the International Convention for the Suppression of the Financing of Terrorism?
A
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.
11
Q
What is UNSCR 1373?
A
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.
12
Q
What are three UN resolutions built upon UNSCR 1373?
A
- UNSCR 1624 in 2005
- UNSCR 2396 in 2017
- UNSCR 2462 in 2019
13
Q
Describe sanctions against Sudan.
A
In 1996 the United Nations Security Council decided that countries should impose imitations on:
* diplomatic representation with Sudan
* movement of Sudanese dignitaries abroad.
14
Q
What is a kleptocrat?
A
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.**
15
Q
What is UNSCR 1054?
A
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.
16
Q
Who must comply with OFAC regulations?
A
- 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.
17
Q
What are the two categories of those subject to sanctions regulations?
A
- Individuals and entities required to comply with sanctions.
- Eligible targets of sanctions.
18
Q
Describe the juridictional nature of sanctions.
A
- 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.
19
Q
Who imposes sanctions?
A
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.
20
Q
What are the Guidelines on Implementation and Evaluation of Restrictive Measures (Sanctions)?
A
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.
21
Q
Which of the following best describes the Financial Action Task Force’s Mutual Evaluation Reports (MERs)?
A
Mutual Evaluation Reports (MERs) evaluate a country’s compliance with FATF’s recommendations.
22
Q
What is facilitation in relation the US sanctions regime?
A
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.
23
Q
What are Multilateral Sanctions?
A
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,
24
Q
What are Unilateral Sanctions?
A
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
25
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.
26
What is the **USA PATRIOT Act**?
Enacted on **October 26, 2001** - The **U**niting and **S**trengthening **A**merica by **P**roviding **A**ppropriate **T**ools **R**equired to **I**ntercept and **O**bstruct **T**errorism **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.
27
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.
28
What are **sanctions**?
Also known as "**restrictive measures,**" sanctions can restrict:
* trade
* financial transactions
* diplomatic relations, and movement.
29
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.
30
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**
31
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.
32
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
33
Which countries are **permanent members of the U.N. Security Council**?
*Also known as the P5+1*:
* Russia
* United States
* United Kingdom
* China
* France
34
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**.
35
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.
36
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.
37
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**.
38
Countries with **strategic deficiencies** in their anti-money laundering and counterterrorism financing regimes are placed on which of the following maintained by **FATF**?
**Greylist**
39
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.
40
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._
41
What are **OFAC's five essential compliance components** of a Sanctions Compliance Program (SCP)?
1. Management commitment
2. Risk assessment
3. Internal controls
4. Testing and auditing, and
5. Training
42
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.
43
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**.
44
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.
45
What are the **three components of the risk formula** suggested by the Wolfsberg Group for sanctions risk assessment?
* Inherent risk
* Control effectiveness
* Residual risk
46
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.
47
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**).
48
Which of the following is an **example of controls** used within a sanctions compliance program to mitigate its inherent risks?
* Independent testing
49
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.)
50
What is **residual risk**?
Residual risk is the **risk that remains after controls** to other risk types have been implemented.
51
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**.
52
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.
53
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.
54
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**.
55
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.
56
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.
57
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.**
58
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**)
59
How long does a **counterparty relationship** last?
For the **life of the transaction.**
60
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**.
61
Why was the **BNP Paribas case of May 2015** especially significant?
It was the **first time a US court convicted and sentenced a financial institution** for violating the country’s sanctions.
62
What is an important **difference between AML regulations and sanctions**?
In most cases, **sanctions have an immediate legal effect**, and AML regulations do not.
63
What are the **two components of the governance structure** that support a financial institution’s sanctions compliance program?
The **board** of directors and the **three lines of defense.**
64
Describe the first line of defense within the governance structure of a sanctions compliance program.
It basically owns and manages the **collection of sanctions due diligence (SDD) information.**
65
It is important for the **sanctions compliance officer (SCO) to be independent from the first line** of defense:
to **prevent conflicts of interest** and facilitate **unbiased advice and counsel**
66
What is the **purpose of sanctions**?
The purpose of sanctions is to **influence the behavior, policies and/or actions of a target**—possibly restricting trade, financial transactions, diplomatic relations, and movement.
67
What is **sanctions compliance**?
Sanctions compliance is the act of **adhering to the sanctions-related legislation, regulations, rules, and norms** that make up the complex sanctions landscape.
68
Define **embargo**.
An embargo is an official government action to **ban trade or commercial activity with a specific country**, sometimes involving a **specific trade product** (e.g., a grain embargo or an oil embargo).
69
How do **blockades** differ from sanctions?
Blockades involve the **deployment of military resources by land, air, or sea, by a country or coalition to prevent the movement of goods or people** into or out of a targeted country. In contrast, sanctions involve punitive legal actions.
70
What is the **intended impact of economic sanctions **on targets?
Economic sanctions are intended to impact targets by **limiting the target country’s exports, restricting its imports, or impeding finance (including reducing aid)**.
71
How do **thematic* sanctions differ from geographic sanctions?
**Thematic sanctions** focus on issues or concerns that may cut across geographic boundaries, such as **counter-narcotics** sanctions. In contrast, economic sanctions target specific countries or regions, such as North Korea and Crimea.
72
What is a **sanctions regime**?
A sanctions regime is a set of unilateral or multilateral **sanctions that have a common nexus or theme**. Sanctions regimes may be referred to by issuer or intended purpose (examples: “OFAC sanctions regime” or “North Korea sanctions regime.”)
73
What is the **role of the International Atomic Energy Agency (IAEA)**?
The IAEA monitors compliance with the terms of NPT by periodically **inspecting the facilities and operations of member nations that have concluded nuclear safeguards agreements** with the Agency. It seeks to **build confidence and trust among member nations**, which helps to **prevent the development of fissile material for _military use_**.
74
What is the **Non-Proliferation Treaty (NPT)**?
The NPT is a UN treaty that solidified the commitment of signing countries to **prevent the spread of nuclear weapons**.
The NPT was **signed in 1968** and went into **effect in March 1970** to minimize the risk of the use of nuclear weapons in conflict and keeping the weapons out of the hands of rogue nations and terrorists.
75
What is the goal of the **Kimberley Process Certification Scheme**?
The goal of the Kimberley Process Certification Scheme is to **establish trade controls over conflict diamonds** by requiring governments to implement **controls on the import and export** of diamonds to certify and control the trade, and to create a **documentary trail regarding the extraction and refinement processes.**
76
What precipitated the passage of the **Magnitsky Act** in the US?
The Magnitsky Act originated from the **mistreatment of attorney and auditor Sergei Magnitsky by Russian officials** while he was in a Moscow prison for investigating fraud related to Russian tax officials.
77
Define the **concept of money laundering**.
Money laundering is the process of concealing or **disguising the existence, source, movement, destination, or illegal application of illicitly derived property or funds to make them appear legitimate**. The definition of money laundering varies in each country where it is recognized as a crime.
78
What is the **significance of the USA PATRIOT Act** to the field of anti-money laundering?
The USA PATRIOT Act brought about momentous changes in the anti-money laundering field **including more than 50 amendments to the Bank Secrecy Act.**
79
How do sanctions relate to terrorist activities?
The use of economic sanctions can **dissuade states from providing refuge and material support to terrorist groups** that require funding for training, recruiting, and paying stipends to terrorists and their surviving family members.
80
How can sanctions serve to **prevent the misappropriation of state resources**?
By **freezing and returning resources** that have been misappropriated by kleptocrats, sanctions aim to prevent corrupt officials from embezzling and from accessing financial services to illegally launder money taken while they were ruling their countries.
81
Define the concept of **globalization**.
Globalization refers to the **integration of national economic trade and communication operations** by businesses engaging in international trade, advocating a **free transfer of goods, services, and assets** across national and international boundaries.
82
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 to realize a greater economic and punitive impact.
83
Define **unilateral sanctions**.
Unilateral sanctions are sanctions **imposed by a single country** against a targeted entity.
84
In the context of sanctions, what is the significance of **Article 41 of the UN’s founding charter**?
Article 41 of Chapter VII of the UN’s founding charter **establishes the right to impose sanctions as a measure to achieve international peace and security**.
85
What is the purpose of the **International Convention for the Suppression of the Financing of Terrorism**?
The purpose of the International Convention for the Suppression of the Financing of Terrorism is to **criminalize the financing of terrorism**.
86
What criteria does the **United Nations Security Council** employ for **targeting individuals and entities with sanctions**?
The criteria employed by the United Nations Security Council for targeting individuals and entities with sanctions include:
* Threats to peace, security or stability.
* Violations of human rights and international humanitarian law.
* Obstructing humanitarian aid.
* Recruiting or using children in armed conflicts.
87
What is the **Bureau of Industry and Security (BIS)**?
The BIS is a **section of the US Department of Commerce** that is responsible for **ensuring that financial sanctions are properly understood, implemented and enforced** in the United States.
88
What is the **Office of Foreign Assets Control (OFAC)**?
The Office of Foreign Assets Control ("OFAC") of the US Department of the Treasury administers and **enforces economic and trade sanctions based on US foreign policy and national security goals** against targeted:
* Foreign countries and regimes,
* Terrorists
* International narcotics traffickers
* Activities related to the proliferation of nuclear weapons
89
Who/what is included on the **Specially Designated Nationals and Blocked Persons (SDN)** List?
The SDN List is a **list of individuals and companies that are owned, controlled by or acting on behalf of a targeted country**. The list also includes groups and people, such as **terrorists and drug traffickers, who are associated with a specific crime** versus a country.
90
Define **Export Administration Regulations (EARs)**.
**EARs comprise a set of regulations** administered and enforced by the **Bureau of Industry and Security (BIS)**.
They apply specifically to **physical goods or commodities such as technology, software, and other items subject to export controls**.
91
For a financial institution or jurisdiction, what is the **consequence of being designated a primary money laundering concern**?
A financial institution or jurisdiction designated as a primary laundering concern is **effectively cut off from the US dollar payment system** as they are **prohibited from providing products or services to other financial institutions** that in turn provide products or services to one of the designated institutions or jurisdictions of concern.
92
What power does the **International Emergency Economic Powers Act (IEEPA)** and the **Trading with the Enemy Act (TWEA)** give the US president?
The IEEPA and the TWEA authorize the US president to impose **sanctions by executive order during a state of emergency**.
93
What is the role of the **EU’s Common Foreign and Security Policy (CFSP)** in terms of sanctions?
The **EU adopts sanctions unanimously** made by the CFSP.
94
What is the **Financial Action Task Force (FATF)**?
The FATF is an international policy-making body that **sets anti-money laundering standards and counterterrorist financing measures** worldwide.
95
What is the Financial Action Task Force **(FATF) grey list**?
The FATF grey list is a list of countries that do not merit inclusion on the blacklist, but **have strategic deficiencies in their anti-money laundering and counterterrorism financing regimes** or have not made sufficient progress or otherwise committed to action plans to address the deficiencies identified by FATF.
96
What is the **difference** between the Financial Action Task Force **(FATF) blacklist and individual firm blacklists**?
The FATF blacklist is a list of countries that FATF has determined are noncooperative in the international fight against money laundering and terrorist financing.
In contrast, **individual firm blacklists are internal lists of names (including places, persons, entities, and individuals) that are screened to identify any sanctions exposure in addition to government and vendor- maintained sanctions lists**, including high-risk entities that do not merit SDN listing but are still considered high risk, based on OFAC advisories and other warnings.
97
What does the Financial Action Task Force **(FATF) Recommendation 6 specify regarding due diligence**?
FATF’s Recommendation 6 specifically addresses sanctions due diligence by **requiring countries to implement targeted sanctions regimes to comply with UN Security Council resolutions** that are relevant to sanctions.
98
What is the purpose of a **Mutual Evaluation Report (MER)**?
An MER provides an **in-depth description and analysis of a country’s systems for limiting financial crimes** based on FATF recommendations, potentially **influencing the risk a financial institution will take when dealing with a particular country or region**.
99
What is the **Office of the Superintendent of Financial Institutions (OSFI)**?
The OSFI is the primary agency **regulating financial institutions in Canada**.
100
What are the **five essential components** of a sanctions compliance program (SCP) according to OFAC’s “**A Framework for OFAC Compliance Commitments**”?
The five essential components of an SCP are:
1. **Management** commitment
2. Risk **assessment**
3. Internal **controls**
4. **Testing** and auditing
5. **Training**.
101
Explain the **scope of the terms “property” and “property interest”** in the context of sanctions.
In the context of sanctions, the term **“property” is very broadly defined** to include much **more than money and trade goods**. In the US, the terms “property” and “property interest” **include checks, merchandise, trademarks, annuities, and a broad array of other interests** as defined in US law.
102
**Define facilitation** within a sanctions context.
Within a sanctions context, facilitation means when **one person (person A), who is not allowed to engage in an activity** either directly or indirectly, **assists or supports another person** (person B) to engage in that activity. The **activity does not necessarily need to be prohibited for person B**, but only for person A.
103
What is **extraterritorial jurisdiction**, or **extraterritoriality**?
Extraterritorial jurisdiction, also referred to as extraterritoriality, describes a state making, **applying, and enforcing laws**, regulations, and other rules of conduct in respect to persons, property, or activity **beyond its territory.**
104
What are **secondary sanctions**?
Secondary sanctions are **sanctions that apply to non–US persons who are involved in transactions** with individuals and entities **in other countries**.
105
What is the **Joint Comprehensive Plan of Action (JCPOA)**?
The **JCPOA is a detailed agreement with five annexes reached by Iran and the P5+1** (China, France, Germany, Russia, the United Kingdom, and the United States) on **July 14, 2015**.
On **May 8, 2018**, President Trump announced that the United States would **withdraw from the JCPOA and reinstate US nuclear sanctions** on the Iranian regime.
106
How does the **EU** use **blocking regulations** as a **countermeasure to US extraterritorial sanctions**?
The EU’s blocking regulations (**Regulation No. 2271/96**) essentially **ban Member States from complying with or assisting the US** in enforcing restrictions imposed under **extraterritorial sanctions**.
107
Define **license**.
A license is a **written authorization issued by a sanctions regulator that permits an activity that otherwise might be prohibited** or restricted under a particular sanction.
108
What is **delisting**?
Delisting is the process of **removing a sanctions target from a list** after the restrictions imposed on them have been removed.
109
What are the general **goals of trade sanctions**?
Trade sanctions in the form of limits on a country’s **exports** aim to **reduce its foreign sales and its foreign exchange**.
Trade sanctions in the form of limits on a country’s **imports** (or the sanctioning country’s exports to the target country) aim to **deny the targeted country critical goods**.
110
Define **transshipment**.
Transshipment is the **shipment of goods through intermediate countries**, sometimes involving transfer from **one vessel to another, before reaching an intended destination**.
111
What is the objective of the **Wassenaar Arrangement (WA)**?
The core objective of the WA is to **provide information** to members on those **entities whose application** for export licenses for providing certain goods were **denied**.
112
What is the purpose of asset freezing/blocking?
Asset freezing/blocking prevents a person who is targeted by sanctions from accessing or using his or her bank account or other financial assets.
113
Define **targeted/smart sanctions**.
Targeted sanctions (or “smart” sanctions) are sanctions against a **specific target**, generally with the **goal of a specific outcome**.
114
How are **comprehensive sanctions different from targeted** sanctions?
**Comprehensive** sanctions **prohibit all transactions and activity** with a sanctioned country by the sanctioning country except in rare, specific instances (e.g., **exemptions for humanitarian purposes**).
In contrast, **targeted** sanctions are sanctions against a **specific target**, generally with a goal of a **specific outcome**.
115
What are **sectoral sanctions**?
Sectoral sanctions are a form of restriction focused on **targeting key entities and sectors of a country’s economy**.
116
What is the **Sectoral Sanctions Identification (SSI) list**?
The SSI list is a **list of individuals and entities targeted** by sectoral sanctions.
117
What are the intended **consequences of travel bans**?
Travel bans can..
* undermine a leader's legitimacy
* illustrate moral resolve
* cut off these individuals from accounts that they may hold overseas.
118
How are UN and EU sanctions implemented by members?
The UN and the EU rely on members to enforce sanctions regimes. The US is best known for its enforcement of penalties and the resulting fines; however, other nations have begun issuing more severe penalties for sanctions violations.
119
What **factors** does the **Office of Foreign Assets Control (OFAC) consider** when determining the **civil penalty for a sanctions violation**?
When determining whether to initiate a civil enforcement proceeding, OFAC considers factors such as
* whether the violation involved **willful or reckless conduct**
* the **harm the violation caused** to the sanctions program objectives
* individual **characteristics of the violator**.
Other considerations include:
* **egregiousness** of the case
* level of **cooperation**
* **quality** of the compliance program
* if **management was involved** in the violation
* if the entity **self-disclosed** the violation.
120
What is the role of the Office of Foreign Assets Control’s **(OFAC’s) **enforcement guidelines in cases of **noncompliance**?
In the US, OFAC uses its enforcement guidelines to determine **how to respond to a sanctions violation**.
In such cases, OFAC may take no action or may take a number of actions including:
* requesting **additional investigation**
* issuing a **caution**
* imposing a **civil monetary penalty**
* referring the case for **criminal prosecution.**
121
What is the **benefit of voluntary self-disclosure** of a sanctions violation?
When determining the consequences of a sanctions violation, the Office of Foreign Assets Control **(OFAC) may consider** the entity’s position that a voluntary self-disclosure warrants only a **civil violation as opposed to a criminal violation**.
122
Explain the **principle of strict liability**.
Strict liability is the principle that an organization is **liable even if it did not intend to violate or knowingly violate** a sanction.
123
What is the significance of **reputational risk** to financial firms?
Banks and other financial institutions are especially **vulnerable to reputational risk** because they can become a **vehicle** for, **or a victim** of, **illegal activities** perpetrated **by customers.**
124
What does the **New York State Department of Financial Services** (**NYDFS**) Final Rule **Part 504** require?
The Rule requires regulated institutions to maintain **TMPs** reasonably designed to **monitor transactions after their execution** for **compliance with the Bank Secrecy Act** and **AML laws** and regulations and **prior to their execution for compliance with the US treasury department’s Office of Foreign Assets Control (OFAC)**. It also includes **suspicious activity reporting requirements** and the **prevention of unlawful transactions with targets of economic sanctions** administered by OFAC.
125
Describe a **sanctions compliance program (SCP)**, including its **five essential components.**
A sanctions compliance program (SCP) is a program run by a firm to **comply with regulator expectations** concerning sanctions compliance and to **manage the firm’s sanctions risk*.
According to OFAC, the five essential components of an SCP are
1. **Management** commitment
2. Risk **assessment**
3. Internal **controls**
4. **Testing** and auditing
5. **Training.**
126
Define **transaction monitoring and filtering program (TMP).**
A TMP is a program under the **New York State Department of Financial Services (NYDFS) Final Rule Part 504** requiring financial institutions to **monitor transactions after their execution** for compliance with the **Bank Secrecy Act and AML laws and regulations.**
127
Why is it important for a firm to **demonstrate a culture of compliance throughout the organization**?
Firms that have strong commitments to **ethical values, such as honesty and integrity**, tend to stay out of trouble and attract the best talent and the most desirable clientele.
128
Why is a **risk-based approach** to sanctions compliance important?
Financial institutions must take a risk-based approach because they **cannot avoid all risk** when it comes to doing business within sanctions compliance programs.
129
How does a **whistleblower policy** function within a sanctions compliance program?
A whistleblower policy provides an **anonymous channel to escalate identified issues** and should establish a policy of **non-retaliation** for the identification and exposure of issues.
130
What do **automated screening tools (ASTs)** do?
In general, ASTs are designed to **screen against sanctions lists**, generating hits against sanctions lists that may be **consolidated into alerts** based on, for example, a customer record.
131
Define **batch screening**.
Batch screening is the process of **screening a firm’s entire customer base and other associated entities**, such as vendors, with automated screening tools (ASTs) on a periodic basis.
132
What is an **exclusions list**?
An exclusions list is a **list of names that the compliance team has verified do not actually match a name on a sanctions list** and are excluded from the sanctions screening process.
133
Why is it important for firms to perform **real-time screening**?
**Sanctions are generally a strict liability**, and the regulatory expectation is that **transactions will be screened prior to their execution**, i.e., via real-time screening.
134
Define **control effectiveness**.
Control effectiveness is the **measurement of the quality of controls** used to **mitigate** a business’s **inherent risks** (also referred to as **mitigation measures** or **quality of risk management**).
135
What happens to a firm’s residual risk when its control effectiveness weakens or inherent risk increases?
The residual risk matrix shows that a firm’s residual risk increases as control effectiveness weakens (e.g., via the loss of strong compliance professionals) or as inherent risk increases (e.g., the firm launches a high-risk product without competent staff to mitigate the risk).
136
Explain the concept of **risk appetite**.
Risk appetite is the **amount of risk that a firm is willing to accept in pursuit of value or opportunity**. A firm’s risk appetite **reflects its risk management philosophy** and comfort level for undertaking business in situations in which there could be an elevated sanctions risk. An organization’s **risk appetite is determined through the risk-assessment process** and **formalized in a Risk Appetite Statement** or Framework.
137
What is the **risk formula suggested by the Wolfsberg Group** for sanctions risk assessment?
The risk assessment formula suggested by the Wolfsberg Group is: **Inherent Risk – Control Effectiveness = Residual Risk**.
138
What is **inherent risk**?
Inherent risk is the level of sanctions **risk that exists before controls are applied** to mitigate them.
139
Explain the concept of **delivery channels**, including its relationship to sanctions risk.
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**).
For example, **reliance upon brokers, intermediaries, and other independent third parties poses a higher sanctions risk** than when a business interacts directly with customers and suppliers.
140
List at least five **controls used within a sanctions compliance program** to mitigate or reduce inherent risks.
Controls used within a sanctions compliance program to mitigate or reduce inherent risks include:
* Governance
* Policies and procedures
* Know Your Customer/due diligence (including beneficial ownership)
* Management information
* Recordkeeping and retention
* Sanctions blocks/rejections
* Monitoring
* Training and awareness
* Independent testing
141
What **four options** does a firm have for **managing its residual risk**?
The four options a firm has for managing its residual risk are:
1. It can transfer the risk
2. It can avoid the risk
3. It can seek to further mitigate the risk
4. It can accept the risk.
142
Give an example of an entity **other than a single government** that has **autonomous sanctions**.
**Coalition governments such as the EU** may impose autonomous sanctions.
These occur when its Council decides to **impose sanctions on its own initiative**. Most countries in the EU do not rely on autonomous sanctions, choosing instead to rely on the EU framework.
143
In the context of sanctions, what is the significance of Article 25 of Chapter VII of the UN’s founding charter?
Article 25 requires Member States to “accept and carry out the decisions of the Security Council in accordance with the present Charter.”
144
In the context of sanctions, what is the **significance of Article 48 of Chapter VII** of the UN’s founding charter?
Article 48 of the Charter constitutes an **affirmation of states’ obligation under Article 25** of the Charter to accept **binding decisions by the Council.**
145
What does the **Bureau of Industry and Security (BIS)** do?
The BIS **regulates the import and export of sensitive, dual-use, and controlled goods and materials**. The BIS also **maintains the Entity List, the Denied Persons List, and the Unverified List**.
146
How is the **Specially Designated Nationals and Blocked Persons (SDN) List** used?
When the government **identifies a person or company as an SDN, it blocks their assets and forbids US persons to do business with them**. The government may also impose fines and imprison lawbreakers, and individuals may lose their export privileges.
147
What is the purpose of **secondary sanctions**?
The purpose of secondary sanctions stems from **globalization weakening the impact of primary sanctions** as alternative finance and trade become more available.
148
Which **UN offices are involved in the process of delisting**?
The UN offices involved in the process of delisting include offices in the **UN Focal Point process** and the **Office of the Ombudsperson**.
149
What **tool** can firms use to implement a **risk-based approach**?
A **risk assessment** is an important tool that allows a business to identify and assess the extent to which it may be exposed to risk.
150
What are the **four main inherent risk categories**?
The four main inherent risk categories are
1. customers
2. products and services
3. countries
4. delivery channels.
151
How do the EU's **Guidelines on Implementation and Evaluation of Restrictive Measures** (Sanctions) apply?
These guidelines state that **regulations shall apply**:
* Within the territory of the (European) Union, including its airspace
* On board any aircraft or any vessel under the jurisdiction of a Member State
* To any person inside or outside the territory of the (European) Union who is a national of a Member State
* To any legal person, entity or body, inside or outside the territory of the (European) Union, which is incorporated or constituted under the law of a Member State
* To any legal person, entity or body in respect of any business done in whole or in part within the (European) Union
152
What are the **three components of Sanctions**?
* an economic action
* taken against a target (a state, class of persons, an individual person, or even a function)
* to influence the target’s actions
