Compliance sanctions update 3.1.23: the Russia-Ukraine crisis

Start of the second year for Russia-Ukraine war

On February 24th, 2023, one year after Russia invaded Ukraine, the Financial Action Task Force (FATF) officially suspended the membership of the Russian Federation. In the statement, the FATF wrote: “…this war was going against its principle of promoting security, safety, and the integrity of the global financial system and the commitment to international cooperation and mutual respect upon FATF Members have agreed to implement and support the FATF Standards”ⁱ. The FATF is also concerned by the reports of arms trade between Russia and United Nations sanctioned jurisdictions and malicious cyber-activities coming out of Russia.

While the FATF suspension of the Russian Federation does not carry a direct impact to your sanctions program, it does put pressure on all jurisdictions under the FATF to be more vigilant to current and emerging risks from the circumvention of measures taken against the Russian Federation to protect the international financial system.

What is the FATF, and why is this important?

The FATF is the global money laundering and terrorist financing watchdog. It sets international standards that aim to prevent any illegal activities and the harm they cause to society. There are over 200 jurisdictions around the world that have committed to the FATF Recommendations through the global network of FATF-Style Regional Body (FSRB) and FATF memberships.

Because the FATF believes Russia’s actions go against its core principles and violated their commitment to the agreed upon FATF standards, the Russian Federation remains accountable for its obligation to implement the standards set by the FATF. More so, the FATF will continuously monitor the situation between Russia and Ukraine, and in the future, may consider whether the grounds exist for lifting the suspension or modifying these restrictions.

Along with suspending Russia’s membership, the FATF has made the following commitments:

• The FATF agreed on revisions to Recommendation 25 on transparency and beneficial ownership of legal arrangements.
• New guidance to help countries and the private sector to implement the FATF’s strengthened requirements on Recommendation 24 on transparency and beneficial ownership of legal persons.
• Action plan to drive timely global implementation of the FATF standards relating to virtual assets (cryptocurrency, virtual currencies) globally, including on the transmission of originator and beneficiary information.

What’s happened around the globe since the FATF’s suspension of Russia’s membership?

United States of America: The U.S. Department of Treasury, Office of Foreign Asset Control updated Executive Order 14024 ⁱⁱ to include the metals and mining sector of the Russian Federation. The U.S. has also sanctioned an additional 22 individuals and 83 entities.ⁱⁱⁱ These actions isolate Russia even further from the international economy and hinder Russia’s ability to obtain the capital, materials, technology and support that sustains its war against Ukraine.

Canada: The Special Economic Measures Act^iv targets 129 individuals and 63 entities, including Russian deputy prime ministers and other officials.

United Kingdom: As part of a fresh round of sanctions against Moscow, the HM Treasury has banned the export of every item the Russian military has been found using in Ukraine.^v The export ban will apply to things like aircraft parts, radio equipment and electronic components that have been used by the Russian military in drones and other weapons. The HM Treasury also sanctioned an additional 92 entities and individuals.^vi

Australia: The Department of Foreign Affairs and Trade^vii imposed sanctions and travel bans on 90 persons, and targeted financial sanctions on 40 entities.

What can you do?

• Make sure you are checking against updated PEPs and sanctions lists.
• Screen and re-screen your client base and ensure matches are properly actioned.
• Use geolocation-based IP detection to monitor where transactions are initiated and block onboarding (KYC) applications when applicable.
• Monitor the public domain for adverse news. This will enable a holistic assessment of the reputational risk associated with your client base, some of which may have been named in articles linked with sanctioned individuals or entities.

Book a meeting to speak to one of our experts to learn more about our PEPs and Sanctions Screening.

Sources:
ⁱ FATF, “FATF Statement on the Russian Federation, 24 February 2023”
ⁱⁱ OFAC, “DETERMINATION PURSUANT TO SECTION 1(a)(i) OF EXECUTIVE ORDER 14024”
ⁱⁱⁱ OFAC, “Russia-related Designations and Designations Updates”
^iv Global Affairs Canada, “Canadian Sanctions Related to Russia”
^v FCDO, “New sanctions ban every item Russia is using on the battlefield”
^vi OFSI, “Financial Sanctions Notice, 24/02/2023” 
^vii Minister for Foreign Affairs, “Australia stands with Ukraine with additional military support and sanctions”