International sanctions : impact on the local banking sector and how to implement an effective sanctions compliance framework

Abstract

International Sanctions, are political instruments executed through the foreign and security policies of international bodies, such as the United Nations, the European Union and national governments, to respond to acts in violation of international law or human rights, and major geopolitical challenges such as terrorism and conflicts. Due to their correlation with the international shifts in the political landscape, sanctions laws can be quite complex and subject to constant and frequent changes. This poses a particular challenge to individuals and firms in their aim to comply with sanctions requirements. The objective of this dissertation is to understand the impact that international sanctions pose on the local banking sector taking in consideration multilateral sanctions regimes imposed by the EU and UN, which are directly transposed into the local legislation, but also other unilateral sanctions imposed by countries such as the US. A breach in sanctions legislation can result in civil, criminal, and regulatory liability with subsequent fines and reputational damage. The international banking industry is not immune to such scenarios, with high profile cases relating to international groups such as HSBC Bank and BNP Paribas, highlighting the industry’s need to focus more on the management of sanctions compliance. The aim of this study, is to review the current position of local banking sector, from feedback collated through interviews with representatives of local regulators and a survey circulated with local banking institutions, with regard to international sanctions requirements. The paper will discuss how local institutions operate their compliance structure, and business in general, to effectively monitor and control sanctions related risks through the implementation of a sanctions compliance framework, capable of responding rapidly to changes in the sanctions landscape.