Head of Financial Crime David Savage has written the EU Sanctions Enforcement chapter of the second edition of Global Investigations Review’s Guide to Sanctions.
The full guide is split into three sections: Sanctions and Export Control Regimes Around the World; Compliance Programmes; and Sanctions in Practice.
David’s chapter falls under the first part, and in it, he gives an overview of the EU enforcement framework and looks at the criticism of it. David also looks at how companies investigate suspected breaches as well as their approach to reporting, professional secrecy and legal professional privilege under the framework. Lastly, David looks at the future of EU sanctions enforcement.
GIR say about their guide:
“We live in a new era for sanctions. More states are using them, in more creative (and often unilateral) ways. This creates ever more complication for everybody else. Hitherto no book has addressed all the issues raised by the proliferation of sanctions regimes and investigations in a structured way. GIR’s The Guide to Sanctions addresses that. Written by contributors from the small but expanding field of sanctions enforcement, it dissects the topic in a practical fashion, from every stakeholder’s perspective, providing an invaluable resource.”
The second part of David’s chapter, looking at how companies investigate suspected breaches is set out below.
Investigating suspected breaches
In-house counsel, senior compliance officers, c-suite executives and directors are expected to understand their business to the best of their ability, including any potential exposure to sanctions. For those working in multinational organisations, this can be a particular challenge. It is imperative, therefore, for senior directors and officers to understand the business areas that are more explicitly exposed to the risk of sanctions breaches. This can only be fully recognised following the implementation of a robust risk assessment framework, including mediation of identified issues.
However, even the strongest systems and controls framework will invariably have weaknesses. Potential breaches of sanctions can arise in a myriad of ways. Transaction monitoring systems within financial institutions may identify potential matches with specially designated nationals, sectoral sanctions identifications, and entities and individuals designated by the EU, that require investigation by monitoring teams. These investigations may be straightforward or complicated, depending on the nature of the ‘hit’. More complicated will be investigations when it is not the system that has identified the potential issue, but rather identification is by way of a whistle-blower or as part of ‘business as usual’ continuing monitoring, thereby indicating potentially active deception and obfuscation by clients and, in some cases, employees.
What is required in terms of an investigation will vary depending on the initial issues identified and the manner in which the investigation unfolds. However, key considerations at the outset of an investigation may include the following:
- investigation committee: well-run investigations will normally be directed by a central investigation committee, separate from the board, that can control the focus and progress of investigatory work. Depending on the nature of the investigation, the committee may require input from various departments, including legal, financial crime, compliance, information technology, risk, human resources (HR) and operations, as well as a representative of the board;
- scoping: the scope of the investigation should be ascertained from the outset. The size and scale of any investigation will depend on a number of factors, including the potential severity of any suspected breaches of sanctions and the efficacy of the systems and controls framework within which those potential breaches occurred. Investigations that are flexible in terms of scale tend to be the most effective;
- regulatory exposure: it is important to identify which regulators in which jurisdictions would expect to be notified of the potential or actual issue. By considering this from the outset, the terms of reference for the investigation will take cognisance of regulatory expectations, which may be gleaned from guidance, judgments or enforcement actions publicised by the relevant competent authority. When considering the regulator to which a report may need to be made, corporates should consider, inter alia, their place of registration, jurisdictions with a corporate presence, the place or places where the misconduct occurred, and the nationality and location of members of staff and clients linked to the conduct;
- potential penalties: the nature of the potential exposure to the company and any implicated individuals is obviously key. This exposure may include civil and criminal penalties, the imposition of monitors on the business, reputational impact, potential for additional scrutiny from other regulators, and costly systems and controls remediation;
- internal and external communications: communications, both internal and external, should be drafted and implemented from a central point and all external communications should be reviewed by legal counsel;
- independent legal advisers (ILAs): for larger-scale investigations, consideration will need to be given to the provision of ILAs for those in the spotlight or those whose interests will not necessarily align with those of the company;
- document preservation: document preservation protocols should be implemented and, where applicable, automatic deletion of documentation protocols suspended to ensure key evidence is not destroyed. Staff being investigated should be notified of document preservation requirements;
- HR issues: consideration of employee suspension and, potentially, termination may be required; and
- regulatory reporting: at the appropriate time, it will be important to consider whether there is an obligation to report to regulators, or whether it would be in the company’s interests to voluntarily self-report. In the former case, there may be agreements, statutes, regulations or other legal requirements that mandate some form of disclosure by the company. In the latter, providing a voluntary self-disclosure may result in a reduced penalty. In either event, it is important to note that many regulators now have open lines of communication with their foreign counterparts. It should be assumed, therefore, that disclosure to one regulator will result in information being passed to other regulators throughout the world. Reporting is considered further in the next section.
An extract from the second edition of GIR’s The Guide to Sanctions. The whole publication is available here.
The full EU Sanctions Enforcement chapter can be found here.
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