Sanctions and embargoes have become a way of regulating relations between countries, particularly those suspected of money laundering or financing terrorism. Sanctions are of several kinds: they can be financial (to restrict capital flows and investments), commercial (import/export bans on products and services) or targeted, on individuals or means of transport. They can also be imposed at international level (by the UN, for example), by a group of countries (Europe) or by a single government.
Political decisions... but concrete consequences for companies!
In France, it is the Monetary and Financial Code that specifies these elements, as part of the fight against money laundering and terrorism. According to article L562-3, the Minister for the Economy may freeze the funds and economic resources of natural or legal persons, for a renewable period of six months.
Ignoring sanctions? Don't even think about it!
In this context, companies find themselves on the front line. Unfortunately, many of them still underestimate the stakes, the risks and the consequences for their business. And beware of those who, being over-optimistic, try to go it alone, hoping that their actions will never be discovered!
The legislation is very clear: the February 2019 European directive does indeed require vigilance, but also staying informed and implementing appropriate measures against money laundering and the financing of terrorism. Compliance with these provisions is obviously impossible without the right software tools.
Ten headaches for companies to manage
Let's imagine for a minute the multiple headaches that companies face when dealing with issues linked to international sanctions and embargoes. Is it seriously conceivable to manage them manually and by hand? The answer is obviously no!
The geographical puzzle: watch out for the hole in the racket!
Mapping out who sanctions whom and why is not always easy. Admittedly, with certain countries (North Korea, Cuba...), it's relatively easy, but you have to take into account the subtleties when, for example, certain products or services don't fall within this framework. In addition, we need to take into account the complexity of logistics chains, with multiple stakeholders and parallel circuits that enable embargoes to be circumvented. This is currently the case with the embargo against Russia. The complexity lies in the need to understand and comply with a varied range of sanctions emanating from different authorities (the United States, the European Union, the United Nations...).
The regulatory headache: there's no such thing as an expert in everything!
Sanctions are becoming increasingly diverse, covering a wide range of areas such as financial transactions, exports of goods and technologies, services... As a result, it is crucial to have a thorough and up-to-date understanding of the laws and regulations in force in each jurisdiction. Mastering all the provisions concerning international sanctions and embargoes is therefore a full-time job, as compliance with regulatory provisions does not tolerate any errors of knowledge or assessment. Not just anyone can become an expert in international and commercial law...
The organizational headache: is there a pilot in the company?
Sanctions compliance requires close internal coordination between several departments within a company: legal, compliance, finance, operations, logistics and risk management. Lack of effective communication or clarity in the division of responsibilities can lead to costly mistakes. Furthermore, companies need to be able to react quickly to changes in sanctions regimes, which requires organizational flexibility and rapid decision-making processes. For a multinational company, it is essential to centralize responsibilities. This means defining an appropriate organization and end-to-end processes for complying with international sanctions and embargoes.
The geopolitical puzzle: understanding the issues... or not!
More or less sudden decisions to sanction a particular country or company create a situation of uncertainty, as there is an almost immediate impact on commercial activities and, consequently, on sales and margins. Hence the need for in-depth monitoring and anticipation of geopolitical/diplomatic contexts, for example by imagining different scenarios for the countries most likely to be subject to international sanctions.
The reputational headache: it takes just a few hours to destroy a brand's image
A company that does not comply with international sanctions and embargoes is risking a great deal in terms of reputation and loss of confidence, in the eyes of its customers, shareholders, partners and employees. Not to mention the impact on share prices! In the age of social networking, simple rumors can damage a company's brand image, and are very difficult to correct. Extraterritoriality (of American law) is one of the causes of reputational risk (in addition to financial risk), when certain countries are subject to American sanctions, whereas this is not the case in Europe, for example in the energy and banking sectors.
The financial headache: cash flow under strain
Failure to comply with international sanctions and embargoes results in fines that can run into the hundreds of millions of dollars, or even billions. Let's not forget that French bank BNP Paribas was fined a record $8.9 billion for violating U.S. sanctions against countries such as Sudan, Iran and Cuba. BNP Paribas was accused of concealing transactions with these countries, which are subject to economic embargoes imposed by the United States. Similarly, the French oil group Total was sanctioned by the United States for violating sanctions againstIran by signing agreements to develop oil fields. Total agreed to pay a fine of $398 million for circumventing trade restrictions.
The business headache: when products stop selling...
This is the concrete and immediate consequence of international sanctions and embargoes: a very short-term halt to trade in the products and services concerned, resulting in the loss of markets or the impossibility of expanding into them. We saw this with the sanctions imposed on Russia, which led many multinational companies, including French ones (Société Générale, Renault, Publicis, Sodexo, Legrand...), to withdraw from this market, with all the attendant consequences for sales.
The personal headache (for the manager): no need to spend time in prison cells...
Admittedly, such cases are relatively rare. However, executives and managers must remain vigilant: in early 2024, Parliament passed the law on the criminalization of violations and circumventions of EU sanctions. The directive introduces dissuasive penalties for violating and circumventing sanctions, which will be punishable by up to five years' imprisonment in all member states.
The security conundrum: people are always the weak link
Compliance with international sanctions and embargoes requires an end-to-end vision - who does what, when, how, where and with what resources. Here again, this mission is impossible without the appropriate tools. Especially at a time when virtually all multinational companies are subject to cyber-attacks in every country where they operate.
The information puzzle: data ingestion, a (manual) mission impossible?
Assuming that processes have been honed, and that all risks have been anticipated and assessed, monitoring compliance with international sanctions and embargoes generates considerable volumes of data. All of which is useless if it isn't analyzed! Manually, it's impossible...
Define an action plan... with the right software solutions
Complying with international sanctions and embargoes requires total transparency, end-to-end traceability, intelligence, effective governance, a compliance policy based on efficient processes and, above all, detailed data analysis. How do you reconcile all these complex, time-consuming and costly challenges? With an appropriate software solution that doesn't have to be a black box.
Fortunately, the tools exist, offered by Regtech, which rely on technologies such as artificial intelligence, Machine Learning, Big Data, not forgetting the cloud. APFilter enables compliance with regulatory requirements concerning the detection of international sanctions and/or the identification of countries and currencies under embargo. Likewise, the APScan solution guarantees compliance for the detection of sensitive persons (sanctions, asset freezes, politically-exploded persons and their relatives, reputational risks, country risks...).