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Sanctions experts have stressed the importance of bringing the private sector into the creation of sanctions packages, calling for greater consultation and resources to carry out the will of EU policymakers.
Sanctions defined compliance requirements in 2022. In March 2022, for example, VIXIO’s Horizon Scanning tool registered the highest number of regulatory events it has ever recorded at 243.
This was the result of Russia’s invasion of Ukraine that prompted countries around the world to implement restrictive sanctions on individuals and institutions thought to be supporting the war in Russia, as well as its ally, Belarus.
One compliance professional told the audience that they had to “quickly adapt” considering the changing environment.
Firms were forced to act at short notice to remain compliant with rules, such as in the EU, which continued to change and become more restrictive throughout 2022, resulting in heavier workloads for compliance teams.
There was also a lot of political pressure to make the sanctions work in the beginning of the conflict, pointed out Kim Olsen, an analyst at the Danish Institute for International Studies.
“Some of these packages were adopted in a few hours, whereas these processes would usually take weeks. The pressure was so high,” he said, speaking at the "SIFMANet Summit: Making Sanctions Work - from Designation to Implementation" conference.
“This makes it difficult to get stakeholders onboard and to get their views, but instead of just saying this is how it is, we need to consider the fact of whether we need to again come up with sanctions so quickly.”
Sanctions are a strategic tool, Olsen said, and it should not matter whether they take a few hours or a few days to be decided on.
A longer stretch of time in development could be helpful in getting more input from the private sector, which ultimately takes the brunt of sanctions regimes in their compliance function.
“We need to look at the decision-making structure and carve out a crisis mode that does not go into overdrive,” said Olsen. “This could make room for the private sector and others to come in.”
This would require further engagement from the private sector.
“If we talk about corporate responsibilities, like the G in ESG [environmental, social and governance], then we need to build room for confidence between the private and public sector, so that the private sector can come in with their views.”
Here, it is important that trust means that discussions are not leaked, he said. “This is about finding ways of communication with the private sector to tell these representatives that ‘you guys are now dual political actors, this is not just about profit’.”
The involvement of the private sector is important, agreed Laima Letina, an advisor to the Latvia Finance Association.
“There may be ways of getting the private sector involved at the beginning of drafting the sanctions,” she mulled.
“Of course, this doesn’t regard the list of those being sanctioned but the specific nuances in how sanctions need to be implemented in places such as payment systems.”
Nobody knows better than those who need the payment systems to work, she said. “This is either the traditional banking sector or other affected sectors.”
“I definitely believe there is the possibility to find people in the private sector who are trustworthy and have clearance to help.”
Moreover, if it is an issue of speed, Letina said, this should not be an issue, quipping that “in the banking sector, speed is everything, and it is definitely not the Brussels speed”.
Olsen did acknowledge that there is now more dialogue with the private sector, but added that this could be improved, such as through greater transparency.
“If we think of sanctions as a geo-economic instrument at the EU’s disposal, maybe we could start thinking about setting up more formalised information streams,” he said.
This could include so-called geo-economic committees that ensure civil society is heard in the creation of EU legislation, which has been significant to the trading bloc for decades.
“EU sanctions are normal EU legislation, they’re just done under the umbrella of foreign security policy,” Olsen said.
The EU needs to ensure it is speaking with those beyond the stakeholders who have the best access to the system, so that they are better aware of implementation struggles.
Limited resources
Letina also said that there needs to be a better understanding of who pays for sanctions implementation.
“For example, on the financial sector side, we need to concentrate on the sanctions that are most effective.”
The resources being involved in order to be compliant with the sanctions is a weight to the budget of the bank. “This means the resources are taken from another task that needs to be done,” Letina said.
This compliance cost may in part have spurred de-risking on the banks behalf, as one audience member hinted.
“In the case that you are facing a huge liability, you will do everything in order to be sure there is no possible stage where you will suffer the liability,” she explained.
“If we are talking about the financial sector, this is not just the criminal liability, but also about your reputation and your possibility to remain working in the financial sector.”
With regard to sanctions, there will always be a high precaution taken.
According to Letina: “Over compliance and de-risking is sometimes caused by just a need to understand where you can put your resources to.
“In case you are having a lot of technical requirements that need to be done, you need to find a resource for that.”
In that instance, there is less budget available for investigations and the ability to understand specific cases.
The conference discussion follows the EU agreeing its tenth round of sanctions against Russia in late February, coinciding with the anniversary of the invasion.
As the conflict shows little sign of slowing down, it is more than likely that there will be more to come throughout the year.
