When implementing risk management measures, banks should take into account the inclusion of their customers in the sanctions lists of foreign states and international organizations. The NBU provided this recommendation to banks in a letter dated 2 June 2023.
Why banks should take note of foreign sanctions against their customers
As noted in the letter, given the global and unprecedented sanctions regime against the entities of russia, belarus, and iran in response to the threat they pose in undermining Ukraine's independence, state sovereignty, and territorial integrity, financial institutions should take additional precautions to manage risks with regard to sanctions imposed on these entities by partner countries.
The NBU underlines that, in addition to the reputational risks for banks that are associated with servicing sanctioned customers, there are also risks of the freezing of funds related to the transactions of such customers through correspondent accounts opened with banks in foreign jurisdictions.
What banks should do to to avoid the said risks
Banks should take account of the following issues in their internal financial monitoring documents by:
- including the imposition of sanctions by foreign states and international organizations in the list of risk criteria by customer type
- drawing up a list of foreign states and international organizations whose sanctions restrictions are to be taken into account when assessing customer risks
- identifying an approach to establishing and maintaining business relations with customers included in the relevant foreign sanctions lists, taking into account the risk appetite of the bank/group
- additionally, providing for the possibility of identifying among customer entities those whose ultimate beneficial owners/qualifying holders (with a share of more than 50%) are entities included in the relevant foreign sanctions lists.
These measures are aimed at increasing the effectiveness of managing the risks of the legalization (laundering) of proceeds from crime, terrorist financing, and the financing of the proliferation of weapons of mass destruction, which have become more relevant in the context of russia’s full-scale armed aggression against Ukraine and the strengthening of the global sanctions regime against the aggressor and countries supporting it.