Is it enough to have a strong Sanctions Policy?

On 16th of last month, Construction Specialties Inc. (“settled with OFAC for $660,594 related to its apparent violations of the Iranian transactions and sanctions regulations. The violation was conducted by senior employees of one of its subsidiaries.

Construction Specialties Middle East L.L.C. (“CSME”) is a wholly owned subsidiary of CS and headquartered United Arab Emirates (UAE). CSME imported building materials from the United States to the UAE. Though there was an existing policy advising against reexporting materials to Iran, the senior employees didn’t follow it. CSME’s general manager and another senior manager disregarded CS company policy and falsified trade documents.

From the above information, it may sound like CS is not at fault as it had a strong sanctions policy and had advised its subsidiary to follow it. However, the implementation and controls of the policy were not enough.

Since ages, nations have been in conflict. In modern times, the tactics of warfare have shifted from an all-out bloody war to passive aggressive measures. As part of these measures countries and international organizations (e.g., European Union, United Nations, NATO etc.) enact sanctions to influence behaviour or policies of a nation or region. The outcome of sanctions will not be as desired if entities and individuals do not follow them.

Having a strong policy in place is essential, but it's only the first step in ensuring that desired outcomes are achieved. Effective implementation and controls are critical to ensure that the policy is put into practice and that the required sanctions compliance is met. A few points are outlined here that can help compliance department.

• Accountability: Establishing a clear line of responsibility and accountability is must to implement the policies. They ensure that individuals or teams are responsible for carrying out the policy and achieving its objectives. This accountability helps prevent finger-pointing and ensures that someone is held responsible for the policy's success or failure.
• Measuring Progress: Organizations shall ensure tracking and monitoring the progress in implementing the sanctions policy. Without proper measurement and monitoring, it's difficult to know whether the policy is being adopted as desired or any additional steps must be taken.
• Employee Training: Sanctions policies are indeed a legal or regulatory requirement. Effective employee training is necessary to ensure that everyone in the organization complies with these requirements. Employees shall be trained and made aware of the consequences of failure to comply.
• Resource Allocation: “Compliance is a cost.” Such a tone at the top doesn’t help with the implementation and controls. Organizations shall allocate adequate resources (such as budgets, personnel, and technology) effectively to support the sanctions policy or any other compliance requirements.
• Internal Hotline: Implementation and controls shall create a hotline that allows employees to clarify their questions or raise any concerns. Such a forum helps organizations identify any implementation loopholes and potential risks in time.