Although the Office of Foreign Assets Control (OFAC), which oversees U.S. sanctions, has a history of issuing «wind-down» licenses that allow some time to cut ties with recently sanctioned entities before taking action, some banks are already preparing where possible to ensure they meet or beat any future deadlines.
«For example, on 31 July 2020, OFAC issued General License No. 2 to the Global Magnitsky Sanctions Regulations, which authorized transactions necessary to wind down dealings with Xinjiang Production and Construction Corps (XPCC)'s subsidiaries until 30 September 2020,» vandePol said, providing an example of a previous timeline as a reference.
«These wind-down licenses appear to acknowledge that it is often impossible for parties to immediately cease dealings with a newly-sanctioned entity. We are assisting clients to structure transactions and their contract terms in a manner that gives them greater flexibility to terminate [or] exit in the event the counterparties are added to sanctions lists.»
Compliance Risk Is Not Binary
At one level, a bank may simply consider if it has actually violated a sanction (as there are still some ambiguities such as the significance of a transaction – for more, go to page 3) and the likelihood of U.S. enforcement.
But for the purpose of business stability, this is not sufficient due to the indirect reach of the sanctions which forbid dealings even with entities that may themselves have links to the blacklisted individuals. This effectively makes the perception of sanction compliance risk perhaps more important than the actual risk of violating sanctions.
«Asia Pacific relies heavily on trade and because a large part of it is conducted in USD, it must remain connected to the U.S. financial system in order to survive,» added Accuity’s Nagar. «The threat of derisking looms over banks not implementing adequate risk management and controls.»
China-U.S. Ties: Closer Than Others
This is not to say that there are no fears about the consequences of actual violations. In 2015 under a more Europe-friendly Obama administration, for example, BNP Paribas was ordered to pay an awe-dropping $8.9 billion settlement over claims that it violated sanctions against Sudan, Cuba and Iran.
