Regulatory Alerts

Overview

In response to the Russian Federation ("Russia") invasion of Ukraine, on February 21st and 23rd President Joseph R. Biden Jr. ordered the implementation of a number of sanctions-related measures targeting Russian banks, oligarchs, sovereign debt and separatist regions within Ukraine.  The major economic sanctions include:

• Severing the connection to the U.S. financial system for Russia’s largest financial institution, Sberbank, by imposing correspondent and payable-through account sanctions.   This requires all U.S. financial institutions to close any Sberbank correspondent or payable-through accounts and to reject any future transactions involving Sberbank or its foreign financial institution subsidiaries. These subsidiaries include banks, trusts, insurance companies, and other financial companies located in Russia and six other countries, namely Austria, Belarus, Cyprus, Kazakhstan, Luxembourg, and Ukraine.
• Full blocking sanctions on Russia’s second-largest financial institution, VTB Bank (“VTB”), including its 20 subsidiaries, and three other major Russian financial institutions: Bank Otkritie, Sovcombank OJSC, and Novikombank and their 34 subsidiaries. 
• New restrictions on all transactions in, provision of financing for, and other dealings in new debt of greater than 14 days maturity and new equity issued by thirteen Russian state-owned enterprises and entities:  Sberbank, AlfaBank, Credit Bank of Moscow, Gazprombank, Russian Agricultural Bank, Gazprom, Gazprom Neft, Transneft, Rostelecom, RusHydro, Alrosa, Sovcomflot, and Russian Railways. 
• Additional full blocking sanctions on Russian elites and their family members: Sergei Ivanov (and his son, Sergei), Nikolai Patrushev (and his son Andrey), Igor Sechin (and his son Ivan), Andrey Puchkov, Yuriy Solviev (and two real estate companies he owns), Galina Ulyutina, and Alexander Vedyakhin.
• Prohibition on investments, imports and exports, and financial transactions to, from, or in the separatist regions Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR)

Implications

Financial institutions evaluate the potential impact of these new sanctions on their operations and dealings and carefully consider their options in light of these new restrictions. In connection with this, financial institutions should:

• Screen each party to a transaction potentially involving Russia and Ukraine, including all potential end-users and intermediaries, to ensure that none of the parties is a blocked person appearing on the Specially Designated and Blocked Person List (“SDN” List”), Entity List or another restricted party list; and,
• Ensure implementation of Office of Foreign Assets Control’s “50% rule” that requires entities that are owned 50% or more by one or more sanctioned parties should also be treated as subject to the same sanctions, even if those parties are not identified on the SDN List.

How We Can Help

Sia Partners has proven experience and expertise with sanctions.  Among other things, we can:

• Determine how the new sanctions regulations impact your business;
• Evaluate your sanctions filtering system to determine that it is operating optimally to identify prohibited individuals and entities and minimize false positives; and,
• Provide updates on any additional sanction packages that may be imposed on Russia.

Overview

On November 8, 2021, the Financial Crimes Enforcement Network (“FinCEN”) issued an updated Advisory on Ransomware and the Use of the Financial System to Facilitate Ransom Payments (“Updated Advisory”) in response to an increase in ransomware attacks against critical infrastructure. It replaces an earlier advisory issued by FinCEN on October 21, 2020.

The Updated Advisory identifies new trends, typologies and indicators of ransomware payments, including the increased use of anonymity-enhanced cryptocurrencies, and associated money laundering activities.  It also highlights reporting and notification requirements for ransom payments.

Implications

The Updated Advisory is the latest in a series of actions by federal agencies that are designed to encourage better reporting of ransomware attacks.  FinCEN and law enforcement consider suspicious transactions involving ransomware attacks to constitute “situations involving violations that require immediate attention.”

In order to identify and immediately report any suspicious transactions associated with ransomware attacks, all financial institutions should:

• Review their monitoring systems to confirm that they include the new potential “financial red flags” for payments that may be associated with ransomware;
• Provide appropriate training all relevant personnel; and, 
• Review their compliance programs to ensure that they require the timely filing of all Suspicious Activity Reports (“SARs”) on ransomware transactions and alerting FinCEN or law enforcement in real time of such suspicious transactions.

How We Can Help

Ransomware is a growing concern for the financial sector due to the fundamental role financial institutions play in the movement of virtual currency for ransom payments.

Sia Partners offers clients a cross-functional team combining banking, compliance, risk, data science, crypto, and cybersecurity expertise to assist with identifying ransomware transactions in order to file SARs in a timely manner. To learn more how we can help, contact our experts. 

Overview

Throughout 2021 the U.S. Securities and Exchange Commission (SEC) sent signals that a new enforcement focus is being aimed at U.S.-listed companies’ filings and public statements regarding their climate impacts and other Environmental, Social and Governance (ESG)-related activities.

This enforcement activity comes amid expectations that SEC will soon propose heightened requirements that companies include measures of their impact on greenhouse-gas production and other metrics related to climate change risk.

Implications

In 2021 the SEC announced it would apply increased scrutiny through the agency’s Division of Enforcement, on regulatory filings and other “material” statements by companies regarding ESG issues. In particular, in March 2021, the SEC formed a new Climate and ESG Task Force. This new team of investigators is bringing to bear investigative resources including “sophisticated data analysis” on the numbers embedded in listed companies’ official filings and direct communications to sophisticated investors, as well as statements aimed at the general public. The SEC has further warned that failure to report material climate-risk metrics is increasingly likely to prompt regulators to open an investigation and seek detailed company information.

Additionally, in the coming months, the SEC is expected to begin a year-long regulatory process to establish even broader standards for public companies’ climate disclosures, signaling more pervasive challenges for climate-risk data reporting.

This means that in the near term, all listed companies regardless of sector, should invest substantial resources in a robust program to derive and document credible climate-risk data. Importantly, climate-risk metrics should be standardized for comparison with those of industry peers as well as with organizations’ own results over time. This includes receiving raw data from Enterprise Resource Planning systems and other company data systems, that should be auditable.

How We Can Help

Sia Partners has proven experience and a detailed toolkit that can be tailored to your company’s needs:

• Best-in-class methods for collecting and reporting the most powerful and demanded ESG data points now, and,
• Preparing the regulatory-compliance-ready programs that will be required in the very near future.

Overview

Since February 23, 2022, in response to the invasion of Ukraine. the U.S. government has implemented a series of unprecedented escalating Sanctions targeting Russia and to a lesser extent Belarus.  These actions against Russia represent some of the most comprehensive Sanctions ever imposed by the U.S. The fast-paced rollout of the Sanctions coupled with their short wind-down period, necessitate U.S. entities to take prompt action to assess potential compliance and enforcement risk.

Implications

In assessing exposure and compliance risk, financial institutions should consider:

• Reviewing exposure through all correspondent banking relationships including understanding the foreign correspondent financial institution’s other correspondent relationships:
•  Reviewing ownership of all entities in light of Office of Foreign Assets Control’s (“OFAC’s”) 50 Percent Rule that states that the property and interests in property of entities directly or indirectly owned 50 percent or more in the aggregate by one or more blocked persons are considered blocked;
• Ensuring the Sanctions filtering lists are being updated on a timely basis;
• Preforming lookbacks on transactions that were not screened against up-to-date Sanctions filtering lists;
• Ensuring the screening geolocation information from IP addresses and blocking transactions involving sanctioned countries;
• Ensuring the OFAC filtering system is operating optimally in identifying prohibited entities and individuals and minimizing false positives;
• Whether your entity is covered by an OFAC general license to transfer funds out of the account if your business has a bank account with a subsidiary of a Russian sanctioned bank;
• Assessing accounts payable and receivable for Russian parties, as pending transactions may need to be suspended on short notice and may be impacted by the SWIFT and other bank-related sanctions that have been imposed;
• Reviewing policies and procedures related to Sanctions to ensure they are up to date, particularly considering the rapidly expanding sanctions regime
• Alerting senior management and the boards of directors to the entity’s exposure to Russia and steps taken to manage or reduce risk; and,
• Providing updated Sanctions training to relevant personnel;

How We Can Help

Sia Partners has proven experience and expertise with sanctions.  Among other things, we can:

• Determine how the new sanctions regulations impact your financial institution;
• Evaluate your sanctions filtering system to determine that it is operating optimally to identify prohibited individuals and entities and minimize false positives; 
• Develop and deliver customized Sanctions training; and,
• Provide responses to questions on an as-needed basis.