Welcome to this special podcast series “In Conversation with K2 Intelligence FIN: Navigating an Increasingly Complex Sanctions Landscape”. This series is sponsored by K2 Intelligence, LLC. This week I visit with Adam Frey, Managing Director, and Eric Lorber, Vice President at K2 Intelligence Financial Integrity Network (FIN).

Frey is a key member of the firm’s independent consultant team, at the direction of federal, state, and/or international regulators, he works to monitor and assess global financial institutions’ compliance with Anti-Money Laundering (AML) and Office of Foreign Assets Control (OFAC) enforcement actions and related consent orders. Frey helps lead K2 Intelligence FIN’s reviews of the institutions’ Bank Secrecy Act (BSA)/AML and sanctions compliance programs, policies, and procedures. Lorber advises global financial institutions on issues related to sanctions and AML /combating the financing of terrorism compliance. Prior to re-joining FIN, he was a senior advisor to the Under Secretary for Terrorism and Financial Intelligence at the United States Department of the Treasury, where he provided strategic guidance on US sanctions and AML/ Combating the Financing of Terrorism (CFT) policies. Earlier in his career, he was an attorney at Gibson, Dunn & Crutcher LLP, where he advised clients in the areas of international trade regulation, compliance, and anti-corruption. He is also the senior director of the Center of Economic and Financial Power at the Foundation for Defense of Democracies.

Over the week, we will review the current sanctions landscape, discuss how to build a sanctions compliance program, walk listeners through what happens when you discover a sanctions breach or potential breach, consider new sanctions exposure and conclude with a look in that veiled land of the future by considering issues on the horizon. In this Episode 1, I am joined by Eric Lorber to review the current sanctions landscape.

We began with a discussion of the different types of sanctions. The first type are generally the best known, comprehensive jurisdictional sanctions. If you are in the US or a US person you cannot do business with individuals or entities who are ordinarily resident in certain jurisdictions, such as Iran, North Korea or Syria. The second set is more generally list-based or conduct based sanctions. The sanctions restrictions apply specifically to individuals or companies who are engaged in bad activity, such as narcotics trafficking, nuclear proliferation or human trafficking. The key is they are specific list-based programs.

The third set are regime-based sanctions programs. It is still a list-based program, but is targeted at specific regimes. An example of this sanctions program is Zimbabwe, where individuals and officers of a government were targeted because of their affiliation with that government. The fourth type of sanctions are sectorial sanctions. This type began or were developed in a context of the Ukraine sanctions program in 2014 developed to forcefully respond to Russia’s effort to annex Crimea and Ukraine, as well as destabilize Eastern Ukraine.

The final type of sanctions are secondary sanctions, perhaps the most controversial. It is secondary sanctions and, like sectoral sanctions, were also developed to solve a policy problem. The policy problem was the US could impose substantial jurisdictional sanctions, for example, on Iran. However, if there is no US jurisdiction then third-party companies in third party countries could continue to do business with Iran. This would substantially undermine the economic impact of the US sanctions program against Iran. This led to the idea of secondary sanctions that are sanctions restrictions that apply even when there’s no US jurisdiction. And the way they work is essentially the US says, you can do business with Iran but if you do, then your company will lose access to US markets and most importantly the US banking system.

There are several reasons sanctions have become such a favored economic tool. Obviously short of war it is hard to punish a country, person or group or try to stop untoward behavior. This makes sanctions look like the most appealing option. They can be written quickly and implemented in short order. This makes sanctions a tool that can be implemented in an expedited and an expeditious manner.

Yet perhaps most interestingly, is that the sanctions in the compliance ecosystem have a feedback loop, which Lorber said “builds on itself. What do I mean by that? Over the last 15 or 20 years, you’ve seen really financial institutions in particular subject to enforcement activity by OFAC. This has led to most large financial institutions, have invested quite a bit of money and quite a bit of resources into beefing up their sanctions compliance programs.” As a result, when new sanctions designations come out or new Executive Orders are issued, these financial institutions are in many ways better able to detect and disrupt any illicit activity associated with new action that occurs.

We concluded with a short discussion on which business sectors sanctions apply to. Obviously financial is high on the list, however commercial corporations should not assume that sanctions do not apply to them. Recently there have been a push for sanctions in a much broader set of industries. This includes energy, agriculture, tech and others as well.

The bottom line is that sanctions are here to stay and every business needs to understand their impact to your company.

Please join us tomorrow where we discuss building a sanctions compliance program with Adam Frey.


For more information on K2 Intelligence FIN’s Sanctions Risk Advisory Services, click here.

For more information on Navigating the Sanctions Minefield: What Every Global Business Should Know, click here.