The DNB’s Supervision Outlook 2017 showed that controlling the risks in connection with sanction regulations – but also terrorism financing – is still insufficient across the sector. The DNB recently found, for example, that a number of trust offices were unfamiliar with the Dutch sanctions list (terrorism list). That was despite the DNB having already determined in 2015 that compliance by trust offices with the Sanctions Act [Sanctiewet] needed to be improved. For example, the trust offices that were investigated only checked whether their contacts were listed on the sanctions lists but not whether transactions (actions) concerned “embargoed goods”. So improvements are needed.

Sanctions may concern not just specific parties but also goods, technology, software and services (embargoed goods), geographical areas, specific sectors/activities, or a combination of these factors. In many cases, for example, the export, sale, or transfer of certain goods to certain parties is prohibited, as is financial support in connection with this. One therefore needs to check not only contacts against the sanctions lists but also determine what goods or activities the payment relates to. And a contact is every single party involved in the transaction: not just the party that is making the payment and the party that is receiving it but also, for example, providers of insurance or loans. Important: parties that do not themselves appear on the sanctions lists may also be subject to sanctions if, for example, they are acting on behalf of or pursuant to the instructions of directly sanctioned parties. In the context of the investigation obligation, it is therefore important to determine who is behind the parties involved (client due diligence (CDD)).

A comparable investigation obligation applies to the prevention of terrorism financing. If there is a risk of terrorism financing (for example if a charitable organisation in a high-risk country is involved), one has to investigate and mitigate the risks as much as possible. The parties involved in a transaction must be screened not only against the European terrorism list but also against the National Terrorism List (which also includes a number of entities). Under certain circumstances, the underlying parties also need to be screened. For your information: The Financial Expertise Centre (FEC) is still working to determine typologies that can help identify terrorism financing (and the risk of such financing).

There must be sufficient CDD regarding both preventing terrorism financing and complying with sanctions. Are there any risks (red flags) or are the answers insufficient, unclear, or contradictory? Then one has to investigate further and ask more questions! Substantiating documentation may also be necessary in order to assess the payment and the parties involved (for example contracts, incorporation documents, extracts from company registers).

Do you have any questions about complying with the sanctions regulations or the Act to Prevent Money Laundering and Financing of Terrorism [Wet voorkoming van witwassen en financieren van terrorisme, “Wwft”]? Then don’t hesitate to contact us. Where the EU’s Ukraine/Russia sanctions regulations are concerned, you can also consult our article The European “Ukraine sanctions”: an overview (in Dutch).