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50% of financial services companies risk regulatory discipline

Multinational organisations are beginning to feel the business and regulatory imperative to coordinate economic and trade sanctions compliance activities across borders, according to a new study by Deloitte, the business advisory firm.

Mark Tantam, Deloitte’s head of sanctions for the EMEA region, said: “Many of our clients have been surprised by the substantial penalties levied by US prosecutors for breach of sanctions and are now embarking on major pieces of work to introduce effective sanctions screening globally.

“This is not just a US phenomenon. The UN, the UK and a number of other European countries have made clear that sanctions are a very effective means of attaining foreign policy objectives. Any financial institution that decides to ignore them, and continues to deal with sanctioned entities, may well face significant regulatory penalties or even criminal action.”

According to Deloitte’s survey of 388 executives and managers from around the world, 46% of respondents consider sanctions compliance to be a growing concern, and 63% say it is consuming more time, money and personnel than ever. A finding which appears to reflect the observation of Philip Robinson, Director of FCID at the Financial Service Authority (FSA), that ‘the use of financial sanctions to deliver public objectives has risen rapidly up the political agenda in the UK, elsewhere in the European Union and at the United Nations’.

Yet, according to the Deloitte study - Facing the Sanctions Challenge in Financial Services - only 50% of companies have integrated their sanctions policies. This creates the real possibility that the absence of a robust sanctions compliance programme — or an inadequate one — could result in regulatory action by both local and foreign authorities, as recent action by the US Department of Justice and NY District Attorney demonstrates.

Tom Scampion, sanctions technology lead partner at Deloitte, said: “It is easy to underestimate the technology challenges in delivering effective sanctions programmes. The same software solutions can be configured to deliver very different results – understanding, managing and controlling this process is a key part of achieving effective sanctions compliance.”

Some of the biggest challenges respondents’ face in implementing sanctions-related controls are the complexity of screening financial transactions (56%), and meeting the ever-growing regulator expectations (41%). The release of the FSA’s review of financial services firm’s approach to UK financial sanctions enforces their expectation that having systems and controls relating to financial sanctions is an integral part of complying with their requirements on financial crime.

The study also revealed the following insights into sanctions compliance practices:

  • Using risk assessments. 44% of respondents reported their companies had a well-defined, sanctions-specific compliance programme in place. 70% were either completing or had completed a formal sanctions risk assessment within the past two years.
  • Using information technology (IT). Financial services companies are at the forefront of industries endeavouring to use IT solutions to meet their expanding compliance obligations. Most companies have been deploying IT solutions at the initial detection stage and then manually investigating the alerts generated by those systems. Just 19% of respondents work for firms that have fully automated this process, and 52% expect to do so in three years’ time. As automation is expected to increase, the number of companies with largely manual processes (especially at the front end) is expected to drop from 37% to less than half that (17%) in the next three years.
  • Taking a global approach. Elements of sanctions compliance - from setting strategy to overseeing lists - can be run at a global, regional or local level. However, a global approach to sanctions compliance seems most popular; 55% of respondents set sanctions compliance policy at the global level and 40% develop and oversee sanctions compliance and procedures at a global level. More than one-third (39%) of financial executives indicated their companies’ board and C-suite executives communicate on sanctions compliance, across all geographic regions, coordinating efforts globally.
  • Setting a zero-tolerance tone at the top. The growing nature and scope of sanctions imperatives highlights the need to create an appropriate culture of compliance.

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Note to editors:

About the Survey

Deloitte contracted the Economist Intelligence Unit to conduct a survey of executives and managers around the world regarding anti–money laundering sanctions. The 388 survey respondents were drawn from the Economist Intelligence Unit's global executive survey panel. The survey was conducted online from August 20 to October 3, 2008.

About Deloitte

In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.

Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein, whose member firms are legally separate and independent entities. Please see for a detailed description of the legal structure of DTT and its member firms.

The information contained in this press release is correct at the time of going to press.

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