Monday, January 9, 2012


The detailed disclosures, this past week, of how senior North Korean PEPs are able to obtain luxury items through China, is not a surprise, but it should serve to remind international bankers that, one way or another, payment must be made, directly or indirectly, for those goods. Therein lies a substantial amount of risk for bankers working in those countries in North America or the European Union where sanctions exist. I have analysed the problem logically:

(1) Somehow, somewhere, North Korea, or Iran, or Burma, or any other country against whom global sanctions lie, must find a way to pay for those expensive handbags, or sports cars, or premium liquor. When we see specific brands of products in photographs taken inside sanctioned countries, the manufacturer usually disclaims any responsibility. Their public relations department generally puts out a press release documenting how all their distributors are thoroughly screened, and only sell where authorised. Don't you believe it.

(2) In truth and in fact, so-called end users transship the goods to sanctioned jurisdictions, and there isn't much that can be done to stop this practice, as the countries where the transshipment occurs are generally chosen because the authorities there turn a blind eye to that sort of "commerce."

(3) Here's your problem: should your bank customer accept payment, in an indirect manner, for goods or services that have been sent to a sanctioned nation, and regulators discover it, you may be in for fines and penalties, or worse, in today's take-no-prisoners enforcement environment.

(4) Iran is definitely your worst problem; the America sanctions regulation that raises the benchmark on best practises to holding your bank responsible for any facts that are "knowable," holds you to a very high standard of compliance. Can you consistently maintain that level ?

(5) When international payment for goods or services comes, not from the country where your customer has sold & delivered, but a third country, ask yourself: is this a normal and consistent practice, and why ?

(6) If you do not have a satisfactory answer to (5), then it is time to observe "Know your Correspondent's Correspondent". Take the bank in the third country that transmitted the payment to you; who are its correspondents ? is there one or more in a sanctioned jurisdiction ? If so, you might want to consult with bank counsel about whether a Suspicious Activity Report should be filed, whether you might want to take certain protective actions regarding future business with your customer, including terminating the relationship.

(7) A smart sanctions evader might transfer the funds to at least one other local bank, domestically within the third country, before sending it to you, and there's no way to protect against that, unless the wire transfer room there gets careless, and fails to delete all the intermediary banks. Therefore, always check the information carefully.

Whilst sanctions evaders can be very innovative, these steps will greatly reduce the risk that your customers are using your bank to sell good and services to users in sanctioned countries; Good luck.

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