Financial companies have good handling of EU sanctions

19-01-2024

In February 2022, Russia launched a military invasion of Ukraine. As a consequence, the EU has since 24 February 2022 continuously adopted a wide range of regulations imposing far-reaching sanctions against Russia and Belarus. The regulations are directly applicable in EU member states. This means that companies, public authorities, private individuals, etc., must comply with the rules without the need for separate Danish legislation.

Compliance with both existing and new sanctions requires companies to continuously adapt their sanction preparedness. Failure to comply with the sanctions constitutes a violation of the Criminal Code and may result in fines or imprisonment. The Danish Financial Supervisory Authority (Finanstilsynet) supervises whether financial companies comply with rules on financial sanctions against countries, persons, groups, legal entities, or bodies, and in this context ensures that financial companies have effective measures to comply with financial sanctions. If a company fails to comply with the sanctions, Finanstilsynet may issue an order to rectify the situation and, if applicable, file a police report against the company. Since the introduction of sanctions against Russia and Belarus, Finanstilsynet has increased its focus on financial companies complying with sanctions in general, but particularly the EU sanctions against Russia and Belarus. As in the first half of 2022, Finanstilsynet conducted a thematic investigation into the handling of EU sanctions by a number of credit institutions.

In continuation of this, Finanstilsynet has conducted an additional thematic investigation into the handling of EU sanctions, including sanctions against Russia and Belarus, by a number of credit institutions, pension funds, payment institutions, and securities trading companies. The investigation covered the following eight companies:

All eight companies selected for the investigation have reported via periodic submissions to Finanstilsynet's risk model that they had customers with connections to Russia and/or Belarus and/or transactions to or from Russia and/or Belarus in the first and second quarters of 2022. Transactions to or from Russia and Belarus only constitute a breach of sanctions if the transactions are made to or from a sanctioned person or company, etc. For example, a Danish company in Russia that is not sanctioned may transfer money to a Danish bank account without it constituting a breach of sanctions. Similarly, transactions with persons connected to Russia or Belarus only constitute a breach of sanctions if they involve sanctioned persons. A person residing in Russia but not sanctioned may, for example, receive their pension from their Danish pension company without it constituting a breach of sanctions. However, it is important to emphasize that as soon as a financial company has a customer with connections to or transactions to/from sanctioned countries, including Russia and Belarus, there is a risk that sanctions may be breached. Finanstilsynet's focus is therefore on ensuring that such risks are managed effectively.

Focus of the investigation

In the investigation, Finanstilsynet focused on how the selected companies ensure compliance with the currently applicable EU sanctions. This includes, among other things, the companies' screening of customers and, where applicable, the customers' beneficial owners against the current sanctions lists. The focus has also been on the companies' overall management and controls in the area, as well as management decisions.

Finanstilsynet asked the companies to answer the following questions: 1. How does the company stay informed and updated on new EU sanctions in this area? 2. How does the company implement new EU sanctions into the credit union's procedures and systems? 3. How does the company ensure that the beneficial owners of companies within the EU/EEA, which the company has as customers and where the company conducts transactions to/from, are not listed among persons subject to sanctions, including EU sanctions against Russia and Belarus? 4. What controls does the company perform in the first and second lines of defense to ensure compliance with EU sanctions? 5. If the company uses a data center or other external providers to monitor compliance with sanctions, please specify how it verifies that the data center or other external providers monitor all sanctions effectively. 6. Have the controls led to the company stopping transactions within the last three years with reference to them being sanctioned transfers, etc.?

Companies take the task seriously

Finanstilsynet's investigation shows that companies are investing in compliance with the EU's sanction regulations. Companies stay informed and updated New sanction packages containing new prohibitions or changes to already existing prohibitions require in-depth knowledge of the sanctions and their significance and consequences. It is therefore important for companies to identify the sanction provisions that affect them, their work, products, etc., and adapt their work accordingly. All companies in the investigation stay continuously informed and updated, partly through the EU's official websites, partly through newsletters and via websites of relevant authorities such as the Danish Business Authority, Finanstilsynet, and the Ministry of Foreign Affairs.

Companies have adapted to ensure compliance To ensure compliance with the currently applicable sanctions, it requires resources and focus on the organization of work in companies obligated to comply with sanctions. Each company is responsible for establishing measures and ensuring control when new sanction packages are implemented. As an example, companies describe that they receive newsletters, inter alia from the Danish Business Authority, and keep themselves informed on the websites of Finanstilsynet, the Danish Business Authority, the Ministry of Foreign Affairs, and the European Commission. Furthermore, several companies describe that when they are informed about new sanctions, they assess whether this warrants updating or changing the company's current policies and procedures for handling sanctions. In other companies, all new sanction regulations are directly integrated into the companies' systems. The investigation shows that at the management level, companies focus heavily on complying with EU sanction regulations, and that since February 2022, companies have increased resources dedicated to ensuring compliance, control, and implementation of sanction regulations and their amendments. This management focus consists, among other things, of ensuring knowledge sharing across departments within the companies, continuous updating of employees, e.g., via company intranets, and continuous training of employees in handling sanctions. This helps companies stay ahead and prepare for potential new or amended sanction packages that may be adopted and enter into force in a short time.

Overall conclusion

Finanstilsynet can conclude that the investigated companies' work on compliance, control, and implementation of sanction regulations means that the companies have good prerequisites for transactions to be stopped and subjected to manual control. This control is carried out to ensure compliance with new sanctions and thereby to ensure that companies do not execute transactions that violate the sanctions.

Based on its investigation, Finanstilsynet has not found any circumstances that warrant a response to any of the questions.

Finanstilsynet's focus going forward

It is important that companies continue to focus heavily on complying with the sanction regulations. There is therefore a continued need for companies to allocate the necessary resources to comply with the sanctions, to continuously consider relevant initiatives they can take to stay ahead of new sanctions, and to ensure high quality in both procedures, systems, and controls for sanction compliance. Finanstilsynet continuously monitors the situation, and the sanctions area will also in the coming period constitute an important part of supervisory activities in the anti-money laundering field. Through its information activities, Finanstilsynet will continue to work on supporting companies' work in relation to sanctions, inter alia through the special site on Finanstilsynet's website.

If you want to know more

Finanstilsynet and other authorities continuously update information on sanctions on their websites. Below you will find a number of links to relevant websites and guidance.

Guidance on sanctions You can find guidance on sanctions against Russia and Belarus on Finanstilsynet's website. Finanstilsynet.dk also contains links to a number of other useful information that companies can use in their work. Finanstilsynet updates the website in line with the adoption of new sanction packages in the EU, and you can continuously stay updated here. You can find additional guidance on sanctions on the websites of the Danish Business Authority and the Ministry of Foreign Affairs.

Finanstilsynet's guidance on the Money Laundering Act Finanstilsynet has published guidance on the Money Laundering Act. The guidance contains a separate section on regulations on heightened risk and financial sanctions. The purpose of the guidance is to support companies in complying with legislation in the anti-money laundering and sanctions field, including the EU's sanction regulations.

Last updated 19-01-2024

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