Key takeaway from Global Regulatory Compliance and Investigations – Live in Singapore

On 13 October 2022, our Singapore office co-hosted an in-person event with ethiXbase on “Navigating geopolitical risks and legal challenges in business transactions”, addressing pertinent issues relating to sanctions, compliance and regulatory risks. Speakers included:

• Wilson Ang, head of Asia regulatory compliance and investigations practice, Singapore
• Kevin Harnisch, U.S. head of white-collar crime and co-head of RISC, Washington DC
• David Harris, co-head of the contentious financial services group, London
• Andrew Reeves, partner in EMEA investigations practice, London
• Martin Money, Managing Director, APAC, ethiXbase
• James Swenson, Managing Director, Research and Operations, ethiXbase

Below are the key takeaways and highlights from the panel discussions. If you would like to learn more about these topics, please reach out to our global regulatory compliance and investigations team.

1. Sanctions Panel 

The Sanctions Panel discussed how the rapidly evolving international sanctions regimes and elevated risks faced by businesses have exerted tremendous pressure on companies to assess business decisions, analyse counterparty transactions and implement sanctions compliance programs.

Setting the scene, David noted that sanctions are being imposed on Russia at an unprecedented level both in terms of volume and complexity. He commented that companies are overhauling their risk assessments for sanctions, reviewing contractual protections, as well as preparing for downstream dispute and enforcement risks.

David highlighted some key challenges and risks for businesses. First, he emphasized that obtaining global advice is vital, as even though headlines in the press often refer to a joint approach by the US, UK and EU (and other) authorities, advice across each of the regimes is still necessary due to various key differences in scope. Second, even where prohibitions are similar, interpretation of the prohibitions by regulators and authorities across jurisdictions may be different, with an example being the issue of ownership and control by sanctioned persons being treated differently depending on the applicable regime. Third, many of the regulations have been implemented at short notice and are drafted in broad terms, which can make it difficult to determine exactly what activities are prohibited.

James provided a high-level overview of the main methods employed to screen ownership. First, businesses can reach out to third parties to ask for ownership information. Second, businesses can obtain ownership information through the due diligence process. James also noted operational challenges business face in conducting screening. These include how the ownership information obtained may be inaccurate, and that corporate ownership does not equate to ultimate beneficial ownership. David emphasized that notwithstanding the difficulties, it is critical for businesses to go beneath the surface to actually understand their counterparties. This is because regulatory authorities expect corporates to know the counterparties they deal with.

Moving to enforcement trends, David noted a trend of more active investigations and enforcement of sanctions. David pointed out that the US Department of Justice has described sanctions as the new Foreign Corrupt Practices Act. On this note, David warned that the US continues to target foreign companies, and that the use of U.S. dollar transactions can subject one to U.S. primary sanctions because this entails the involvement of U.S. correspondent banks. Additionally, David highlighted that the EU is taking steps to create minimum rules for criminal offences and penalties for sanctions breaches across all Member States, which indicates an increasing trend of investigations that we are already starting to see in EU states such as Germany and the Netherlands. As a word of caution, David noted that in the U.K., the violation of financial sanctions is now a strict liability offence, which means that regulators no longer need to establish knowledge, or even that the infringing entity had reasonable cause to suspect infringement. The approach of the UK regulators to the new offence and their expectations of companies was also outlined.

In terms of sanctions risk assessments, jams highlighted that a proper risk assessment is fundamental to any compliance regime as it demonstrates that the business has a good understanding of where its risks are. After sanctions were imposed on Russia, many organisations were unsure how to handle their exposure to Russia. Notwithstanding this, high-risk scenarios can be mitigated by identifying ultimate beneficial owners, doing screening as well as conducting due diligence that is proportionate to the risk identified. James also observed that risk assessments are dynamic, which requires organisations to tailor and revisit their risk assessments frequently. Additionally, organisations should document their risk assessment measures and communicate them to staff, such that employees are aware of the company protocol. Further, testing and auditing would be required to consider if the risk assessment measures remain fit for purpose. Regarding sanctions screening software, James pointed out that false positives are a perennial issue. To mitigate this issue, he suggested screening full names, secondary identifiers and aliases. 

The importance of sanctions ricks assessments

Do I need a risk assessment?	Are there rules to follow?
Integral in informing sanctions policies, procedures, internal controls and training to mitigate sanctions risks	No one-size-fits-all model
Should be recorded clearly and updated regularly	General expectations of risk-based approach and measures proportionate to the risks associated with a particular transaction or class of business
Impact vis-à-vis authorities: Demonstration of steps taken to comply with applicable sanctions, including risks considered at the time, basis for decisions	Assessments may include review of specific counterparties, products, services and graphic locations
Vs Failure to do basic checks, no awareness of risks and failure of compliance systems	Maintain on-going monitoring of transactions and relationships

 

2. Corruption Panel 

The Corruption Panel noted that the global convergence of anti-corruption laws and active enforcement by authorities have pushed anti-corruption compliance to the top of the corporate agenda in the past few years. The panellists discussed pertinent anti-corruption issues such as enforcement trends, regulatory priorities, compliance programs and how to overcome hurdles in conducting investigations in a hybrid working environment.

Kicking off the discussion, Kevin set out the anti-corruption trends emerging in the US. He explained that there have been several recent and prominent anti-corruption settlements concerning bribery. He also discussed the increasing focus on gatekeepers such as the board of directors, lawyers and accountants. Andrew also observed that UK authorities are aggressively enforcing anti-corruption laws and noted the significant increase in expectations around self-reporting, and the trend for greater transparency in annual reports.

Kevin noted that prosecutorial agencies regularly communicate with one another, and businesses should be cognizant of that fact. Andrew advised that it is prudent to map out potentially relevant jurisdictions and get global advice on self-reporting and keep this under constant review.

Next, the panel discussed how present-day investigations differ to investigations conducted in the past. Andrew pointed out that the increased usage of Teams and other messaging platforms have made available much richer data sources but also bring with them additional risks, including data privacy. Closing off the discussion, Kevin advised that organisations would benefit from a consistent investigations policy. This would be especially useful in a time when we are seeing a marked increase in whistleblower complaints. 

3. Plenary Session 

Adopting an interactive Q&A format, all the NRF and ethiXbase speakers addressed questions at the plenary session. The questions posed covered a broad scope, ranging from export controls to secondary sanctions, to potential restrictions on in-house counsel advising on sanctions, and how businesses could demonstrate their compliance with regulations prohibiting the use of Russian products. 

Concluding the session, Wilson invited all the panelists and moderators to give some closing thoughts. Wilson pointed out the present geopolitical context and highlighted the need to consider the sanctions implications of the next significant geopolitical crisis. Andrew re-emphasised the need for businesses to get global advice at all early stage. James highlighted the importance of a good due diligence process. Kevin expressed the need for a thoughtful risk assessment program from an anti-corruption standpoint. Lastly, David assured guests that they were not alone in thinking that there is not always clarity when dealing with issues concerning sanctions.