Financial Crime World

OFAC Sanctions Compliance: A Concern for Philippine Businesses

Introduction

A recent report by Deloitte analyzing sanction violation settlements issued by the Office of Foreign Assets Control (OFAC), a branch of the US Department of the Treasury, highlights the importance of OFAC sanctions compliance for Philippine businesses. Despite being geographically distant from the US, Philippine companies are not immune to the need to comply with sanction requirements.

The Scope and Consequences of OFAC Sanctions Violations

The report reveals that between January 2022 and April 2024, 34 settlements with the OFAC amounted to over $1.6 billion in financial penalties. This figure only scratches the surface of the additional costs of organizational disruption or reputational damage. Philippine businesses should be aware of the extensive scope of OFAC sanctions violations and their potential effects on their operations.

Philippine companies have a legal and regulatory obligation to implement robust controls to ensure compliance with sanction requirements. This includes:

  • Avoiding transactions with individuals, companies, or countries that appear on the OFAC’s various sanctions lists
  • Not buying or selling products, providing or receiving services, or transferring or receiving funds to or from sanctioned parties

The Complex Global Geopolitical Environment

The current global geopolitical environment is complex, with new sanctions often being imposed with immediate effect. Compounding these challenges are:

  • Criminal intent: Those seeking to evade sanctions deploy deceptive tactics to conceal their identities and mask the true beneficiary or purpose of their transactions
  • Regional tensions: Conflicts in Gaza and Ukraine have triggered a cascade of new sanctions, while rising tension in the Taiwan Strait and ongoing territorial dispute in the South China Sea involving China and several other claimant countries add another layer of sanction risk for Philippine companies

The Economic Interplay between China and the Philippines

The economic interplay between China and the Philippines is deeply intertwined, spanning various sectors such as:

  • Manufacturing
  • Infrastructure
  • Real estate
  • Energy
  • Technology

Chinese investment in the Philippines has also been substantial, with significant capital flowing into these sectors. However, the potential imposition of more US sanctions on Chinese interests could create a number of challenges for Philippine businesses, including:

  • Significant supply chain disruption
  • Financial repercussions
  • Legal and compliance risks

Mitigating Risks

To mitigate these risks, companies in the Philippines can take sensible steps now, such as:

  • Performing a comprehensive preemptive sanction risk assessment to identify potential issues and anticipate potential import/export restrictions
  • Prioritizing and tailoring their compliance program
  • Providing comprehensive and regular training
  • Staying ahead of the curve by anticipating regulatory changes and emerging risks

Conclusion

Staying compliant with OFAC sanctions is not just a strategic advantage but a necessity in today’s complex global environment. By thinking about the risks now rather than waiting for potential sanctions to be imposed, companies in the Philippines can manage their risk more effectively and increase the chance of remaining compliant.