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KPMG Financial Services Regulatory Insight Center

Sanctions Compliance: A Key Element of Effective Ethics and Compliance Programs

Washington D.C., May 2019 - The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has reiterated the importance of sanctions compliance in its newly issued Framework for Sanctions Compliance Programs. The framework sets forth minimum expectations for organizations to develop, implement, and continuously improve their sanctions compliance programs.

Key Components of a Strong Sanctions Compliance Program

The OFAC Framework identifies five core areas that organizations should focus on:

  • Management Commitment: Organizations must demonstrate a commitment to sanctions compliance at the highest levels.
  • Risk Assessment: A risk assessment methodology should identify, analyze, and address particular risks, and be updated regularly to account for changes in the sanctions environment.
    • This includes policies and procedures for reporting and escalation chains, as well as processes for identifying, interdicting, escalating, and reporting potentially prohibited transactions.
  • Internal Controls: Internal controls should outline clear expectations, define procedures, and minimize the risks identified by risk assessments.
  • Testing and Auditing: Organizations must commit to regular testing and auditing of their sanctions compliance programs to ensure they are effective in preventing violations.
  • Training: A training program should be provided annually to all employees, and should include:
    • Job-specific knowledge
    • Communication of sanctions compliance responsibilities
    • Accountability for training

Common Compliance Program Breakdowns

OFAC notes that common breakdowns in sanctions compliance programs can be tied to root causes such as:

  • Lack of a formal OFAC sanctions compliance program
  • Misinterpretation or failure to understand the applicability of OFAC regulations
  • Facilitating transactions by non-U.S. persons, including through overseas subsidiaries or affiliates
  • Limitations in sanctions screening software or filters
  • Improper due diligence of customers or clients
  • Decentralized compliance functions and inconsistent application of SCPs
  • Senior-level employee misconduct

KPMG Perspective

Sanctions compliance is a fundamental element of an overall well-functioning ethics and compliance program. The establishment of this framework by OFAC reiterates its importance and sets forth minimum expectations for organizations to develop, implement, and continuously improve their sanctions compliance programs.

“Importantly, the OFAC Framework is intended to span across not just customers but also to supply chains, intermediaries, and all counterparties,” said Amy Matsuo, Principal and National Lead of Regulatory Insights at KPMG. “As such, all organizations should look to enhance sanctions compliance both within their organization and with their supply and distributor providers.”

About KPMG

KPMG is a global network of professional firms providing audit, tax, and advisory services. The firm’s Financial Services Regulatory Insight Center provides news, analysis, and commentary on financial regulatory developments.

For more information on this topic, please contact Teresa Pesce or Stephen Marshall.