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Channels of Service Pose Significant Risk in International Sanctions
A recent study has highlighted the importance of assessing the channels of service used by individuals and businesses in the context of international sanctions. The study found that the channels of service, such as transmission channels, geographical locations, and systems used to identify sanctioned entities, pose significant risks for those involved.
Transmission Channel Risk
The study identified transmission channel risk as a major concern, particularly when it comes to anonymous consumption of products and services. This is because individuals and businesses may use intermediaries or representatives, including lawyers, to mask their identities and locations. As a result, it can be difficult to identify the location of the consumer of a service.
- For example, if an individual uses a broker or agent to communicate with a person having specific obligations, this can pose a significant risk.
- Similarly, if a business relies on third-party service providers for due diligence measures, especially those located in jurisdictions with lower international compliance standards, this can also increase the risk.
Geographical Risk
The study also found that geographical risk is another major concern when it comes to international sanctions. This is because individuals and businesses may be exposed to certain higher-risk jurisdictions, which can pose a significant threat to their operations.
- For instance, if an individual or business has dealings with a country subject to sanctions, this can pose a significant risk.
- Similarly, if a transaction involves a high sanction risk, such as a product supply chain, this can also increase the risk.
System Risk
The study identified system risk as another area of concern. This is because individuals and businesses may use automated screening tools (ASTs) to identify sanctioned entities, but these systems can be vulnerable to manipulation or capability risks.
- As a result, it is essential for individuals and businesses to assess the risks associated with their systems and take steps to mitigate them.
Risk Assessment
The study recommended that individuals and businesses conduct a risk assessment to determine their exposure to international sanctions. This should involve assessing:
- The inherent risk of sanction
- The efficiency of risk management and mitigation measures
- The amount of residual risk
A formula can be used to determine the risk characteristic of a sanction, which involves calculating:
- Intrinsic risk minus the efficiency of risk management and mitigation measures
Risk Mitigation
The study concluded that individuals and businesses should establish a risk mitigation and risk management system for international sanctions. This should involve:
- Describing the risk mitigation and risk management strategy in writing
- Establishing and updating the risk appetite and risk assessment
- Implementing control measures to manage the risk
Overall, the study highlights the importance of assessing channels of service, geographical locations, and systems used to identify sanctioned entities when it comes to international sanctions. By taking steps to mitigate these risks, individuals and businesses can protect themselves from the consequences of breaching financial sanctions.