Is your business playing Russian roulette with sanctions rules?

The Russian Invasion of Ukraine

When Russia invaded Ukraine on February 24, 2022, Russian companies and individuals were subject to almost immediate sanctions which Liz Truss, foreign minister at the time, said would leave Vladimir Putin’s oligarchs with ‘nowhere to hide’.

What has the invasion meant for Regulated firms and AML?

Regulated firms in the UK were already required, by law to have established systems and controls to counter the risk that they might be used to further financial crime, but were told that, in light of the new sanctions, increased screening would be required, with warnings from regulators that the penalties for breaching the new rules would be severe.

At the time, many regulated firms were still relying on outdated, manual compliance processes, and therefore had no reliable way of rechecking their databases to see if any existing customers were affected by the new sanctions.

How SmartSearch has helped?

In response to the fact that so many firms would be struggling to guarantee compliance under the new rules, SmartSearch - whose own clients were covered thanks to the ongoing monitoring solution – launched a brand-new High-Risk Country Report service to enable businesses to immediately check their customers for links to Russia, Belarus, or any other high-risk countries.

Since the invasion, 1,250 entities and 7,200 individuals have been added to the sanctions list, and more are being added every day, meaning it has never been more important for regulated firms to have access to sanctions screening and ongoing monitoring as part of their compliance solution.

Why must property firms evolve?

Despite the heightened risk – particularly for firms that work within the property market due to the fact UK real estate can be bought by anonymous entities, a loophole sanctioned Russians could exploit - new research has revealed a worrying level of apathy amongst estate agents and other property firms.

According to Electronic Verification Uncovered II, a report by digital compliance and anti-money laundering experts SmartSearch, seven in ten property firms haven’t changed their approach to verifying new customers since the war in Ukraine began and almost eight in ten (77%) haven’t changed the way they monitor existing clients.

What does Martin Cheek, managing director at SmartSearch have to say?

Martin Cheek, managing director at SmartSearch said: “Despite the fact there are more than 8,000 firms and individuals on sanctions lists than there were a year ago, the vast majority of property firms have done nothing to update their monitoring systems of their existing customer databases. This means they could be doing business with people and entities that passed checks at onboarding but are now sanctioned.

“Furthermore, seven in ten haven’t changed their approach to verifying new customers and given that more than a quarter of firms still rely on manual checks and physical documents to run their customer due diligence, there is a very real possibility that they have onboarded sanctioned individuals over the past year.

“Russian nationals will be doing everything they can to infiltrate the UK economy and try and access frozen assets – including hiding behind shell companies, meaning the ability to identify Ultimate Beneficial Owners (UBOs) is absolutely vital - yet most UK property firms have made no attempt to improve their due diligence which is hugely worrying.”

Martin says that firms not only have a legal obligation here, but a moral one too, and by taking a lackadaisical approach to customer due diligence they are potentially helping Russia fund the war in Ukraine. And if that isn’t enough of a deterrent, there is also the fact that those firms that do breach the sanctions rules face significant fines; Clear Junction has been fined more than £36,000, while Standard Chartered was fined £20.47m for breaching sanctions.

Martin said: “The most efficient, reliable, and cost-effective way to ensure your business is meeting its obligations – and protecting itself from becoming enablers of financial crime – is to use electronic verification. But we understand that there are some obstacles.

“For example, almost one in five decision-makers in the legal, property and banking and finance sectors say they do not trust the technology of electronic verification software – with many saying hard-copy documentation was more reliable. But the fact is, ID documents can easily be faked, and checking them manually will not pick that up – only electronic verification will spot a fake.

There is also an assumption that electronic verification will be costly, but again, says Martin, this is not true. Checks with SmartSearch take a matter of seconds; Electronic Verification Uncovered II found that for more than a quarter of firms, it takes a week to manually check an official document; a huge waste of time and resource.

Martin concludes: “Not only are electronic checks quicker, cheaper and more reliable, but if you use a platform like SmartSearch, you also have the peace of mind, not only in the reliability of the initial checks, but also, that each and every customer is being monitored every night and screened against global sanctions list so the minute there is a change, you will know about it and be able to act immediately.”

If you’d like to find out more about our recent electronic verification research you can download our latest whitepaper Electronic Verification Uncovered II. Alternatively, to find out how your business can make significant cost savings and efficiencies with a trusted compliance solution, speak to one of our experts today.