Guernsey [GFSC] Sanctions Thematic Review - 2021

In 2021 the GFSC [Commission] undertook a thematic review to assess the effectiveness of banks', fiduciaries' and fund administrators' monitoring of, and compliance with, targeted financial sanctions.

The fieldwork undertaken predates the Russo-Ukrainian War and thus has not assessed the complex work firms have put in to implement sanctions on Russia since the middle of February.

Key findings

• 86% of all Bailiwick firms subject to AML/CFT supervision rely on automated sanctions screening systems to identify sanction targets.
• The effectiveness testing was extensive, and those subject to our testing were responsible for over 260,000 business relationships with the banks tested responsible for
  • 8% of inward transactions and
  • 6% of outward transactions in/out of the Bailiwick during 2021
• only 56% of the fiduciary and investment firms surveyed screen their underlying assets.
  1. Of those firms screening underlying assets, some are only doing so on vessels despite these not being the only asset types of relevance.
• Therefore, 44% of these firms may be at risk of breaching sanctions, although we have been impressed with the efforts firms have put into Russian sanctions implementation since the Russo-Ukrainian War broke out.

The results showed

• That the sanctions screening systems of those tested were effective, with only a small minority of firms needing material improvements demonstrating that their systems are effective. These firms are now subject to risk mitigation programmes set by the Commission.
• Local firms need to ensure they consider and document their
  1. Sanctions risks,
  2. The screening process, and
  3. The testing of the effectiveness of the sanctions screening systems employed.

Key risk conclusions

• Firms should be alive to the risk of placing over-reliance on these systems and accepting that the process is often complex, with many different systems, databases, and staff interacting with one another to generate alerts of potential sanctions matches.

Sanctions and other risks elements

• Effective sanctions screening is only one part of a firm managing its TF and PF risks, and firms also need to understand what TF and PF threats their business is exposed to and instil adequate controls in respect of
  1. The identification and verification of customers and their ultimate beneficial owner(s),
  2. Understand where their customers' source of funds and wealth originate from and
  3. Perform ongoing monitoring of transactions and activity to mitigate these risks fully.

https://www.gfsc.gg/sites/default/files/2022-05/20220511%20-%20Sanctions%20Thematic%20Review.pdf

NOTE:-

• A sanction is a measure imposed by a government to apply restrictive measures against a country, regime, individual, entity, industry or type of activity believed to be violating international law. Sanctions are imposed as a result of United Nations Security Council Resolutions aimed at preventing the proliferation of weapons of mass destruction (nuclear, biological and chemical) and disrupting terrorist operations.
• Sanctions are also used to satisfy United Kingdom foreign and national security goals, such as the unprecedented number of sanctions imposed on Russian individuals and organisations, following the invasion of Ukraine. The Bailiwick's sanctions regime mirrors that of the United Kingdom and it is imperative that sanction targets' funds, assets or other economic resources are immediately frozen and reported to the States of Guernsey's Policy and Resources Committee.