Iran Sanctions: Managing Connected Risk

An Issue of Complexity and Concern

The complicated subject of Iran has continued to dominate global geopolitical news feeds around the world and has direct impact on day-to-day business interactions with our increasingly intertwined global financial system. Add to this the complexity of frequently updated and often conflicting US and European regulatory positions and today, as much as ever, multi-national corporations and global financial institutions must raise their awareness around direct and indirect relationships of parties with whom they are doing business.

If you’re reading this, then there’s a pretty good likelihood that you’ve heard of the Office of Foreign Assets Control, or OFAC, which is part of the US Treasury. Perhaps you also know that OFAC updated their Iran Sanctions list just yesterday!

Via the U.S. President, a number of executive orders have been issued by OFAC pertaining to Iran. The fact that they have their own, special place on the OFAC Resource Center should be a concern to all of us. To give that some level of context, there were 8 executive order updates in 2019 alone relating specifically to Iran.

The Financial Action Task Force, or FATF, issued a Public Statement in October 2019 which highlighted ongoing deficiencies in Iran’s financial system in terms of how they deal with money laundering and terrorist financing. Or not, as the case may be.

Further, Transparency International ranks Iran 146th out of 180 countries in its Transparency Index, with a score of 26/100 for its perceived level of public sector corruption. Not a great picture.

Not troublesome enough? Add to the mix the conflicting regulatory positions between the EU and the US and you have the perfect recipe for a perilous environment where staying current, and the real risk of not, becomes increasingly challenging. These are not brand-new concepts. Plus, you already have an Iran Sanctions business policy and you don’t do business with Iranian sanctioned entities anyway. Or do you?

Worrisome Connections

Indirect relationships of sanctioned individuals raise the same downstream concerns as that of the more visible concept of politically exposed persons (PEPs). Generally accepted guidance around PEPs tells us that we should include close family and known associates as PEPs, albeit by association, and should face enhanced scrutiny from a financial perspective.

Let’s hypothesize that a PEP with criminal intent wanted to accept a cash bribe related to a lucrative arms deal and needed a way of making the money appear to be legitimate. If family and associates weren’t under scrutiny and the PEP was, it stands to reason that the PEP would ask one of his entourage to open up an offshore company bank account for them and deposit the dirty money there so that they are not directly implicated. This is precisely why friends and associates of PEPs are also under financial scrutiny. So it begs the question, why aren’t close family and known associates of Sanctioned Individuals and Entities under the same scrutiny? The same broad principles apply to PEPs as they do to Sanctioned Individuals and Entities; however, no recommendations currently exist to apply enhanced due diligence, or EDD, to them.

Because close family and known associates of Sanctioned Individuals and Entities present a significantly increased risk of money laundering and terrorist financing and because this is a dynamically changing list, RDC has developed a way to mitigate this risk via our Iran Connect solution. This solution considers the important indirect relationships of those listed on regulatory Iran Sanctions lists.

We put forth comprehensive efforts to ensure that we’re capturing pertinent information from a variety of reputable sources relating to sanctioned individuals and entities and, arguably more importantly in this instance, their close family and known associates. New related source entity information continues to expand globally with notable increases in profile sources from Germany (10%), Belgium (9.75%), United States (7.5%) and Japan (5.4%). In 2019 alone, 450+ individuals and a further 400+ entities were either added to our existing Iran Connect database or existing records were enriched. Take a moment to think about that. Almost 1,000 new or enhanced profiles linked to sanctioned entities or individuals added in the last 12 months.

You aren’t doing business with these entities anyway – right? Well, now you have a way to be certain.

Until next time,