How to deal with sanctioned clients

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In this second part of our series, we look at how to tackle clients who are sanctioned.

You’ve established that your client is sanctioned and, if there’s been a breach, you’ve made your suspicious activity report (SAR) to OSFI. As sanctions lists are in the public domain, there are no confidentiality or tipping-off issues about raising it with the sanctioned client.

Still, considerable care must be taken when communicating with clients about these matters and it’s vital to check your legal position before taking any action, as it can depend on the nature of the sanctions in place against the client in question.

Should you sever ties?

It may also be time to consider whether the suspicion raised by sanctioned clients, or potentially sanctioned clients, is such that, for professional or commercial reasons, you and your firm no longer wish to act for them.

“Disengaging is one option, but not necessarily the only one depending on the nature of the sanctions versus the services being provided. However, it would mean a higher risk client with the additional due diligence required,” explains Adam Williamson, AAT head of responsible business and policy.

“An application can be made to OFSI for an exemption licence if appropriate. If there is evidence that a breach of the sanctions has already occurred it may then require a report to OFSI and/or the National Crime Agency.”

Much of what happens at this point depends on how thorough your due diligence work was initially, Christina Philippou says.

“Internally, you would definitely look at extricating yourself from the client relationship, but again this comes down to the due diligence work undertaken when onboarding. It’s rare that someone is put on a sanctions list and there weren’t red flags.” 

Proactivity pays dividends

The advice from Jackson Quaker, professional standards policy development manager at AAT, is simple: to avoid problems, go through your client list, make sure it’s up to date and that you have all the relevant information; and look at clients that, although not Russian-owned, might have controlling interests from Russian individuals. Geographical hotspots are also worth watching: “We’re seeing a lot of movements of money from Russia to the UAE,” says Quaker. “If you’re dealing with someone in the UAE, check if they’ve got links to Russia. Trends like that show that you need to be holistic in your approach.”

While the threat of punishment will increase pressure on accountants to comply, the issue of reputation is just as pressing.

“Sanctions are put in place to change behaviour, so if you were to perform services for a sanctioned individual, it would be seriously damaging to your reputation,” says former forensic accountant Christina Philippou, who believes the current global opinion towards events in Ukraine goes way beyond accountants and affects all business. “The rise of social media means that you are seeing reputational damage become more important.”

While there is significant overlap with existing AML regulations, Quaker is quick to point out that sanctions are not limited to high value transactions in certain locations, advising members to “think again” about their preconceptions. 

“We’re seeing a lot of movements of money from Russia to the UAE…”

Where is the best information?

Caution is required in dealing with persons and businesses that may have links to Russia, and with jurisdictions known to have a significant presence of Russian business or which are

on the Financial Action Task Force’s black or grey lists:

These sources contain detailed information about the implementation of sanctions:

AAT Comment offers news and opinion on the world of business and finance from the Association of Accounting Technicians.

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