Financial institutions and banks must deal with some unique and complicated global trade compliance requirements. The US Federal government, as well as many international organizations, are deeply concerned about ensuring money that crosses international borders – through financial transactions, shipment of funds, etc. – is not being used to support criminal activity, terrorism, the spread of nuclear weapons and other activities that are in opposition to US foreign policy and principles of international cooperation.
In response, the US and other government organizations have adopted a complex web of trade regulations, embargoes and sanctions that come into play in international transactions. Some of the most critical trade compliance challenges facing financial industry logistics organizations include OFAC compliance, global trade compliance and licensing requirements.
Read on for an overview of these issues and how companies can respond with accuracy and cost-effectiveness.
OFAC Compliance – OFAC compliance is a major issue for financial institutions with global shipping requirements. OFAC compliance refers to compliance with the US Treasury’s Office of Foreign Assets Control – the entity with the United States tasked with supporting US foreign policy, counter-terrorism and counter-narcotics activity.
OFAC oversees compliance with trade sanctions against targeted foreign governments – such as Syria, Russia, Iran and others. OFAC places controls on shipments and transactions between individuals and governments, and can freeze assets under US jurisdiction. For instance, in the wake of Russia’s invasion of the Crimean region of Ukraine, OFAC froze the assets of certain individuals and entities from the Russian Federation and elsewhere who were deemed to have contributed to the situation.
The list of OFAC sanctioned persons, countries and entities is long. They include business entities and individuals with ties to narcotics trafficking and terrorist organizations, as well as entire countries such as Belarus, Cuba, Iran, Libya, North Korea, Sudan, Syria and many others. Transnational criminal organizations and business entities known to be associated with them, such as mafia-type organizations and cyber-hacking collectives, are also targeted for OFAC sanctions.
In addition to its work ensuring compliance with US trade sanctions, OFAC is also the office that oversees compliance with UN and other allied international mandates. It cooperates closely with international authorities and allied governments. OFAC compliance is a challenge for international financial institutions because these regulations are multilateral and complex; they are subject to change on short notice and require that institutions be able to quickly respond.
Global Trade Compliance – The US and UN aren’t the only entities whose regulations are of concern to banking organizations. Each individual nation has its own trade regulations and policies. For banks that do business internationally, these create a very complex web that can make financial industry logistics particularly challenging.
This web is likely to only become more complex as many regions of the world move away from international trade cooperation and towards protectionism. For most of the last two decades, international trade has been carried out in several regions of the world, including the Eurozone and the North American Free Trade Zone. NAFTA eased cross-border trade regulations between the US, Canada and Mexico. The development of the European Central Bank made cross-border financial transactions in the Eurozone less challenging as well.
With the rise of nationalism in these regions, this could be changing. In the UK, “Brexit” is already well underway, and the unwinding of the closely tied financial and trade environment between the UK and the Eurozone will require banks and financial institutions that operate in this region to respond to working in a much more complex environment of individual government regulations, rather than regulations that cover an entire region. North America could follow on this path if NAFTA and other international trade treaties give way to national regulations.
Compliance with Licensing Requirements – When a nation is under sanctions, it isn’t the case that it’s entirely illegal to conduct business there, but in order for banking and financial services firms to be eligible to do business in targeted countries, or with targeted individuals, licensing is often required. It can be challenging to manage these licensing requirements since they, too, can be subject to change on short notice as the political or trading environment shifts.
How Can Banks and Financial Institutions Respond?
It’s clear that trade compliance is a major issue for banks. How can they respond to a complex and rapidly changing compliance environment?
At Precision Software , we believe that one of the most important steps banks can take to position themselves to adapt to change and comply with changing international trade regulations is to leverage technology that can assist with this challenging task. Our trade compliance applications help banks monitor changes to regulations and published lists of individuals and entities with whom trade is prohibited or regulated.
Our software screens trading partners to help your organization avoid doing business with any entities that appear on these lists. It helps manage licensing requirements to ensure that you and your trading partners can manage your risk. Our applications create a permanent audit trail of compliance checks and results for each transaction so that you can be confident of doing business anywhere in the world.
The landscape of global trade compliance is an ever shifting one for financial institutions that do business internationally. Precision delivers the tools their logistics organizations need to respond on a dime when things change.