Global governments have moved quickly to impose economic and commercial restrictions on Russia’s financial institutions and select individuals as a response to Russia's military invasion of Ukraine. Included institutions were Sberbank and VTB, to name a few, and individuals such as President Vladimir Putin. These are the toughest sanctions ever issued against a country of Russia's size or globally interconnected economy. Most recently, the international financial community has gone as far as to cut off Russian banks from the SWIFT messaging platform. Even Switzerland broke its long tradition of remaining neutral and agreed to freeze Russian assets.

The effectiveness of sanctions is predicated upon the ability of financial institutions to incorporate them into their control environments effectively. Ensuring current, accurate watchlist and risk identification data is paramount to stopping money laundering efforts. The stress on anti-money laundering (AML) compliance teams to act swiftly and nimbly to Russian sanctions is unprecedented.

How specifically can sanctions compliance teams forge a path forward? Here are three recommendations to help AML and sanctions screening teams manage this rapidly changing environment.

1. Cryptocurrency will play a role in Russian sanctions; monitor irregularities in both fiat and non-fiat transactions

The US dollar is still the world’s reserve currency, and as such, US sanctions maintain their potency as a geopolitical policy tool.  The ability for sanctioned institutions and individuals to move money through traditional financial (“TradFi”) means will be discouraged. And sanctions against Russian financial institutions and select individuals have been in place for some time now. The Russian Federation’s leadership has been discussing (publicly) this military action for years. As such, they will have planned and prepared for the inevitable sanctions “reaction” from global governments and the TradFi sector. Expect those sanctioned to seek alternative means to fund operations and evade sanctions. 

Cryptocurrency presents an interesting alternative, as we already know that nation-state actors mine tokens as a means to evade sanctions (see North Korea, Iran). It’s explosion in usage as a means of exchange makes it easier to disguise illicitly funded transactions amongst the clean money flow on and across chains. Investigative teams should be utilizing tools that allow them to monitor both fiat and non-fiat transactions, on and off chain, and nimbly address risk ratings according to client behavior.    

2. All hands on deck for adjusting controls and monitoring frequencies

A fluid situation makes it difficult for AML compliance teams and business functions to respond promptly to new Russian sanctions. Relationships that were permissible at breakfast time will be impermissible by lunch. Teams must constantly layer regulatory changes into their control software. Risk indicators should be managed according to shifts in identified activity patterns known to fund their conflict operations (or looking to move money away from the prying eyes of sanctions). Tune your rules (and reassess model features, labels) according to newly defined typologies. This will also impact your model risk governance oversight and provide justification for why you made the changes.  If you’re using an external party’s software, solicit their help – leverage their view across industry participants to understand the latest and greatest approaches.   

3. Automate watchlist updates

Manually updated watchlists are too analog for a situation as critical and dynamic as this. You risk moving funds that should have been frozen in the first place. Increase the time between updates if you are currently automating your watchlist management. If using third-party software, make sure you understand the frequency (and manner) in which they update their data.  

Each day of the Russia-Ukraine conflict moves the world – and the global financial landscape – deeper into uncharted territory. New sanctions against Russia are being issued on a near-constant basis by different countries and organizations. These simple steps can help AML compliance and sanctions screening teams prepare themselves for a long stretch of uncertainty. 

Banks will face significant regulatory fines if they enable criminal activity. Download our eBook Anti-Money Laundering: How to Protect Your Bank’s Brand & Bottom Line to learn more.