A sound sanctions compliance strategy can help CFOs avoid personal liability
In the modern world, government-imposed financial sanctions have a massive impact on how companies are allowed to manage investments, execute payments, and steward their assets.
In western countries, agencies including the Office of Foreign Assets and Control (OFAC) in the U.S., coupled with the European Union (EU) and United Nations (UN), are three of the primary officiators of these sanctions lists and their associated regulation. And in recent years, their scrutiny on the financial sector has only continued to increase.
In 2023, OFAC’s enforcement actions broke historic records, generating civil monetary penalty and settlement amounts of over $1.5 billion. In total, OFAC levied 17 enforcement actions against corporates in 2023, with penalty and settlement amounts ranging from a minor $31,000 to a jaw-dropping $968 million. Notably, most of the enforcement actions were brought against companies operating in the financial services (6 out of 17) and virtual currency (4 out of 17) sectors.
Of course, the dangers that sanctions violations posed have been clearly evident to most CFOs since the arrest of Huawei’s CFO made headlines in 2018. In December of that year, Meng Wanzhou – CFO of Huawei, a major communications company – was arrested in Canada at the request of US authorities for allegedly helping to cover up sanctions‘ violations relating to Iran. The list of charges included bank fraud, wire fraud, money laundering, and more.
Putting the intricacies of the Huawei case aside, it did shine a spotlight on the personal and professional consequences of sanctions violations. CFOs can and will be made examples of by the law – and as members of the senior management team, they are responsible for compliance. Certain regulations, like those covering organizational negligence, even make individuals personally liable for company failings.
However, even if the CFO isn’t held personally responsible for a major financial sanctions breach, the ensuing legal, financial, and reputational damage facing the company would still cause significant harm. In fact, the negative impact on a firm’s stock market price as a result of a compliance breach has been shown to be, on average, nine times the size of the fine imposed by the regulator.
Companies that breach sanctions may also find that buyers and suppliers no longer want to do business with them. Similarly, shareholders may turn their backs on companies seen to have been in violation of sanction rules. Bank funding arrangements are also potentially at stake. Breaches can result in banks terminating business relationships, cancelling loans, or leaving funds frozen in escrow accounts for long periods of time. In other words, non-compliance is often far more expensive than compliance itself.
Today, it is not just the US that is taking a hard line on sanctions violations, either. Across the globe, governments are reprioritizing their efforts to regulate financial activity undertaken by global organizations. And the list of fines imposed on businesses, ranging from cosmetics to telecommunications and from electronics to banking, continues to climb.
So then, how can financial leaders protect themselves and their companies from the risks that a
sanctions breach poses? Learn more by downloading the full executive brief below!