KYB in the age of sanctions: Six takeaways from our webinar

For firms that deal with overseas businesses, adapting to the ever-changing regulations around corporate due diligence as the geopolitical landscape continues to shift is proving to be challenging.

Faced with a host of Know Your Business (KYB) responsibilities, even the most experienced legal professionals are being put to the test as they work with businesses across multiple territories. Inevitably, that means more time than ever is being spent on manual processes to identify their clients.

To discuss the latest on sanctions, KYB expectations and how to manage the increased workload, we brought together a panel of risk and compliance experts in our webinar ‘Know Your KYB: Corporate Due Diligence in the Age of Sanctions’. Hosted by our Head of Legal at Thirdfort, Sam Ruback, the panel also included:

• Robin Lööf, Barrister at Fountain Court Chambers

• Richard Wakefield, Head of Business Optimisation at Kompany

You can see the conversation in full through the link here. Pressed for time? Below we’ve pulled out the top takeaways you need to know from the discussion.

1. Don’t assume sanctions won’t impact your jurisdiction

Sam kicked off the discussion by sharing that as a direct result of the ongoing conflict in Ukraine, more legal professionals are being impacted by sanctions than ever before.

Sharing this thoughts on this, Robin also stated that: “The volume of activity covered by sanctions has just exploded, so whilst sanctions have always existed, most of us practising law could avoid being impacted as they were limited to relatively obscure jurisdictions. Or individuals and entities, that most of us would not necessarily have come into contact with previously.”

“Many Russian businesses and individuals that regularly consume legal services are now off limits, so many more of us are being impacted. Plus, the range of sectors involved has increased exponentially. So as a law firm, you are much more likely to come into contact with sanctions issues now than you were six months ago,” he added.

2. Repercussions for non-compliance go beyond fines

On that note, it’s vital for law firms to remain vigilant over sanctions and compliance - especially since the SRA have stepped up their level of spot checks in the last six months. However, it’s not just the financial costs of not meeting current regulations that firms need to consider. There’s a significant reputational risk, too:

“You shouldn’t underestimate what will happen if you get caught. I’ve seen a couple of instances where firms are fined for money-laundering violations… And whilst the fines are high, there is also a personal risk as well - for yourself and your counterparts - especially if you’re responsible for a transaction,” said Robin.

3. Consider digital tools to stay up to date with sanctions lists

Compliance is far from just a box-ticking exercise. Whilst many firms already work hard to make sure that they meet the current regulations, they need to be conscious that sanctions lists can change overnight.

Richard shared an insight on this: “There is no way to know when the government is going to update their guidance. So if you are responsible for compliance within your law firm, make sure you’re subscribed and up-to-date on things changing.”

He also added: “When sanctions are prone to change so rapidly, and you’re involved in transactions where sanctions are a significant risk, I would advise anyone to look into some sort of automated solution which runs a continuing running search in the background against the names that you have put into the system.”

4. Speed and sanction list update frequency are vital

If you are using a digital solution to help you keep on top of changing sanctions in relation to the businesses you’re working with, it’s worth checking how often it is updated: “One of the most important things for a firm to check is how quickly their solution is updated by the firm that’s running it. Because if they update it once a week using the lists that come from the government, then that’s not really quick enough,” Richard commented.

For example, if a firm is making a transaction the day following an update and isn’t aware of new sanctions that impact one of the companies they’re working with, they can become liable. Ensure you ask your digital provider about how frequently they monitor sanctions lists, and where thew draw their source information from.

5. Firms need a solid KYB process in place

Richard recommends having a concrete KYB process in place to check that individuals and ultimate beneficial owners (UBOs) are who they say they are.

Rather than having a manual system in place whereby multiple analysts check through lists and company trees to scope out individuals, the automation offered by digital KYB tools or screening solutions means you can get the job done quickly and efficiently. Bringing in external expertise to manage the KYB process also saves having to set it up in-house.

Robin agreed that using digital solutions to manage KYB processes will also help firms to show evidence of following compliance procedures - something that both the SRA and FCA will be looking out for. “Evidential information is key if a regulator comes knocking on the door. I have seen that a lot from the FCA… If there is no process in place, the FCA is not happy.”

6. Automating processes enriches professional work, but doesn’t replace it

When we hear the word ‘automation’ in relation to processes, we often think that this will replace the manual work being carried out.

However, in the case of implementing automated digital tools for compliance, Richard shared that automated tools should actually enrich a professional’s work rather than replace it: “The most important thing to realise is that automation is not actually ‘taking work away’. It’s giving professionals the information and time that they need to investigate the more complex cases.”

Robin agreed, stating that: “It’s not just a case of having an automated solution running in the background and that’s it. One needs to be aware of quirky means in which entities and individuals seek in order to avoid sanctions,” adding that automated solutions can be useful as a springboard from which you do a further deep-dive on businesses or individuals.

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