Voice of the Industry

Russia sanctions & PEPs lists require new tools for compliance

Monday 9 May 2022 10:37 CET | Editor: Oana Ifrim | Voice of the industry

The unprecedented scale and speed of sanctions against Russia has highlighted the need for a new approach to compliance that is enabled by better data and Artificial Intelligence (AI) automation

On 24 February 2022, the world woke up to Russia’s full-scale invasion of Ukraine. Shortly after, western governments unleashed an extraordinary number of sanctions against Russian President Vladimir Putin’s inner circle, and a swath of Russian entities in strategic sectors, such as finance, commodities, and energy. Today, Russia is the most sanctioned nation globally, with 5581 sanctions applied against it.

Sanctions & PEPs lists in a nutshell 

Before we dive into the specific challenges posed by sanctions against Russia, let's recap. Sanctions are financial and commercial penalties applied by one or more countries against another nation state, organised group, or individuals because of specific political, military, and social actions. Politically Exposed Persons (PEPs) are described as individuals with prominent public functions and connections. These are people whose positions can be compromised by corrupt activities, and that requires a special check to determine the risk of doing business with them. The identification of PEPs, their family members and close associates is a core aspect of appropriate due diligence and Know Your Customer (KYC) process that aims to report, prevent, and detect potential money laundering.

The challenge posed by a fast-changing sanctions landscape

The global and interconnected nature of large Russian entities poses a particular compliance challenge for Western companies that have business relationships with this market. Manually identifying all sanctioned entities, many of which have complex structures, would require an army, and implies huge costs. Additionally, keeping up with the various sanctions and PEPs lists can be a daunting or flat-out unmanageable task for companies who do not have the right screening methods or technologies. The risks posed by operating without the correct information are an ongoing cause of concern for compliance teams, and senior executives at international firms.  

Compliance failure has become an even bigger concern for global companies because of the increased severity of penalties associated with the EU's 6th Anti-Money Laundering Directive (6AMLD). The broader scope of this directive, which came into force in mid-2021,  extends criminal liabilities to company directors. Before 6AMLD, EU money laundering regulations penalised only those who benefited from money laundering activities, but now entire entities and their leaders can be considered “enablers'' and be convicted. 

Checklist: Picking the right compliance tool 


Because of the wide reach and complexity of Russian sanctions and PEPs lists- owing to how entwined major Russian businesses are in global trade - it is important for businesses to choose the right tools for compliance. There are many technology products that promise to help you stay compliant. Here are three things to consider when choosing the right compliance technology tool to address the latest Russia sanctions and PEPs lists.  

  1. Real-time Daily Scraping: Make sure you select a product that constantly scrapes lists regarding sanctions, PEPs, aliases, and subsidiaries associated with sanctioned entities. In order for network analysis to be effective, all known entities need to be up to date, and a compliance tool that uses old data will miss important connections.  By choosing a tool with potential lag time the chances of not being compliant increase.  
  2. Factors Relevant Lists: Choose a tool that monitors the most relevant lists to your business. Lists by the United Nations (UN), US (OFAC), the UK (HMT) , European Union (EU), Japan (METI), Australia (DFAT) and Switzerland (SECO) are worth screening because of their influence on global markets. These lists are very important when looking to comply with today’s sanctions against Russia. However, companies need to also include the lists of any jurisdiction they are located in and cannot rely solely on the aforementioned lists to fully comply.
  3. High-Quality Data:  Tools that make use of unhashed and cleaned data when carrying out sanctions screening should be considered when looking for an effective compliance tool, as these ensure the most accurate results. Unhashed means unencrypted or clear text data. This means raw information, such as full name, address and other indicators that can clearly identify an entity, its aliases and any variation. Don’t risk sanctioning the wrong person or entity with a similar name!

Picking an effective tool is important because the price of failing to comply is steep. Companies that fail to identify breaches in sanctions or PEPs can face significant fines. For example, Paris-based banking giant BNP Paribas was fined USD 9 billion in 2014, as a result of violating sanctions against Cuba, Sudan and Iran. Other large sanction related fines include Commerzbank’s USD 1.45 billion fine in 2015, Standard Chartered Bankss USD 1.1  billion fine in 2019, and UniCredit Bank’s USD 611 million fine in 2019.  In some cases though, businesses can even lose their licenses as a result of money laundering violations, which is what happened to Versobank AS of Estonia in 2018.  

About Christian Mangold

Christian is a seasoned growth executive who successfully scaled SOFORT before its acquisition by Klarna, where he served as Managing Director for the DACH region. As CEO he leads Fraugster’s entire day-to-day operations. In his spare time, he is an outdoorsman who likes to ski and sail with his wife and three children.

About Fraugster

Fraugster is a payments intelligence company that helps the ecommerce ecosystem to minimise fraud and maximise revenue by making smarter real-time business decisions. We help our customers solve multiple use cases by giving them access to various, interoperable products via one integration. Fraugster is the first player to offer compliance, chargeback protection, risk management solutions and credit scoring via one AI platform and one integration. 

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Keywords: compliance, financial sanctions, risk management, artificial intelligence, data, KYC, AML
Categories: Fraud & Financial Crime
Companies: Fraugster
Countries: World
This article is part of category

Fraud & Financial Crime


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