Sanctions recently imposed against Russia are severely affecting operations, transactions, and services for businesses globally. You must understand these sanctions so that you can put effective compliance controls in place.
Australia recently extended its sanctions regime against Russia, developing the sanctions it imposed in 2014 “in response to the Russian threat to the sovereignty and territorial integrity of Ukraine”. These had previously been expanded in 2015. Separate sanctions regimes are in place against Crimea and Sevastopol, and Ukraine.
On March 28, 2022 Australia extended the sanctions already applied to Crimea and Sevastopol to the Donetsk and Luhansk regions of Ukraine. These measures target exports and commercial activity in transport, telecommunications, energy, and extractives, and prohibit all imports. Australian entities will have to cease activities in those regions or apply for a permit to continue. The Minister for Foreign Affairs can extend sanctions to other areas of Ukraine, should they fall under Russian control.
The sanctions against Russia prohibit dealing in financial instruments issued by, or providing credit to, publicly owned or controlled banks, companies predominantly engaged in military equipment or services, and publicly owned or controlled companies that sell or transport crude oil or petroleum products. The sanctions also cover majority-owned subsidiaries or entities acting as agents for any sanctioned entity.
To comply with the sanctions, organizations must identify not only entities sanctioned directly, but also those sanctioned by extension. Australia considers entities to be sanctioned when they are owned or controlled by sanctioned individuals or entities. A similar notion applies in other jurisdictions. The United States, for example, classifies a company as sanctioned by extension if it is owned by a sanctioned entity through a chain of ownership of 50% or more.
Because several types of ownership structure can lead to an entity being sanctioned by extension, you must assess company structures to identify the controlling shareholder, linked subsidiaries and ultimate beneficial ownership. These requirements differ from those of earlier sanction regimes: they focus on identifying the source of funds and ultimate beneficial ownership.
Moody’s Analytics has developed a process to identify entities sanctioned by extension. For each entity or individual searched, we identify the corresponding entity in our Orbis database of ownership and run algorithms on the structures of all the sanctioned entities based on Australian Department of Foreign Affairs and Trade, EU, and OFAC rules. The results can be displayed as data or a graphic.
Orbis contains information about 425 million legal entities and more than 170 million beneficial owners. Visualization tools help you to explore complex company structures, understand true ownership and control, and conduct effective sanctions-related due diligence. Orbis also lists family members and close associates of sanctioned individuals.
GRID powers our screening to uncover hidden risk. The database is comprised of sanctions lists, politically exposed persons, watchlists, and more than 50 risk types derived from adverse media monitoring. Risk intelligence is curated into detailed, entity-resolved profiles so that you can see all risk-relevant data on an organization or individual in structured, easy-to-consume reports.
GRID combines comprehensive data and categorization to allow filtering by risk type, risk stage, and risk age, based on relevance and your own risk appetite. Filtering results in fewer false positive results, more efficiency, and greater speed for your good customers.
Figure 1 illustrates how our Orbis and GRID databases can work together. Two recently sanctioned entities bring up 42 linked entities and as many as 194 entities sanctioned by extension. According to Orbis, three Russian individuals sanctioned in March were connected to two banks; those banks were connected to 42 linked entities named on the US Specially Designated Nationals list. Orbis uncovered 194 more entities that are sanctioned, but are not named on the lists. These are the entities “sanctioned by extension” that many screening systems miss.