WIREDGOV

Details matter, and when it comes to sanctions implementation, governments need to provide the right details to the banks on the frontline. Currently, they do not.

Governments increasingly regulate the trade in certain goods, imposing sanctions and trade restrictive measures to prevent sensitive technologies from reaching competitor economies and military opponents. The challenge comes with enforcement: how to promote compliance in the private sector? Regulators have a choice – either rely on the thousands of exporters (who are largely unregulated) or let compliance fall to the much smaller number of banks already subject to stringent oversight.

Their choice has been clear. Banks are the financial frontline of sanctions enforcement, tasked with applying a multiplying patchwork of national, UN and multilateral restrictions on trade with Russia, Iran and North Korea – all countries with military, security and proliferation programmes that are subject to extensive sanctions, export controls and trade restrictions, yet continue to seek access to western-origin high-tech goods.

If banks are to support governments to restrict the flow of high-value dual-use goods, then governments and regulators should take greater efforts to align restrictions with systems the financial institutions use. Namely, the current system of sanctions based on Harmonised System (HS) codes should be adapted to include reference to the industry codes banks use – for example, UN International Standard Industrial Classification (ISIC) codes. In addition to the UN ISIC codes system there are others such as SIC and NAICS used by the US and Canada, NACE2, used by the EU and UK and NIZCS used by Australia and New Zealand. Your authors propose using the UN code as it is the most developed, but the approach we recommend could be used with any of these.

Supply chains for military and dual-use technology rely on convoluted and complex shadow networks, which results in complicit and non-complicit actors who obscure ownership through shell companies

This should be government-led to ensure consistency and completeness across the financial sector.

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