This Week in AML

Ukraine and the Global Sanctions Response

As a result of the Russian invasion of Ukraine, nations around the world have put sanctions in place against Russia, Russian companies, and Russian nationals. John sits down with Tim White, Special Advisor at AML RightSource and global sanctions expert to discuss the severity and near term impact of the sanctions announced in the last several days, what sanctions compliance teams should be looking at to comply with these programs, and what other actions may be coming in the near-term.

Learn more about the sanctions here -https://home.treasury.gov/news/press-releases/jy0608


Ukraine and the Global Sanctions Response TRANSCRIPT


John Byrne: Hey, Tim, how are you doing today?


Tim White: [I'm] doing great, John.


John Byrne: Hey, I'm sure you'll remember this. You were the very first, This Week in AML [guest] when you and I chatted way back when we first started doing these. So we thought it would be particularly important to grab you for a couple of minutes today, because as the sanctions expert throughout your career that you are.


I know that you've been paying a lot of attention to what's been going on in the past week. Just in general, obviously, we're all concerned from a global standpoint of what's going on with the invasion and Ukraine, but from an AML sanctions perspective, I'm trying to get a sense of what was announced.


You know, a couple of days ago and just about two hours ago by the President. We thought, if you can give us your initial reaction, knowing full well, by the way, that these things will evolve over time, there'll be other changes. So if somebody is calling you and saying, "Hey Tim, I'm the OFAC guy at bank X, I just got this announcement by the Treasury and the President." What's sort of your initial reaction? So, you know, everybody who hasn't seen it yet, but when this gets posted tomorrow, they will. This comes from the Department of Treasury. The announcement says that Treasury is announcing what they're calling "unprecedented and expansive sanctions against Russia and posing swift and severe economic costs."


What are the initial highlights from your perspective?


Tim White: Well, first of all, anybody who's in the sanctions space right now is well aware that the world of sanctions has changed completely. The sanctions are extremely oppressive. They're not simple to comply with. They're an extension of what we did back in 2014 when Putin invaded and took over Crimea and started the conflict fundamentally in the Dom Basque region.


That being said, if you're a sanctions officer and you called me and said, "Tim, what do I do?" My first response would be, boy, I hope you were reading the papers the last couple of weeks and preparing to find out where do you have a nexus to Ukraine or Russia in your bank? And have you identified those high-risk points and been prepared to lock or reject things that you knew were going to come?


That being said, you know, from a big picture standpoint. This really is a huge impact on the whole globe. And this will ripple for a long, long time. Russia being number two in gas production and number three in oil production. And all of a sudden, the Western world is cutting them off. If you watched Biden's speech today, you know, from a standpoint of swift and severe sanctions, the idea of freezing the correspondent and payable-through accounts at US institutions is significant.


And at what most people don't understand, because of the integrity and the stability of the US dollar, over 85 to 90% of all international contracts are written in us dollars. And foreign banks don't hold US dollars in their countries. They hold bank accounts in New York to pay those transactions out.


Well, if you get blocked out of that system, the correspondent banking system, your funds, aren't flowing back and forth. This is going to have a very substantial consequence. From a standpoint of the impact, I think it's probably, well, it's definitely the tightest knit sanctioned program between the US, the UK, and the EU.


Yeah, go ahead, John. I'm sorry.


John Byrne: No, no, no. That's important. I wanted to ask you, one of the previous criticisms of sanctions has been, you know, you don't always get at the targets. This particular one talks about targeting Russian elites and families close to Putin, people that are in charge of companies.


Walk us through that a little bit. Not the names as much as the value proposition of going after people that are connected to Putin. That this could be more hit in his pocket than potentially previous sanctions.


Tim White: Yeah. Great point, John. To that extent, in 2014, when we did, basically three executive orders. That did target some of these oligarchs, the oligarchs being the multibillionaires that owned whole industrial sectors of the former Soviet Union. These are big-time players. There are roughly 60 to 70 of them that are in Putin's inner circle. When this happened in 2014, and we put the pinch on some of those folks lost 25% of their net worth. Now, these are players that, you know, own flats in London and Singapore and Paris and all over the world. They can buy anything they want, and they do well. If you can't go to London anymore and you can't go to Paris anymore, and you can't buy the stuff you're used to buying, and you're stuck in Russia, and your dollar value is going down.


You're going to get pretty upset. And at some point, this could be the greatest impact is Putin's inner circle saying, all right, guy, you got this ego that you want to go capture countries. I'm sorry. You're cramping my lifestyle here.


John Byrne: Right. Right.


Tim White: You know? I like playing and you kind of cut me out of the world here. That, I think, is where the UK can have the greatest impact. I don't want to point the finger that there's more Russian money in London, but one could argue that case very significantly. If you do some OFAC searches on the Treasury's website for oligarchs, several of them, you know, own buildings, you know, Oleg Deripaska owns a building on Belgrade square and in Westminster.


That's very valuable property. It'll be interesting to see if the UK follows through and really pinches them. Cause I think they've got more of a play. [In] New York there's some action as well as in Florida.


John Byrne: In Miami. 


Tim White: Yeah.


John Byrne: Boris Johnson has it down, some targeting of oligarchs. So we'll have to wait and see the particular, my last question to you. And again, we're going to do a much deeper dive on this in the upcoming weeks because eight to 10 minutes is not enough [time] given what you just said. But, there's been some criticism about the fact that these sanctions did not include shutting down SWIFT, and I've read other things that some experts believe that secondary sanctions were actually more impactful than stopping SWIFT. What's your take on it? Obviously, it's been painted, not painted. It's been described by the President and others. We still have that tool in our toolbox. We can bring it out, but some are saying that by not doing it now, that's a problem.


I don't want you to comment on that as much as just in general. What would shutting down SWIFT [do]? It's pretty difficult. It's pretty hard to do.


Tim White: Well, we did it against Iran, which brought Iran to the negotiating table for the JCPOA (Joint Comprehensive Plan of Action). 


John Byrne: Right. 


Tim White: And it severely crimped their flow. It is basically the money transfer communication systems of all international banks. You know, the fact that we've cut them out of New York and the US dollar and most of the names sanctioned entities are joint-stock companies, which is going to keep their stocks from being traded on the world markets.


That's going to have a significant impact. I think, with respect to the SWIFT mechanism. I think what's probably going on is if there are other countries that aren't in NATO, there are other countries that aren't aligned on all of this right now. And to turn them off in the centralized system has consequences for these other countries.


And, you know, before you do that, you want to understand how much we can do right here at home. And also, Where did the funds flow from? These oligarchs know they've gotten money in Singapore, and they've got money all over the world. There might be some intelligence going on.


I'm sure there is looking at the SWIFT system and saying, how are these fund flows changing? And that would be extremely good intel to say where's the back door on all these sanctions. So, like you said, at the onset, John, there's so much to unpack here. It's going to be interesting [in] the next few weeks.


John Byrne: Thank you for your quick insight here. And as you've said to me before [we] jumped on the call. Obviously, we could spend an hour or two on this. So I do appreciate you doing this. Let me just say that, those of you that hopefully subscribe to This Week in AML, you can find it anywhere you get your podcasts. Probably certain platforms that we are no longer that interested in for reasons that I won't mention now, but it's free [to] subscribe. It's eight to ten minutes a week on what we think is important this particular week. Go to the treasury website. It has all the information from today's announcements. Stay current as best you can.


Obviously, our thoughts and prayers are with the people of Ukraine. This is an important time for the world to step up and show resolve, and hopefully, that will continue to happen. So Tim White, thank you so much for your time.


See ya.


Tim White: Bye-bye.