Financial sanctions: who does what, and who monitors this?
Published: 08 March 2022
What should banks, insurers, trust offices and other financial institutions do now that so many sanctions have been imposed? And is this process monitored?
We will provide an overview below.
Three types of financial sanctions
Sanctions can be decisions of the Dutch Minister of Foreign Affairs, based on the national terrorism list, but also EU decisions or UN Security Council resolutions. Regardless of who imposed the sanctions, all companies in the financial sector are legally obliged to check whether they comply with all these financial sanctions. There are three types of financial sanctions, which we will illustrate with examples.
- Sometimes financial companies, such as banks, are obliged to freeze bank accounts or assets of certain individuals, organisations or companies, so that they cannot withdraw or transfer their money.
- In some cases, financial companies are not allowed to provide something to a person or organisation, such as a loan. It is also important that money does not end up in the hands of someone on the sanctions list though a back door.
- In other cases, the normal services of, for example, an insurer or trust office are wholly or partly prohibited to certain customers, and they may not, for example, pay out a life insurance policy or perform a trust service for that person.
Who should apply these sanctions?
For all three types of financial sanctions, a bank, trust office or other financial institution should check whether the persons and parties with whom they do business appear on a sanctions list. Every company in the financial sector must be able to take follow-up steps at any time if that is the case. For example, banks must be able to freeze someone's bank account, insurers must be capable of suspending pay-outs, and trust offices should be able to stop money flows to a company to which it provides services. As soon as an institution such as a bank notices that they have a relationship with a person or a party on the sanctions list, they have a “hit”. They must immediately report this to DNB. This way, we keep an overview and can assess whether the systems are working properly. And if a bank is required to freeze someone's assets because they appear on a sanctions list, that bank must continue to do so until that person is removed from the list. Incidentally, the bank is not allowed to part with the customer on the basis of the sanctions list.
Is someone monitoring this?
In the Netherlands, DNB and the Dutch Authority for the Financial Markets (AFM) supervise the Dutch financial sector. For instance, we check whether companies such as banks, trust offices, pension funds and insurers are correctly implementing the sanctions.
We also assess whether the chosen procedures and measures work properly and whether a bank, insurer or trust office is able to take the right follow-up steps. The procedures and measures should ensure that the entire Dutch financial sector works together in the effective implementation of the sanctions regulations, so that anyone trying to circumvent those sanctions will be quickly discovered.