Lithuanian FMPs and the Implementation of International Sanctions: Exploring the Evolving Landscape

In a fast-paced world where financial market intricacies intersect with global politics, the Bank of Lithuania rolls out a comprehensive, updated framework on the adept management of international sanctions for financial market participants (FMPs). Commencing on September 1, 2023, these instructions aren't merely another policy handbook; they provide a roadmap, navigating through the labyrinth of international sanctions with local legal insights, risk assessment methodologies, and company policies.

The rules aren't one-size-fits-all. They're malleable, adjusting to the size, structure, and activities of your business. Further, they are crucial components in the comprehensive control system ensuring the smooth functioning of your business in the wake of ever-changing international sanctions.

Innovatively structured, the control system is multi-faceted, from a dedicated mechanism to garner sanction-sensitive information for swift decision-making, to the identification of key personnel overseeing sanctions. It's not just about understanding your role but mastering it. A thorough comprehension of the legal landscape and robust resource support is essential to deter any potential sanction violations.

Moreover, the guidelines introduce an IT-driven data collection and processing system to enhance sanction management, embracing the digital era in global finance. As per the guidelines, businesses must conduct annual or more frequent risk assessments if the situation necessitates. Whether you’re adjusting your product portfolio, exploring new markets, or navigating internal restructuring, risk evaluation needs to be a staple in your business diet.

An exhaustive approach is advised for risk assessment, examining geographical, customer-based, and service delivery risks. A unique aspect highlighted is the risk associated with the financing of dangerous weaponry - a cautionary reminder of the intersection of finance and geopolitics.

The thorough examination of these risks and their effective communication to the risk management team ensures a cohesive approach to risk mitigation. Any deficiencies in risk management need to be addressed through a strategic action plan approved by the management.

Remember, as entwined as they may seem, risks associated with money laundering, terrorism financing, and sanctions are not identical triplets. They carry distinct characteristics and probabilities. Understanding this crucial distinction is vital for an efficient risk management system.

The new framework, Lithuanian FMPs can confidently navigate the turbulent seas of international sanctions. In the intricate chessboard of international finance, every move can have colossal implications. Instituting robust plans and procedures, these companies should create a solid playbook to counter the challenge of sanctions.

Each financial entity needs a curated, comprehensive plan to tackle sanctions, akin to an emergency response manual. This manual should:

• Be updated and reviewed annually, or more frequently if there are changes in the regulatory landscape or risk profile.

• Include robust mechanisms for oversight, assessment, and management of sanction risks.

• Outline a clear roadmap for handling potential sanction violations or evasions, encompassing all stakeholders such as clients, service providers, or partners.

• Prescribe a legal-compliant process for reporting relevant information to the authorities.

• Detail the selection criteria and role of the key employee entrusted with sanction management.

• Explain the training protocol for employees dealing with sanctions.

• Provide a step-by-step guide to comply with sanction rules.

• Integrate a method to assess the effectiveness of their sanction control system.

This strategic plan for dealing with sanctions can either be an integral part of the general risk management plan or a standalone document, but it must get a nod from the board or management team. A prerequisite to success in this endeavor is employee familiarity with this plan and related procedures.

In addition to their internal playbook, businesses also need to ensure their compliance with the sanction rules established by international and Lithuanian laws. This requires them to:

• Conduct due diligence on potential clients, service providers, or partners for any sanction implications before engagement.

• Monitor existing clients for any changes affecting their sanction status.

• Ensure that none of the transactions involve entities subject to sanctions.

• Stay current with the latest information about sanctions in Lithuania.

During this process, businesses should consider the laws, guidelines, and recommendations of influential international entities such as the EU, UN, and other groups that enforce sanctions in Lithuania.

Furthermore, financial businesses must regularly evaluate their systems for managing international sanctions. This should not just be a regular feature of their operations, but should also include a comprehensive audit or test at least biennially. Any deficiencies identified need to be rectified promptly, and management should be informed.

In situations where businesses engage intermediaries, such as individual agents or other businesses providing financial services, they need to ensure these intermediaries:

• Are fully briefed about the business's policies and procedures for dealing with sanctions.

• Are knowledgeable about the applicable sanctions and the inherent risks.

• Possess adequate training to identify and respond to potential sanction violations.

• Are audited or reviewed regularly for compliance with sanction rules.

Ultimately, the financial business bears the responsibility of ensuring that these intermediaries follow the path set out by the Sanctions Directives.

Finally, if a financial business identifies a problem in its system for managing sanctions that affect its sanction compliance, it is required to inform the Bank of Lithuania in writing within five (5) working days. For these and more changes we are up to speed to consult and provide advisory should the reader be in a position to consider, do feel free to reach us out at office@caml.lt