There has been a sharp decline in the number of UK businesses regularly carrying out due diligence on sanctions and politically exposed persons (PEPs).
Just one in four firms consistently check new customers against sanctions or PEP lists, with the financial services sector showing a decline from 66% to 22%. The legal sector, previously the most compliant, has seen a drop of 60% in the number of firms making consistent checks, with only 24% now doing so.
The findings come from a survey of 500 companies in the financial services, legal, estate agency and accountancy sectors carried out by digital compliance solutions provider SmartSearch. It found only 25% of regulated businesses are doing due diligence on sanctions and PEPs, down from 73% in 2022.
Martin Cheek, MD of SmartSearch, said: “Sanctions are not a static list, they are a dynamic and rapidly evolving tool of foreign policy. Firms that think occasional checks are sufficient are not just naïve, they’re risking severe penalties, including substantial fines.”
Research published by the firm earlier this year found over half those surveyed had not made any changes to their compliance procedures a year after sanctions were imposed on Russia after the invasion of Ukraine.
That conflict, plus growing tensions with China over the ongoing dispute about Taiwan, provides the context for growing worries about any drop in compliance. The International Monetary Fund has estimated that financial crime proceeds total between 2% and 5% of global gross domestic product, and the UK government says money-laundering costs the UK economy around £100 billion ($126,009,969).
The UK FCA is in the midst of a formal review of how banks carry out checks on PEPs and their families, with the results due at the end of June 2024. It has signalled an increasing focus on enforcing provisions for sanctions in the coming year.