The Australian government may be allowing companies to breach United Nations sanctions due to the lack of aggressive regulation of sanctions, according to a forensic accounting expert.
Tim Phillips, leader at Deloitte Forensic, told Risk Management that while the Federal Government is proactive in terms of prohibiting dealings with organisations and countries subject to UN and US sanctions, regulatory enforcement is lacking both in Australia and overseas.
He used the example of Iran, which had two new rounds of UN sanctions imposed on it in December 2006 and March of this year.
“The UN identified, for example in March, Bank Sepah, an Iranian bank, as participating in the development of weapons of mass destruction. And all member nations of the UN then become obligated under that UN Security Council [UNSC] resolution to take action against Bank Sepah and any other designated person,” Phillips said. “What you see happening is a quick response from governments – for example the Australian Government – who then reflect the UN sanctions and the US sanctions, and prohibit dealing with those individuals or those entities or those companies that are related. What you then don’t see happen is the level of aggressive regulation that occurs out of the US.”
A spokesperson for Alexander Downer, Minister for Foreign Affairs, said the implementation of sanctions is a whole-of-government effort, facilitated by the Department of Foreign Affairs and Trade (DFAT). “Other agencies regularly involved in the implementation and enforcement of sanctions are Customs, Defence, the AFP and DIAC [Department of Immigration and Citizenship],” the spokesperson told Risk Management. “Following the adoption of sanctions by the UNSC, the Minister for Foreign Affairs writes to the relevant ministers requesting additions or amendments to regulations in their portfolios, to give effect to the particular sanctions measure relevant to his or her portfolio. In almost all cases, DFAT itself promulgates new regulations under the DFAT-administered Charter of the United Nations Act, including ensuring the sanctions apply to the actions of Australians overseas.”
The US, through the Financial Crimes Enforcement Network (FinCEN) dished out a massive $80 million fine to Dutch banking giant ABN AMRO in 2005 over transactions originating from its Dubai branch. Breaching US bilateral sanctions, the transactions effectively masked the involvement of Iranian banks and leaving the New York ABN AMRO branch unaware it was dealing with them. In Australia, Phillips said, such an action would not be possible.
“We don’t have a regulator in Australia who says ‘okay, a month a go we added Bank Sepah to our prohibited list and as a consequence we’re now going to go around and see if anyone is doing business with them’. That’s the flaw in what is happening in Australia. They are responding to additions to the list and we do see the Australian list updated almost immediately, but we don’t see any level of regulatory enforcement other than US.”
The spokesperson for the Minister of Foreign Affairs said law enforcement agencies, including the Australian Customs Service and the Australian Federal Police, are responsible for enforcing Australian law implementing sanctions regimes.
Phillips added that the topic is closely related to the activities of AWB Ltd, which breached the rules of the United Nations Oil-for-Food Programme, effectively paying bribes to Saddam Hussein, then Iraq’s leader. “The alleged actions of AWB of course are very closely related to those transactions,” said Phillips, who led the investigation into Alan Bond. “[AWB] was dealing with prescribed entities and was allegedly involved in the paying of secret commissions of bribes to get that to occur and of course there were Australian banks who were clearing those transactions.”
The Cole Royal Commission recommended that a regulator be created to “obtain evidence and information of any suspected breaches or evasion of sanctions”. In response, the Federal Government said it would introduce legislation to allow government agencies granting permits to export goods subject to UN sanctions to undertake due diligence, monitor compliance and identify breaches.
However, Risk Management understands that the Attorney-General’s Department may be considering a regulator.
Serena Moe, former Citigroup assistant general counsel – who recently joined Deloitte’s forensic and financial crime advisory practice in Washington, DC – told Risk Management there will be further aggressive enforcement by US regulators.
“Without doubt, one of the things the ABN AMRO order demonstrates is a much more intensive enforcement action coming in the US. And the Office of Foreign Assets Control is a law enforcement office – it has the authority and does implement penalties and can refer things for criminal prosecution,” she said.
Phillips added that Australian banks will not be immune. “The reality is that most Australian financial institutions are dealing in US dollars and clearing through US entities through corresponding relationships in the US, and so as a consequence they are as exposed as any other entity to this kind of action,” he said. “That is particularly the case where the big banks have branches in the US. For them it’s a live issue and not just in Australia, because they do get jurisdictional connection to the US regulators.”
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