Compliance costs mount as UK economic sanctions hit highest level in three years

The number of international economic sanctions imposed by the UK has risen by 3 per cent in the last year, leading to greater compliance costs for the banking sector, according to research from an international law firm.

The number of individuals and organisations targeted by sanctions in the UK has hit the highest point in three years and is approaching the peak of 2,991 reached in 2011.

Lawyers at Pinsent Masons explain that banks have been hit particularly hard by the administrative requirements of imposing sanctions against those on the UK's target list as the Home Office's list of sanctions increases, specifically against individuals and organisations in Iran and Ukraine.

RBS, for example, increased its anti-money laundering and sanctions compliance function by 730 staff between June 2011 and December 2013, in an effort to ensure that it fully complied with sanction rules.

Tom Stocker, a partner at the firm, remarked: 'As the number of sanction targets increases, the compliance burden on banks has become difficult to control. However, banks have no choice but to increase their focus on compliance as any mistakes in this area raise the risk of severe fines, from the UK and other jurisdictions who may have imposed a sanction against that client.'

Banks must also ensure they abide by sanctions imposed by other jurisdictions in which they operate. The penalties for non-compliance can be huge.

Germany's second largest bank, Commerzbank, has recently been fined $1.45bn by the US government over transactions with companies in Iran and Sudan.

Pinsent Masons observed there are currently sanctions imposed on 646 Iranian businesses and individuals by the UK - accounting for almost a quarter of all sanctions listed by the Home Office.

In addition, there are 204 individuals and organisations in Ukraine designated for sanctions by the UK, up 58 per cent from 129 in a year.

Pinsent Masons added that while many sanctions against Iranian entities may be revoked once the EU sanctions are lifted, following the nuclear programme deal, the number of Ukrainian individuals and organisations on the UK's sanctions list is likely to increase as the crisis in the country continues.