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Blog 3 August 2023

Navigating Compliance Amidst War: Top Priorities for a Secure Financial-Industrial Group

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Navigating Compliance Amidst War: Top Priorities for a Secure Financial-Industrial Group

Financial-industrial groups are powerful corporations but have their own Achilles' heel. As a complex system, they are more vulnerable than individual companies. This article is about the risks that most threaten corporations at different stages of their operations. 

Ukrainian financial-industrial groups combine various companies and financial institutions and are created based on shareholding and a combination of financial and business ties. They are universal in nature and transnational in scope. Each of these features creates prerequisites for risks of various origins. 

The risks of financial-industrial groups are similar to those of stand-alone companies. The difference is in scale: the probability of risks and consequences increases with the number of connections and counterparties. And a critical situation in one area can lead to liability in another. Therefore, detecting and preventing risks for FIGs in time may be more difficult. 

 

Key FIG risks to be taken care of 

 

1. Supply chains. FIGs usually have complex supply chains with many intermediaries. Intermediaries' processes may violate the law. 

2. Counterparties, a large number of which the corporation has. If any counterparties are associated with corruption, money laundering, terrorist financing, sanctions or other risky activities, this will lead to legal liability and losses. 

3. Cybersecurity. Hacker attacks on data and information systems of FIGs.

4. Raiding through illegal changes in the management of related companies, redistribution of shares in the authorised capital, change of place of registration, initiation of court cases, bankruptcy proceedings, etc.

5. Financial risks due to changes in exchange rates, unfavourable market conditions and other economic factors that may lead to financial losses.

6. Liability risks. Failure to comply with legal and regulatory requirements may result in liability to government authorities, customers and other stakeholders.

7. Restricted market access: FIGs may be affected by changes in trade laws and other regulations, which may limit their access to markets and result in reduced profits and reputational damage.

 

Sanctions compliance for FIGs

 

The main feature of sanctions compliance for FIGs is the number of counterparties, each of which can potentially bear the risks of secondary sanctions. In a separate article, we analysed various scenarios and consequences in which sanctions against a counterparty directly affect other participants cooperating with it. 

 

Another feature is that the state authorities must approve mergers of enterprises and companies that exceed a certain financial threshold. The Laws of Ukraine "On Sanctions" and "On Protection of Economic Competition" were amended to prevent mergers with companies and individuals subject to sanctions. The merger (concentration) permit is not granted if sanctions are imposed and in force.

 

Therefore, when planning processes, financial-industrial groups of Ukraine should take care in advance to check whether any of the participants in business processes are subject to sanctions. Moreover, the sanctions lists should be checked regularly, as they are updated quickly. 

 

How FIGs can check counterparties faster: tools to automate checks

 

Risks are an inherent part of business activities. Since each link of the FIG's processes affects the entire system, compliance in each group's companies minimizes the risks for the whole FIG. 

For this purpose, several practical tools are available to automate due diligence.

 

Sanctions check

 

​​Updates to the sanctions lists are promptly added to the YouControl system faster than on the NACP website. In addition, the YouControl check is more reliable because the system considers the connections of companies, individuals, beneficiaries and managers. 

When checking a company in the YouControl system, Express analysis will immediately inform you if the company is under international sanctions. 

 

Express analysis

 

YouControl's express analysis allows you to quickly assess the reliability of a counterparty and, above all, identify those factors that require special attention and careful verification. It saves time and automates the lion's share of business intelligence, considering more than 500+ risk factors. The main advantage of this tool is the ability to open a profile and immediately see a summary analysis of a company or individual entrepreneur.

 

Since russia's military invasion of Ukraine, Express analysis was adapted to instantly identify ties to russia and belarus. We add all new sanctions imposed against russia to the system faster than the official NSDC website. In the future, you can track changes in the sanctions lists using an automatic monitoring set-up for the counterparty you are interested in.

 

Monitoring

 

A single counterparty check may not be enough to prevent risks. Enabling counterparty monitoring will allow you to learn about changes in official data immediately:

- Company has gone bankrupt, even if it tries to hide this fact from you

- Information on enforcement proceedings and court cases involving the company will be immediately available

- If the company changes its director or opens a new branch, you will be among the first to know

- The monitoring report will inform you if the company or its related parties are subject to sanctions.

 

RuAssets

 

RuAssets is an unprecedented tool for making critical business decisions and finding russian assets abroad. It can show the connection of individuals and companies on the sanctions lists with the CIS countries' registries at the deepest level.

Key features of the tool: 

  • Verification of individuals and companies from the CIS countries and Europe based on beneficiary and ownership registers

  • Research and investigation, as well as identification of ties to russia and belarus in different countries.

  • Tracing connections with individuals and companies under sanctions and with the PEPs of russia, belarus, Ukraine and Kazakhstan. 

 

АРІ

 

Interaction between several companies and data exchange between them can be automated by integrating data into CRM/ERP or other internal IT systems. YouScore API provides the following features:

  • Transfer of information without errors and delays directly from the registers

  • Information is always up-to-date.

  • Automated verification of counterparties and decision-making based on identified risks

  • Automation of the work of AML/Financial monitoring departments.

 

The verification tools are based on the requirements of legal acts and recommendations of the Verkhovna Rada of Ukraine, the National Bank of Ukraine, the State Fiscal Service, the State Financial Monitoring Service of Ukraine, and others. Foreign and international legal sources are used: the sanctions lists of the Office of Foreign Assets Control (OFAC) and the Bureau of Industry and Security (BIS) of the U.S. Department of Commerce, the Council of the European Union, the United Kingdom, Canada, Australia, and Japan. Individuals are also checked against the State Financial Monitoring Service of Ukraine's terrorist lists, which includes the UN Security Council data.

 

Thus, using the YouControl system allows you to control the risks of many related companies and individuals. It also provides risk protection for the entire financial-industrial group, its beneficial owners and employees.

 

Go to counterparty verification 

 

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