The first element of an effective sanctions compliance program is the management commitment. This element is the cornerstone for any fit-for-purpose compliance program.
The Management Commitment
Under Management Commitment, a company must ensure that senior management demonstrates its commitment to, and support of, the organization’s sanctions compliance program.
This commitment is critical to ensure that the compliance program receives adequate resources and is fully integrated into the day-to-day operations and helps legitimize the program, empower its personnel, and foster a culture of compliance throughout the organization. Effective management support includes the provision of adequate resources to the compliance unit(s) and support for compliance personnel’s authority within an organization.
The term senior management itself is expansive, including senior leadership, executives, and the board of directors.
Components Of Effective Management Commitment
Effective management commitment requires five specific components:
First of all, senior management needs to have reviewed and approved the organization’s compliance program. This means that the overall sanction compliance program should be reviewed, discussed, and approved at the highest level of an organization. You should also be prepared to document those steps, so be sure there are Board meeting minutes and other notations that all levels of senior management have actually performed this review and approval.
Secondly, senior management has to ensure that its compliance unit or units have been delegated sufficient authority and autonomy to deploy the policies and procedures in a manner that effectively controls its OFAC risks. Senior management has to ensure the existence of direct reporting lines between compliance program functions and senior management, including routine and periodic meetings between these two elements of the organization.
Considerations In Senior Management
This element requires two considerations. First, does the Chief Compliance Officer or whoever heads up the sanctions compliance program have access to senior management about the status of the company’s sanctions compliance risk management program? More than simply access, are there actual meetings where there is a substantive discussion on issues around the sanctions compliance program? This means more than simply quarterly, semi-annually, or annually making a 15-minute presentation to the Board of Directors. Further, the prong of this element requires senior management to sit up and pay attention to trade sanction risk management.
Thirdly, senior management has taken and will continue to take steps to ensure that the compliance units receive adequate resources – including in the form of human capital, expertise, information technology, and other resources, as appropriate – that is relative to the organization’s breadth of operations, target and secondary markets, and other factors affective its overall risk profile.
Criteria In Senior Management
This element includes the following criteria: The organization has appointed a dedicated sanctions compliance officer; The quality and experience of the compliance program personnel, including their technical knowledge and expertise, the ability of the personnel to understand complex financial and commercial activities, apply their sanctions knowledge, and identify sanctions-related issues, risks, and prohibited activities; The efforts to ensure that personnel dedicated to the compliance program have sufficient experience and appropriate “position” within the organization; and sufficient control functions exist to support the sanctions compliance program, including but not limited to information technology software and systems.
Component number four for effective management commitment is that senior management promotes a “culture of compliance” through the organization. For this following criteria: The ability of personnel to report sanctions related misconduct by the organization or its personnel to senior management without fear of reprisal; Senior management messages and takes actions that discourage misconduct and prohibited activities, and highlight the potential repercussions of non-compliance with sanctions; and the ability of the compliance program to have oversight over the actions of the entire organization, including but not limited to senior management, for the purposes of compliance with sanctions.
In practice, corporate culture really is a key element of any best practices compliance program. It is, therefore, crucial to have a culture of compliance in an organization. This requires senior management to fully embrace and support an internal reporting system for compliance issues and makes clear the repercussions for the failure to comply with a corporate sanctions compliance program.
Lastly, senior management should demonstrate recognition of the seriousness of apparent violations of the laws and regulations, or malfunctions, deficiencies, or failures by the organization and its personnel to comply with the sanctions compliance program’s policies and procedures and implement necessary measures to reduce the occurrence of apparent violations in the future. Such measures should address the root causes of past violations and represent systemic solutions whenever possible.
A Management Commitment entails direct participation by the highest-level management (top management) in all specific and critical aspects of an organization, such as safety, quality, environment, security, and programs, among others. It is critical that the responsibility for leadership and creating a culture of continuous improvement falls on all levels of management and members, but especially on the highest.