In last week's Viewpoint, we talked about OFAC compliance for non-financial institutions. But it's a topic worth revisiting for financial services firms as well.

A recent survey conducted by Deloitte entitled "Facing the Sanctions Challenge in Financial Services" points out that financial services executives recognize weakness in their sanctions compliance efforts. According to the survey, "46 percent of respondents consider sanctions compliance to be a growing concern, and 63 percent say it is consuming more time, money and personnel than ever." The survey goes on to indicate that "only 50 percent of companies have operationalized what sanction policies they do have, creating the real possibility that the absence of a robust sanctions compliance program — or an inadequate one — could result in regulatory discipline by the U.S. Office of Foreign Assets Control (OFAC), as well as federal and state regulators and prosecutors."

The findings in this survey are, quite frankly, not very surprising. While the executives at the surveyed firms all share a nagging feeling that they could improve their sanctions compliance efforts, it has not been a high priority because doing so represents an operational cost to them. It is hard to see how such a program helps with their top-line growth, which is a high priority in today's economy, so it is difficult to justify the required expenditure to operationalize what sanctions policies they do have in place.

Clearly the survey results show that financial services firms have a long way to go when it comes to sanctions compliance. However, the good news is that these firms increasingly recognize sanctions compliance needs to be addressed. Perhaps this has been brought about by recent OFAC actions. For example, on August 6, 2009, a major corporation settled allegations of violation of OFAC and Export Administration Regulations totaling USD $9.4 M. In addition, new enforcement powers under a 2007 law allow for OFAC to impose civil penalties from $50,000 to $250,000 or twice the amount of the transaction.

The trend towards bigger fines and greater enforcement oversight coupled with a weak economy is creating a perfect storm in the sanctions compliance world — one that is not going to let up. The current U.S. Administration is not very sympathetic to excuses. Firms need to realize that the expenditure required to set up an effective sanctions compliance program is really not as significant when compared with potential civil penalties. The investment doesn't have to be significant — well-thought-out policies paired with putting the right processes in place will go a long way. If the appropriate investment is made and firms can demonstrate that they have a compliance program in place, settlements may not be as severe even if OFAC regulations are violated.

The take away here is that it's not worth rolling the proverbial dice when it comes to setting up a sanctions compliance program. Chances are high you will come up with snake eyes and risk a heavy penalty and reputational damage if you choose to do nothing.