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In the US and around the world, there is an extraordinary
increase in focus on global compliance, especially in light of
recent changes to the Iran sanctions landscape. The reach of
emerging sanctions programs now extends to a much wider range of
industry sectors, transaction types and companies. This expansion
of sanctions and concern about enforcement is unlikely to recede at
any point in the near term, absent a dramatic intervening event,
such as Iran's development of a nuclear weapon or a military
strike on that country. Accordingly, to mitigate potential
exposure, now is the time for companies to implement global risk
management best practices.
A growing recognition of the danger posed by a nuclear Iran and
the fluid nature of the Iran sanctions environment have
significantly raised the stakes for any company with a potential
nexus to Iran. The nature of risk management has changed in the
wake of recently enacted international and national Iran sanctions
regimes, and the unprecedented regulatory, political, media,
shareholder and stakeholder group focus on adherence to these
sanctions. Addressing this risk requires more expansive
understanding of these dimensions on an enterprise-wide basis,
given the increasing emphasis within the sanctions regimes on both
direct and indirect exposure to Iran or entities doing business in
Iran. Running afoul of Iran sanctions, or being perceived to have
run a foul of the sanctions, carries with it potential
investigations or legal penalties, as well as potential profile
risk to the public image of a company. Violations or perceived
violations also pose business risk that can dissuade consumers and
counterparties, and the risk of policy and political consequences
from government attention.
While legal risk often has a directly measurable financial
consequence, profile risk, business risk, and policy and political
risk can have just as much impact on the bottom line and market
position of a business, even where these other aspects of risk are
not as readily quantifiable. Examples of the consequences of
exposure to these types of risk include Congressional oversight
investigations and hearings, enhanced regulatory supervision, bad
press and negative publicity, and activist shareholders. Profile,
business, and policy and political risk are also manifested through
increased counterparty due diligence. Regulators are actively
approaching private sector parties to identify indirect exposure to
Iran, and seeking support from the private sector in ensuring
sanctions are effective. Having advance warning of these potential
areas of risk (including indirect exposure to sanctioned parties)
is a necessary first step to managing the growing business
risk.
In this environment of heightened focus on Iran, it is critical
that companies understand the sanctions landscape: the rules of the
road, enforcement trends, and tools for navigating the current
environment. Much as the creation of FinCEN and post-9/11 changes
to the regulation of financial institutions through the PATRIOT Act
shaped a new compliance posture, the growing awareness of the
danger of a nuclear Iran and the dynamic nature of the Iran
sanctions landscape counsels in favor of a new approach to global
risk management.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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