Introduction
Sanctions checks are a crucial part of ensuring compliance with international and national sanctions laws when distributing funds from class action settlements. These checks are designed to prevent payments from reaching individuals or entities that may be subject to sanctions, which could otherwise result in legal penalties.
The purpose of this newsletter is to examine the key issues that arise and need to be taken into account by insurers.
Why are Sanctions Checks important?
Class action settlements involve distributing funds to a large group of people. In the absence of sanctions checks those funds could inadvertently end up with individuals or entities on sanctions lists, violating international and national laws.
Australian sanctions laws apply broadly. They apply to a legal person conducting activities in Australia, and to activities by Australian citizens and Australian-registered bodies corporate overseas. This means that a wide range of entities are required to undertake sanctions checks.
What are Sanctions Checks?
Sanctions checks involve screening the list of beneficiaries against lists of sanctioned individuals and entities maintained by governmental and international organisations.
Australian sanctions lists are frequently updated, with new designated persons or entities and changes to specific measures. It is important to continuously monitor and update compliance programs and conduct sanctions checks to ensure they remain current with the latest regulations.
How are they conducted?
Sanctions checks are usually performed before a settlement is finalised and prior to the distribution of the settlement proceeds. They can involve checking beneficiary names, addresses and other identifying information against the lists of sanctioned individuals or entities.
Who performs the checks?
The responsibility for conducting sanctions checks will ordinarily be identified in the deed of settlement and a settlement distribution scheme.
While sanctions checks are typically conducted by legal counsel, settlement administrators or specialised compliance firms, the ultimate responsibility may in certain circumstances still fall to insurers.1 In some cases, the Court may appoint a designated party to carry out these checks.
What if a match is found?
If a beneficiary is identified as being on a sanctions list, their payments may be blocked or held until further investigation or a permit is obtained.
A permit is official authorisation by the relevant government or regulatory body permitting individuals, entities or organisations to engage in activities that would otherwise be prohibited due to sanctions.
What are the penalties for non-compliance?
Breaching sanctions laws can result in significant fines, legal action and in some cases imprisonment.
Serious penalties also apply for providing false or misleading information in relation to sanctions activity, or failing to give information or documents requested in a notice from the Australian Sanctions Office.
Conclusion
Sanctions checks are an important step in ensuring that class action settlements comply with relevant laws and regulations, preventing the inadvertent transfer of funds to sanctioned individuals or entities.
The responsibility for conducting sanctions checks will be outlined under the deed of settlement and the settlement distribution scheme. While typically conducted by legal counsel, settlement administrators or specialised compliance firms, insurers may ultimately also be required to conduct sanctions checks or at least be satisfied they have taken place.
The failure to undertake sanctions checks can lead to significant financial consequences.
This article may provide CPD/CLE/CIP points through your relevant industry organisation.
The material contained in this publication is in the nature of general comment only, and neither purports nor is intended to be advice on any particular matter. No reader should act on the basis of any matter contained in this publication without considering, and if necessary, taking appropriate professional advice upon their own particular circumstances.
