The Strait of Hormuz, Trade Finance and Sanctions

James Booth Hello everybody, good morning, good afternoon, good evening. I feel like I say that all the time and I maybe need to change my strap line, but welcome to the next installment of Silent Eight Talks. I'm James Booth, Global Head of AML, Sanctions and Counterterrorism. I'm absolutely thrilled to be joined by Ian. Ian, would we say that we're more friends now than professional acquaintances? Where are we on that scale, do you think?

Ian Bolton Definitely friends. We go back long enough now as well. It's what, like five years or so?

James Booth Yeah, I mean, that's a big chunk of my adult life as well, Ian. So I'm thrilled. I'm joined by Ian Bolton. He's CEO and founder of Sanctions SOS. And Ian will talk about the great work that they're doing at the moment. But we've worked together in an informal capacity for many years, from content production, webinars, academic side of things. And Ian, I must give you a public apology because I do frequently refer to you as a bit of a sanctions nerd. Is that fair?

Ian Bolton I mean, I think it's fair. I mean, it tends to be all I think about. So, you know, I think that's

James Booth fair. Your colleague Matilda was quite horrified when she heard me call you that. I think not realising that we'd already got a bit of an established relationship. But I need to be honest, Ian, because, you know, you're one of the people in my network that I've worked with for a long time. And I think it's fair. I think it's fair. that I probably would go to first for any sanctions issue. And dare I say, you're probably

Ian Bolton my sanctions man crush. Can I say that? That's very kind. That's very kind. I'll take it.

James Booth That works. Well, we are super blessed to have your presence today, because of course, there is lots happening in the world at the moment that I know that you're a particular expert about. And I definitely think our audience are going to get some value in listening to your perspective. Sanctions, of course, is going to be a little bit of a silver thread around this. And we'll talk about what role that looks like. But I will say, as always, viewer discretion might be advised, there might be the odd colourful word that gets used. And I'm sorry, not sorry for that. But we've got some interesting themes to talk about and run through today. So again, if you're new to the podcast, you'll know that I like to start off with some informal chit chat. So you can get to know Ian and maybe some dark secrets about myself. And then we will move into the serious stuff for the day. But Ian, I can't really do your introduction justice. So would you sort of tell our listeners who you are and some of the great work that you're doing with Sanctions SOS at the moment around the world? Yeah, absolutely. Thank you,

Ian Bolton James. So yeah, so I, as you say, I'm Ian Bolton. I have been working in sanctions for what feels like pretty much most of my life, but it hasn't been, but it's around 16 years or so. I worked first in the Foreign and Commonwealth Office in the UK and did sort of counter proliferation work and sanctions work there, helped to write the Sanctions and Anti-Money Laundering Act in the UK, which was required on the back of us leaving the EU for us to continue doing sanctions. I spent a bit of time working at King's College London as well. And then I left government back in 2018. I moved into the private sector, worked for one of the tier one banks for for a couple of years and then set up sanctions SOS back in 2021. And we essentially are sort of training sanctions compliance consultancy. We work with other training providers on sanctions content, we do capacity building work with governments to improve implementation and enforcement of sanctions, but also the design. We work with private sector both in terms of training, but also in terms of compliance framework design and implementation. And we try and do thought leadership as well. So we try and produce guidance pieces, sort of briefing papers, white papers, and we have a monthly newsletter. So I guess that's us

James Booth in a nutshell, right? Wonderful. And I think again, just for everybody's benefit and having worked with you so many years, it's not just that you're probably the most intelligent individual when it comes to sanctions policy, but you're also incredibly experienced and exceptional at the competencies that people need for their careers in sanctions. And that's probably where our intersection and passion of education and academy comes from. So Ian, it is a real privilege to have you on as always, and this won't be the last time that we work together. Now, we've said that just as we were planning this sort of conversation and what we were going to talk about, we put the world to rights, of course. I like to open up the podcast by just getting to know a little bit more about Ian, that's not the sanctions ninja, that we maybe can learn a little bit about. Are you okay with that? I mean, you don't actually know what I'm going to ask you yet, do you, Ian? No, but go on. But you solemnly swear to answer all questions with the whole truth and nothing but the truth?

Ian Bolton Yeah, why not? Go on. Okay, perfect.

James Booth Gentle start then. What was the last thing you watched on Netflix?

Ian Bolton What was the last thing I watched on Netflix? Night Agent. We're a bit behind, so we're still kind of catching up on things.

James Booth Okay, so no spoiler alerts in the comments, please. Yeah, absolutely. I ask these people questions, and I've part of me wonders, are people being authentic, or did you really watch Married at First Sight last? And I'm not sure who I believe. Okay.

Ian Bolton I mean, we're sort of maths people in this household, too. There is some joy. Maybe around kind of just being able to watch some reality TV that doesn't require the brain to think when you spend a lot of your day dealing with sort of complex and sort of potentially sometimes difficult issues.

James Booth And there's some things that we had, isn't there, about making your life feel that little bit better when you see a car crash of television that is that. Okay, now this is always my favourite question. Have you got your mobile phone to hand, Ian? Yeah. I can say this to Fia. Are you an Amazon Prime subscriber?

Ian Bolton I am.

James Booth Okay, so I'd like you to open up your Amazon app, please, and I'd like you to tell the audience what the last three things were that you purchased on Amazon.

Ian Bolton Okay. This is probably going to be relatively boring for many people. But what were the last three things? So a Benny bone for our... young 10-month-old Cocker Spaniel. I appreciate the clarification.

James Booth It was for the pet then, Ian, as well. Thank you.

Ian Bolton Yeah, absolutely. Well, you know, I mean, gnawing on one might be useful. A phone case for the phone that I'm currently using because, as my wife will tell you, I have a tendency of dropping my phone on a regular basis and breaking cases. Although screen protectors is now something that my dog is becoming an expert in breaking because she likes picking up my phone because I just tend to leave it lying around.

James Booth I have a business idea for this, actually, and I've thought about this for some time. Why don't we make phone cases out of old Nokias? Because there would be more damage to the floor, right, if you dropped it?

Ian Bolton Right, absolutely. And then a book about the SAS. I'm a bit of a military historian by background, so that would be the three things. Nothing too embarrassing, thankfully.

James Booth I think collectively you and I would have a really interesting book club, but maybe we should think, about a book club, financial crime book club. Would you be open for that?

Ian Bolton Yeah, definitely.

James Booth You didn't ask me this, but I'm going to tell you anyway, but one of my last purchases was a robot vacuum cleaner, and honestly, it's bloody amazing, Ian. I don't know if you've got one, but they're bloody amazing.

Ian Bolton I do not, but I'm intrigued to see what my puppy would make of a robot vacuum cleaner.

James Booth This one's got AI on it, and honestly, it's more intelligent than I am. It's incredible. I love that. I'm really sort of, I'm embracing the ambassadorial ship of working for Silent 8 and an AI company. So the option came to buy an AI, Hoover and Mop. Best thing I've ever, well, second best thing I've ever done, obviously. And my boss was listening, it's coming to work for Silent 8. Okay. Now, the one thing we were just chatting about as well before we started, we were talking about like misconceptions because both you and I, you know, we do a lot of speaking, don't we? And we've done quite a bit of teaching and maybe we're sometimes seen as that teacher or that area, that area of authority, if you like. But what's something about you, Ian, that would surprise people that you maybe is different from your work persona?

Ian Bolton Yeah, so it won't be news to you, James, because we've just talked about this, but I'm a proper rocker into sort of alternative, bit of heavy metal, well, quite a bit of heavy metal, actually. So yeah, I love rock bands. Normally, I manage to convince the missus to get into some heavier rock as well, which doesn't quite match up with the sort of, I guess, slightly straight-laced appearance that I sometimes can have, especially when I started my career in the foreign office. I was very much suited and booted and in a tie. And then I would disappear into the toilets and get changed and emerge with sort of like boots, torn jeans and a band T-shirt heading off to like, I don't know, all sorts of bands from Kid Rock to Stereophonics to Alter Bridge and Blackstone Cherry and you name it. And there was always kind of like a raised like eyebrow of like, really? We would never have thought. Especially because at the time I was clean shaven. I think many people now will just sort of see me as someone who has always had a beard. But actually it's the beard came in lockdown. And so prior to that, I was very much clean shaven. And, I think that the beard probably lends towards the rock element now, but certainly before. Yeah, there you go.

James Booth There's a shameless plug here coming for like a L'Oreal brand ambassadorship, isn't there? Because it is a marvelously groomed, but how much money would we have to raise for a charity of your choice to see those pictures see the light of day? That's the important question here.

Ian Bolton Well, yeah. A decent amount. Let's put it that way. Right.

James Booth Challenge accepted. So if any of the listeners are out there watch out for the Just Giving page in a while. But no, I hear you. I hear you. I've got a couple of tattoos and I'm a big hip hop and R&B fan. I don't know if anybody's heard me talk about this before but I'm a big Drake fan. And by saying that it's because everybody knows I'm a big Drake fan. Especially, you know, the privilege to meet so many people. But yeah, I think you've come through that fairly unscathed, Ian. So I'm grateful for that. But maybe we should talk some sanctions and some financial crime stuff if that's cool with you. Of course, always.

Ian Bolton Well, look,

James Booth I don't think there is any bigger issue at the moment than, of course, the geopolitical situation which we've observed in the Middle East. We've seen a significant amount of talk and news, of course, around the importance of the Strait of Hormuz and trade finance as a principle. A couple of housekeeping rules for our audience. You know, Ian and I are not going to be passing any political allegiances, making controversial views on state affairs, we're purely here just to talk about some of the practical issues and what that could mean for us as compliance professionals or senior leaders. Now, it's such a broad area, isn't it? Right. You know, financial crime, sanctions, and this word trade finance comes around and trade finance is fundamentally one of the biggest risks that sits around any compliance framework. But for listeners who may not be deeply familiar with trade finance, can you paint a picture of what it actually involves and why it's the lifeblood of global commerce?

Ian Bolton Yeah, absolutely. So let's boil this down very simply to start off with. So essentially, trade finance is a way of buying and selling goods across sort of significant distances around the world. So, you know, where you've got large shipments of goods as well rather than smaller shipments it tends to be. And essentially, what we're talking about is the is sort of the problem around and I'm sure this will be familiar to many people of sort of how you receive payment. Do you receive payment when you ship goods, before you ship goods, when the goods are received? And, you know, I'm sure it's common to all of us that there's not necessarily a degree of frustration but, you know, you pay for something on Amazon, for example. And you pay for it up front and then you have to wait until it gets to you rather than where you've been at a shop and it's point of sale, right? So there's a degree of waiting but that's just accepted because that's the sort of commercial world. But if you're in the world where you're manufacturing goods, et cetera, then you're having to pay for the things that are going into it. You're having to pay for time of people, et cetera. You potentially need payment before the goods might be delivered. Now, there are ways...

James Booth And we're not talking... And I'm sorry to interject here about just one set a little bit of scale. We're not talking about the phone case that you're ordering because your dog issued it. We're talking about a container full of these, aren't we? Multiple containers full.

Ian Bolton This is about large scale sort of the millions of pounds of sort of goods rather than sort of your one-off phone case type of thing. You know, hundreds of thousands as well potentially dependent on the distances, dependent on the size of companies as well. But essentially, it's a way of allowing either some or all of the money to be paid either at the point of goods being shipped or in stages, but with guarantees around it, essentially. Yeah. There's a guarantee for the buyer and a guarantee for the seller so that they'll get the money and the buyer will get the goods. And if it doesn't go through, there are middlemen in the middle who essentially are the ones arranging the trade finance who kind of step in. Yeah. That's at its most basic. And then what it, essentially works out as is essentially you've got, say you've got a company and let's work it sort of say China, manufacturing China, selling goods, shipping goods to the UK and the UK purchaser. You're looking at the sort of various potential sort of third parties in there in terms of insurance, in terms of banks. You're looking at things like most companies a letter of credit, right, that says that the money is there. Then a bank will pay the supplier in China on the back of receiving a letter of credit from a bank that banks the exporter, for example, like if we keep it relatively simple. The problem comes and where the risks tend to come is that that's fairly simple. If it's like one, if we're talking bank to bank, we're talking one seller one buyer and hopefully maybe say one ship, then it's all relatively easy and simple. But the more, I mean, it's still not that simple because you've then got insurance of the ship, you've got insurance of the goods, you've got logistics around them being delivered and stuff. But then imagine multiplying that out over multiple jurisdictions, different bank involvements. Maybe it's a large shipment, so the whole ship with different parts going off to different areas. And suddenly you get a lot more people, a lot more involved parties, and it becomes a lot more difficult potentially to do the level of due diligence that you would expect because you may not even know who all of the involved parties are. And yet you are standing in there as maybe a guarantor or as the insurance side of things. And so really that's where, yes, we can't work without trade finance in terms of global trade, just wouldn't happen in the same way that the maritime sector is responsible for something like 90% of the world's trade still. But there is inherent risks around trade finance, especially from sort of a sanctions perspective, I'd say probably more than others because not necessarily knowing all of the involved parties and therefore ownership chains, jurisdictional risks, things like that.

James Booth Yeah, well, I'll compliment that and just lay out some sort of quite stark, statistics even for maybe some of our audience that are new to this space. So if everybody now sort of takes a moment and looks around where their environment is, so I'm in my office at home at the moment, I would say 90 to 95% of everything that is in this room at some point was imported into the UK where I am. Now, if you multiply that to an international level, what you're talking about here is you're talking 250 to 300 million containers around the world in a year. And you're talking about $10 trillion in value of goods or even services that are moving around the world at the moment. Now, I've had a lot of attention on the maritime sector at the moment, as we're all seeing about the Strait of Hormuz and we're going to talk about international shipping in a moment. But if you go into marinetraffic.com and it's almost like a maritime version of Flightradar, isn't it, Ian, where you can see vessels in real time and we're going to talk about what some of those vessels are doing right now to try and, you know, I don't know if circumvents the right word, but in the context of what's happening to allow themselves to move through that passage of a shipping lane as well. But we'll distill this down into sort of a couple of things and then we'll spend this some time, Ian, getting your view around the circumvention of sanctions. But headline is, it's very vulnerable to money laundering and sanctions evasion because it's so heavily predicated on a legitimate global commerce, which makes it so much easier to hide that illicit activity. And now, unlike me sending the payment to you, Ian, that's a simple bank transfer. As you've rightly called out, these trade finance transactions are connected to goods and companies and activity. So on the surface, a payment for, for example, phone case or several thousand phone cases might look normal, but commercial legitimacy gives it an air of, of reality for a criminal. And that's where the opportunity arises. So from a money laundering perspective, we, the techniques, I think we all hear and talk about, are they over and under invoicing? So a deliberate manipulation of the prices, phantom or ghost shipments where documents suggest goods were moved that never were, or multiple invoicing or the same product is invoiced multiple times. Thinking about this from a sanctions perspective, Ian, and a sanctions compliance perspective, what makes trade finance uniquely challenging compared to, say, correspondent banking or payments?

Ian Bolton It is the... Well, so there are a couple of things. As you sort of mentioned, the same ones that apply within the AML space, but also not being able to work out, not being aware or being able to work out all the involved parties, who owns them, what, you know, what the ownership chains might look like, who controls them, etc. But equally, even simple things such as, you know, we talked about sort of 90% of the world's trade going by ship still. The shipping industry as a whole, the maritime space, still relies very heavily on documentation that is pretty easily, pretty easy to sort of forge or to alter etc. And so you have not just things such as like misdeclarations of goods, miscategorization of goods potentially and you're talking about people who will potentially, from a sanctions compliance perspective, that involve parties, if it's insurance, if it's the bank, then they're going to see the goods. They're not going to go to a dockside to check what they are. They're probably not going to be able to, you know, those working in the trade finance world have a better understanding than many in terms of trade categorization of goods, etc. But it's still hard. You can talk to people who've been working in compliance for manufacturers who ship goods all the time and have been working there for decades and they will still say that sometimes they'll classify something as one thing and sometimes they'll classify it as another thing because they're not 100% always sure. The categorization of goods is quite difficult. If you're then having to match that to potential sanctions issues, you're having to look at are they subject to sanctions? What jurisdictions is it touching? What are the components even made of? If we did it in reverse and we said it was a UK good going out to China, but the UK good for example contained more than 15% US origin products then it would also be subject to US export controls as well as UK controls. It's seeing all of the licenses. It's all of the paperwork around it. It's just the sheer volume of everything that you're having to take when you're not necessarily going to have all of the information you need and it may not be possible to get 100% clarity on everything and so you're still going to have to potentially take a decision and then potentially live with those consequences. It is hard 100%.

James Booth There's a famous example and Ian I think you brought this example to me a number of years ago and that was the example of the Chong Chang gang. Do you remember that one? Are you comfortable sharing with the audience the headline? Because where I'm trying to think about this is from a really to illustrate how trade finance has been exploited to circumvent a sanction and that's always the story that pops out in my mind.

Ian Bolton Yeah, so the Chong Chang gang was a North Korean vessel that sailed from Cuba back to North Korea. In Cuba it picked up goods that were in the form of sugar, bags of sugar that they were taking back to North Korea, which was all done under trade finance agreements. Where the issue came in was that the sugar only accounted for a fraction of the cargo on the vessel and the rest of the cargo in containers that were hidden beneath the sugar contained weapons and parts of military equipment including airplanes that were going back to North Korea for servicing essentially and the ship was interdicted by the Panamanian authorities on the back of intelligence and they were able to seize the weapons but as I say the initial movement it was at a time when we didn't have the level of sanctions we do now on North Korea so it was sort of I think it was 2015 and on the back of it it's what saw a massive increase on the sanctions of North Korea because it was one of the biggest clear breaches of UN sanctions at the time and like I said there were sort of letters of credit around the sugar all of that side of the trade looked perfectly legitimate but it was claiming that it was an entire vessel full of sugar essentially and the so there you go it's amending the bill of lading so that it sort of made out that the vessel was perfectly innocent and ultimately having to go through the Panama Canal meant that they were having to declare goods for transshipment through there so yeah

James Booth and I think that's one of countless examples but certainly one that sticks out and I encourage people to do some research around that. I think there's let's bring this to today you know we're in an incredibly volatile and complicated geopolitical situation in various pockets around the world notably obviously the Middle East and Russia, Ukraine in the last couple of years but the straight of hall moves I think is the one that is on everybody's lips at the moment. It's in the headline constantly and I think for some context for people and Ian you can correct me on this but I'm of the understanding that 20-25% of the world's oil passes through this very narrow waterway. So what does the current situation mean for trade finance and sanctions compliance at the moment?

Ian Bolton Yeah, I mean it's a difficult one because within the oil and gas sector because it's also gas that's hugely affected by this. There's a lot of LNG out of the likes of Qatar go through the strait. I mean from a trade finance perspective from an oil and gas perspective typically what you find is that a lot of the vessels that carry oil and gas actually when they set off from a refinery may not actually have a final destination already marked out. A lot of the trading and the purchasing takes place while ships are at sea because it's seen as sort of get the ship underway. It's going to have to come out of the strait in order to get to the rest of the world anyway so there's plenty of opportunity whilst it's underway to find a buyer for what's on board. So that adds additional complexity but if you're talking about sort of the trade finance side in terms of the letters of credit etc you're talking about goods that have now left they're sat in a tanker that can't actually get through the strait but the oil company or the oil and gas company has probably been paid on the back of the letter of credit by a bank who then hasn't received the money because the end purchaser hasn't received the goods yet so the whole thing kind of snags and slows down that's sort of the complexity in terms of managing it as a process. In terms of sanctions it's a bit of a strange one in that actually the strait is probably not that big of an issue from a sanctions perspective it's more around the other side in terms of global stability to markets etc. But where it does cause complications is in the response so what we've seen as a response to the massive tailing off of oil and gas on the open market because the strait has been closed is sort of an acknowledgement that we need to sort of release reserves of oil and gas from around the world. Now what that looks like is that in many parts of the oil producing gas producing countries around the world don't necessarily have huge reserves. They may have already released some of it. You know we are talking about a period of instability that has been going on essentially for six years. If we look at COVID knocking into all of this you know we went from COVID to the Ukraine Russia Ukraine war we went then went into things like this. So it's meant that there's sort of countries are potentially doing things that you wouldn't normally see. So an example of this would be the US has granted licenses for Iranian oil which is subject to UN sanctions and US sanctions but they've granted licenses for any oil that originated from Iran that is already outside of Iran. Now you have to look at the specifics around the license don't on the back of me go oh well we can just go and buy Iranian oil. You know obviously be very careful and cautious around this but in principle there is a license there for some of that. Likewise they provided a license for some Russian oil despite the sort of price cap despite the designations of a number of the you know the two biggest Russian oil giants in terms of Rosneft and Luko. So again suddenly there is the potential that that oil is perfectly legitimate to be purchased because there's a license in place if you're doing it from a US perspective but then it's the implications around that. How are you managing those processes and it's just adding complexity and it's also adding to a perspective of you know if you are potentially prepared to get involved in deals for Russian oil what might that mean in terms of your the wider perception the reputational risk around your company. Like it may be perfectly legal but if you're then doing it what does that mean? So there's sort of it's a knock on complexity. Rather than necessarily specifically because of something in that area. Because essentially the oil and gas that's coming through from say Qatar or from the UAE or Kuwait, Iraq is absolutely fine. The issue is it's just not getting it out. There is a wider question though if for example the concept of the Iran toll was to have come into play. Which is something that they were looking at as part of the sort of ceasefire. They were sort of asking what demanding that vessels basically pay a toll to Iran for free movement through the strait. Now if you were paying that, given that Iran is under UN sanctions and not just US sanctions and EU and UK sanctions, there may be wider concerns again. Because it's you know, are you facilitating payments and potentially breach of sanctions?

James Booth That's the two million dollars that people are hearing about in the news, right? The tariff, the Navy or the authorities in Iran are trying to place on vessels that move. Because there's kind of a two-tier shipping system has almost come about hasn't it? Because they're selectively granting passage to specific nations so you're China, Russia, India, Iraq and Pakistan if I'm quoted correctly. And then of course blocking others and then that's put the US in a position where there's threats of a naval blockade and then secondary sanctions. But just on that, a couple of points to people to reflect on here. A business that may have, or a sanction that may have been wound back, for a business to then do and legally operate, yes they can, but the reputational and compliance challenges that presents, and there are examples out there, specifically actually linked to Iran, where some of the sanctions under the Barak Ababa administration were wound back, but some banks still operated a this is not our commercial appetite at the moment, and of course that commercial appetite was always sort of around for debate. Now I'm looking as we speak, Ian at marinetraffic.com, and I mentioned this earlier on, and it's probably been on every news channel specifically, I'm focusing on that Strait of Hormuz area, so between Iran and the UAE Now something that I've observed is that we're seeing a lot of vessels changing their name. What's that all about? So

Ian Bolton basically there are a whole bunch of sort of maritime practices which have become part of the sort of evasion circumvention typologies and name changes and flag changes so basically every vessel that sails around the sea above a certain size but basically that's seaworthy, that's sort of not, you know, we're not talking about barge canals type of thing but we're talking about seaworthy vessels, has to be registered with the International Maritime Organisation they have to have what we call an IMO number that IMO number is given at the time that the ship is laid down, so when it's being built so when it's first launched it gets an IMO number, that never changes but then you can register to your vessel to be under the flag of many different nations around the world, like you would only register for one at a time but there are reasons why you might choose different nations, so for example if you're a British maritime company then it would make sense for you to be registered under the UK flag, however what that means is that UK law applies on board the vessel, and that might sound perfectly sensible, you're a UK company it's going to apply to you anyway but in terms of things like health and safety it means that all standards on board the vessel must meet the UK health and safety standards, for example so you might choose to go with a different country, a different flag country, because the cost of meeting those regulatory requirements might be cheaper, there might be less burden on you so this is what we talk about when we talk about sort of things like flags of convenience, but flags of convenience is really any vessel, any flag that you can purchase to be your flag It's like a golden visa for vessels if you would Yeah, but it's yeah, exactly but you know, we talk about flags of convenience and it has become part of the parlance around like circumvention and invasion and the irony there being that the UK would be considered a flag of convenience because we'll register vessels that aren't connected necessarily directly to the UK, so there are, you know, it's not as straightforward as it potentially seems, but as I say, the IMO number never changes, but if you can hop flags or if you can change your name you might be able to mask for a brief amount of time potentially depending on the levels of sophistication, who you are, what you are, where you're going to where you're coming from, in order to be able to get through, so you know, if I was for example a vessel that is flagged by say the UK, and I'm stuck waiting to get out, and I can't go through the strait, I might be considering well, is it worth re-flagging to the flag of India for example, because they're allowing Indian vessels through, now it doesn't mean that you're an Indian vessel, you're still a British vessel, you're just on your vessel that you would be subject to Indian law as well, and jurisdiction but that might be sufficient, but it's a big risk, so that's one of the main reasons that you would do it, is to try and sort of gain a period of grace where you might be able to move through things without being intercepted, and we see it in other areas as well, so we've seen it Iran and North Korea have been doing this for a long time but we've seen it with Russia with the shadow fleet and how that operates, it changes names, changes jurisdictions and especially with the Russian shadow fleet we've seen for example Venezuelan vessels changing very quickly once they're out into international waters, once they're past sort of what they deem to be sort of a point where the US might intercept them or something in order to try and to avoid different areas or different jurisdictions, so that's really what's going on there, it's an attempt by a period of grace where they might be able to squeeze through the strait. Yeah, but

James Booth of course, as you rightly allude to, we have seen this as a common sanctions evasion technique as well, and I'm sure that people that work within trade finance or sanctions teams will recognise that as an indicator of something that should be investigated and not necessarily a direct evasion because of these situations. Now, you know, the future of sanctions is, you know, well, look, it's always been evolving, hasn't it? And it's not a new thing, sanctions. I mean, how many times have we spoken about this at workshops, Ian? But we've got a couple of issues that I think are circling around this that have come directly on the back of the conflict. And, you know, the conflict has escalated significantly since a series of airstrikes started in February. We're in a, as of the time of this recording, we're in a bit of a holding pattern with peace talks. We've got the threats of the Treasury Department, on secondary sanctions against foreign financial institutions. We've got the IMF projecting global growth slowing between 3% to 5%, because sanctions are being used more as an economic weapon. We're seeing a doubling of gas prices in Europe alone, and we're seeing parts of the Gulf itself, actually, you know, their relationships are under strain as well. All of this is creating potentially, and I'll say potentially, with a caveat added, of really shifting the landscape of sanctions over the next, sort of, one to two years. Where do you see this all going, Ian? Yeah, it's an

Ian Bolton interesting one, isn't it? Like, we, I think we've never seen as many sanctions as we currently have, globally. And we've seen sanctions being utilised by countries that we traditionally would not normally have imagined. So, I'm thinking of, like, for example, every year at the UN General Assembly, there is a solution that calls the autonomous sanctions illegal that is debated and quite often passed, but, I mean, it's not binding or anything. And that's normally co-authored by China, yet China are now using autonomous sanctions themselves. So, you know, we're seeing a massive sort of growth of sanctions from different jurisdictions being applied in different ways. I don't think you know, we...

James Booth I'll never go away though, will I? That will never go away.

Ian Bolton Right, so this is the thing. So, if you look at the history, we sort of refer to the 1990s as the sanctions decade, because it was the first time that sanctions massively sort of exploded in a significant way in terms of different regimes and the numbers being involved, right? But arguably, you could very easily say that the last decade is a sanctions decade. Because of the sheer volume that we've seen. You know, we're at a point where there have never been more sanctions but equally, I don't know how we roll back from this. And I feel like this is something that in the rush to use sanctions, a lot of governments have not necessarily been thinking about what would it actually require for us to start lifting some of these sanctions, to start seeing what changes do we actually need to see in order for us to do this. And it's difficult. I'm not saying that it's easy at all. So I'm not casting any blame here, but that then just makes it more and more likely that we will see sanctions continue to grow exponentially rather than decrease. We see the occasional regime where they disappear for a while. We had that a little bit with Iran, but there was always sort of mumblings in the background. I think we've seen Syria, sanctions being lifted on Syria, but it doesn't mean that it's sort of a safe place necessarily to reinvest in just yet because you're still having to do lots of due diligence, etc. So there's still a lot of nervousness around that. And ultimately, there is a lot of nervousness around, well, what happens if something goes wrong in Syria and we've reinvested and sanctions end up being put back in place? So it's a really difficult one. We've almost got to a point where look, sanctions are still effective. If you look at the Russia regime, the fact that Russia is relying on North Korean weapons and munitions that it would have originally been involved in helping to develop as the Soviet Union and sending to North Korea then clearly there is an effect. But ultimately sanctions is not an effective tool in and of itself. It's not a means to an end. And I think that to some degree that has been lost a bit by politicians. Yeah, that was my next question actually.

James Booth And it was their effectiveness as a foreign policy tool because maybe we've passed that tipping point of a diminishing return around it. I'm of the view that maybe sanctions are maybe pushing trade underground as opposed to stopping it on the back of that.

Ian Bolton Yeah, and this is where that question of effectiveness becomes even trickier. So effectiveness has always been one of these questions that's really difficult when it comes to sanctions because essentially sanctions are a foreign policy tool rather than sort of a criminal or a matter, you know, there are times it crosses over, sure, but principally it's a foreign policy tool, which means that you're deploying them in response to a foreign policy development. And the problem with that is you can never really be sure what would happen if you didn't use them. So for example, if we were to say, are sanctions effective on Russia? Um, with regards to Russia-Ukraine, well, we don't know what would have happened if sanctions hadn't have been used. Would Kiev have fallen? Would, you know, we just don't know. So it's very hard to measure that. People have tried to come up with all sorts of solutions over the years, but I think that it's how you frame it. So in the UK, the UK Foreign Office and the UK government would say that sanctions on Russia, for example, are effective because Russia are having to spend a lot more money in order to get the same things. Potentially they're getting sort of inferior products for increased amounts of money over and above what they would have got previously of better quality for less money. That has an impact because if they're spending that money on getting goods under the table and all of the costs implication involved in that in terms of paying for networks, spoofing all of these things, all of those practices, that's money they're not spending on weapons or on other things. But there is a point around what we're not seeing anymore is sanctions being used in an agile way. Sanctions being used to really hone in on the behaviours you're wanting to change and elicit those behaviour changes and then lift those sanctions. And if you can't do that, it's very hard to then point to things and say, and expect people to change. So for example, you know, the Russian oligarchs situation and I'm not trying to defend oligarchs or but there are numerous who have very little to do with Russia anymore, who have potentially even been very anti the invasion being quite outspoken, some of whom are designated or some of whom may have not been outspoken at the beginning but have now become outspoken and are still designated. And it's like, well, what do they need to do in order to for their designation to be lifted? It's not clear. And if it's not clear, then what is the motivation for them to change, right? And so I think that the effectiveness then becomes a real issue because if you, you know, I mean, we've had sanctions in place on some countries for the best part of 30 years. You know, there are sanctions around the likes of Guinea-Bissau Equatorial Guinea. We've had sanctions on and off with regards to Haiti since the 1990s. What are these achieving? And it's quite hard to pin down but there are still some examples where it is working and it has worked well. So there was a UN sanctions regime on Somalia which is now just focused on al-Shabaab because the Somalian government have taken the measures that were set out by the UN Security Council. So the sanctions to be lifted. So there is sort of, there are examples of where it's working and working well but I think at some point we need a, we do need a shift back to sort of less knee-jerk implementation of sanctions and more strategy around it I think for them to be truly effective.

James Booth Yeah and look, it's not that enforcement agencies globally are not treating this as a priority. I mean OFAC alone in the last two to three years have usually well over a billion dollars in fines. Regulators are getting serious. We are probably seeing more of a shift from list based I think compliance to more network analysis and of course AI is having a massive impact in the positive side of that in terms of making sure resources are deployed where it's needed and to help with that. But I think let's bring this down now. We've come from an international level now to we're knocking on the door of our head of sanctions or our nominated officer. If you're advised in a compliance team right now on the single most important thing that they should be focused on in their day to day running of sanctions within a bank, what would your opinion be on that?

Ian Bolton I'm going to give it as one thing but it's a little bit multifaceted and it's having people in place. But within that comes the right skill sets for what you need and having access to the right training and tools. So the reality is there are lots of wonderful things that AI can do and as you will know far better than me and 100% there is so much space for good AI in the sanctions world. It still requires someone to be able to look at what the results of that are and interrogate it in a sophisticated manner. And that's the point. We need to have the right people in place and that looks different for everyone, don't get me wrong, but I think there is a need to balance within teams different perspectives. So if you're looking at a bank, I would say that when the compliance teams, sanctions compliance teams that I've seen that do things really well when it comes to sanctions will bring in expertise or have expertise within their team that covers sort of, I would say, sort of three kind of basic sorry, three key areas, right? So you will have people with more of a legal background because you are going, you know it carries legal risk, it carries that element. You will have people who have a banking background, who actually understand the product, understand how the bank operates, how it functions what is achievable what can be done, can't be done really important because you can come up with the best solutions but if it's not practical and if it's not actually you know, something that can be implemented then it really doesn't matter. And you need people with the sort of regulatory government's background of understanding how sanctions are intended to be used, how sanctions are used and what the ramifications and implications of those are. And I think you bring together the right skill set and it will look different in different places. So, you know, in a manufacturer you want people who have a real focus on export controls, who have a real understanding of exactly what the goods, can be used for and how they might be sort of used for other purposes. So it does, it will vary, but people is always going to be, I think, you know, as you say, we're moving from very much from a position of list-based expectations to wider expectations on how to avoid breaches, how to get around, you know, making sure you don't fall foul of sanctions issues. And that is the network analysis. It's understanding movements. It's understanding what things can be used for, you know, all of which there isn't an easy solution out there other than to have people. I've just been listening to

James Booth what you were saying, Ian, and I was sort of trying to think myself about what can our listeners take away in terms of the individual competencies that they sort of need to work in sanctions probably within a bank because I think predominantly people that work in financial services listen to us because I would go as far to say that it's one of the more complex areas of financial crime compliance because there's like a bit of an intersection around balancing regulation, operational pressures, geopolitical developments and sort of that commercial impact and I've distilled it down to four and I'd be keen for you to add to that or even challenge me on it but I think firstly you need technical knowledge so you've got to have an understanding of regulatory knowledge and regimes so that's understanding how authorities such as OFAC or the EU or the UN operate and that can go into things like asset freezers sectoral sanctions licensing and exemptions and so on. Second competency is analytical thinking so that I think leans most heavily on what you say so working in sanctions as you know it involves so much incomplete information, lack of a partial name match, ownership structures that are complex and transactions across several jurisdictions so having a good analytical thought process. Third competency, your attention to detail small details massively change an outcome I think so precision and consistency so things like you know ability to research and judgement and decision making as well. I think the big one for me is communication so how do you interact with your front office staff or your operation team or your legal team or even your regulator for example but the one that stands above me above all this is be curious continuously want to learn as well. Is there anything you would add to our listeners

Ian Bolton there Ian? I mean I think that that's the biggest because in many ways the technical skills the attention for detail is something that I would advocate you need but the analytical skills you can potentially learn the sort of these are all things you can learn. Having the inquisitive inquiring mind being curious, wanting to continue to learn etc. You know I've been doing sanctions for a very long time and a lot of people would hold me up as being somewhat of a sanctions expert right but I would always say that I'm still learning. There is loads about sanctions that I don't know that I'm still uncovering on a day to day basis and that's why I love it so much but I think that that's important because I think that's how you keep your knowledge fresh you stay aware of the latest developments what's happening because it is it does change so dramatically potentially from day to day that you've got to be that way inclined you've got to be curious, you've got to want to know more you've sort of to some degree got to have a bit of an investment mindset, right?

James Booth Yeah, yeah. I mean I still prefer the term black belt sanctions ninja, Ian, I hope you that's not going to disappear. Look, I think one thing that just to wrap up this conversation then is I think it'd be great for our audiences if you could maybe inspire them on how you keep up to date with what's going on in the sanctions world so maybe they can do the same.

Ian Bolton Yeah, absolutely. So I mean none of it is going to be rocket science or some major, I don't know, easy win. It's just keeping aware of current affairs. It's keeping abreast of what's happening in the world. It's making sure you're signed up to the relevant email alert systems whether it's UK government, US government, potentially all of them depending on what you're dealing with and who you're dealing with. It's following what's happening in the news. But following what's happening in the news not by just watching one news channel or one news reading one newspaper. It's reading widely so that you've got an idea of where the reality is. Because unfortunately the realities of the press is that they all have a certain bias that they'll bring to it because we all bring bias to what we do. So the more you can read, the better, the more widespread. I kind of go back to the days when I was doing history degrees and always had my lecturers saying if you can pick one source from the left, one source from the right, one source from the centre, you'll get an idea of what's actually going on. That's still true. I think that's still relevant. Granted, finding the sources that match all of those pathways can be difficult, but there are tools out there that can help you with that. So just be inquisitive, follow what's happening in the news, follow the e-alert systems, keep your training fresh. If there are certain places you can get more news around sanctions, so shameless plug for us, we do a monthly newsletter we publish stories on our LinkedIn page sanctions.sos.linkedin page there are others out there as well like Global Sanctions who do a fantastic job of providing news updates etc. Following all of that engaging with your networks going to conferences to some degree but certainly sort of webinars, podcasts and training. I'm so pleased

James Booth you remembered the podcast and the webinars right at the very end Ian. Thank you so much. You've been downgraded to an orange belt now because of that.

Ian Bolton To be fair, I would say that you get more from a podcast and a webinar than you will do from most conferences because the reality of most conferences is that topics will be covered at quite high generic levels. There's probably not a huge amount of time for proper Q&A, proper discussion, even within the panels potentially depending on the structure of the conference. So, you know, some of them can be very set piece, where it's presentation after presentation. So, look, there's so many companies out there that do amazing podcasts and webinars. We do ourselves webinars, obviously your podcast, James, which is fantastic. You know, I think, you know, just hoovering up knowledge, basically, is the key. Yeah, no, I agree.

James Booth So, Ian, as always, it is a pleasure, and I do owe you a couple of beers for today. So, Ian, thank you so much for joining us today. Everybody, I'm sure you're appreciative for his expertise and knowledge, and do go check out the great work that they're doing at Sanctions SOS. Take care, everybody, and I will see you at the next episode. Bye, everyone. All the best.