Anti-money laundering and counter terrorist financing

Sanctions are a set of measures imposed by the competent authorities against the states, natural and legal persons as well as other subjects that violate the human rights, cause ethnical, territorial and religious conflicts, support terrorism or violate other international norms and principles. Sanctions restrictions can be applied to natural and legal persons, countries, commodities, services, vessels, etc. and can include requirements of asset freeze, refusing to conduct transactions, refraining from contracts with sanctioned entities/individuals, providing loans or other financing, etc.
 
Sanctions may be imposed by the United Nations (UN), the European Union (EU) or by individual countries, such as the United States (U.S.) or the United Kingdom (UK).
 
EU imposed International Sanctions (including implemented UN sanctions) apply within the territory of the EU and to all EU persons inside or outside the territory of the EU. Luminor as a financial institution implements international financial sanctions, and our customers need to be aware and comply with sanctions in their operations as well.
 
We also expect our customers to be aware of indirect financial sanctions aspects. Whereas a buyer or seller or any other counterparty is not sanctioned itself or included in sanctions lists, the company’s shareholder, management board member or CEO (if certain rules are met) who is sanctioned could make the company indirectly sanctioned. In such a case, the company falls under financial sanctions and is subject to applicable restrictions.

Luminor has a responsibility to monitor, evaluate and observe laws and binding requirements related to financial and trade sanctions set by the UN, EU, national governments (Estonia, Latvia, Lithuania) and other authorities.
 
We comply with the established requirements of international sanctions imposed by:

• United Nations;
• European Union;
• countries where the bank and its affiliates are operating (Estonia, Latvia, Lithuania);
• United States of America;
• United Kingdom;
• Sweden;
• Norway;
• or any authority acting on behalf of any of them with regards to the sanctions.

Luminor is precautious when fulfilling sanctions compliance requirements, considers correspondent banks requirements as well as its own risk appetite, and therefore, will not engage in any actions (e.g. will not execute a transaction, provide financial services or make a deal) that directly or indirectly (through intermediaries) evade the sanctions prohibitions, correspondent banks requirements and Luminor internal decisions.

The bank may also refrain from the transaction or deal if it is not in line with our risk appetite due to high exposure to sanctions risks and heightened risk of violating sanctions laws and regulations.
 
According to internal policy, Luminor does not make any deals or execute transactions if they have a direct or indirect connection with the following sanctioned countries/territories:

• Iran;
• DPRK (North Korea);
• Syrian Arab Republic;
• Cuba;
• Crimea;
• non-government-controlled areas of Ukraine in the oblasts of Donetsk and Luhansk.

Luminor may suspend provision of any services to customers located within the territories above.

Luminor may consider processing the transactions that involve these territories if their purpose is related to humanitarian aid; however, such transactions would be evaluated individually as to whether they fall under respective regulatory exceptions, require a license, etc.
 
Please be informed that there are international sanctions imposed on many other countries or territories, e.g., non-government-controlled areas of Kherson, Zaporizhzhia; Iraq, Sudan, etc. Therefore, the transactions involving countries falling under sanctions prohibitions may be stopped for investigation.
 
Luminor’s, as well as other banks’ participating in the payment chain, policy towards specific countries, areas, sectors, etc. might be more restrictive than applicable financial sanctions due to the overall financial crime and sanctions risk associated with the specific country, area, sectors, etc. Therefore, the term of executing an international transaction may be longer than usual or an international transaction may be blocked or frozen by other banks that also participate in the execution of the transaction (correspondent bank, beneficiary’s or sender’s bank).
 
Please note that Luminor has the responsibility and will report to the competent authorities identified subjects of sanctions as well as cases where the suspicion of transactions with sanctioned subject or suspicion of sanctions evasion is raised in accordance with regulatory requirements. The bank has the right to cease its partnership with customers to whom sanctions apply, or if there is reasonable doubt that they are breaching or circumventing sanctions.
 
We consider as sanctions evasion the attempt and intentional activity to remove or conceal the involvement of sanctioned countries, territories, goods, legal entities or natural persons in a transaction or series of transactions using various techniques that would evade financial or sectoral sanctions.
 
It must be noted that any attempts to perform transactions or deals related to sanctions evasion may result in severe consequences such as imprisonment, fines or negative reputational consequences.

Luminor has suspended outgoing payments to Russia and Belarus from 1 June 2022 and incoming payments from Russia and Belarus from 1 July 2022 in all currencies.

Since March 2014, the EU has progressively imposed restrictive measures (sanctions) against Russia, initially in response to the illegal annexation of Crimea and Sevastopol and the deliberate destabilisation of Ukraine. On 23 February 2022, the EU expanded the sanctions against Russia in response to the recognition of the non-government-controlled areas of the Donetsk and Luhansk oblasts of Ukraine and the ordering of Russian armed forces into those areas. After 24 February 2022, in response to Russia’s military aggression against Ukraine, the EU massively expanded the sanctions. It added a significant number of persons and entities to the sanctions list and adopted unprecedented measures with the aim of significantly weakening Russia's economic base, depriving it of critical technologies and markets, and significantly curtailing its ability to wage war.

In parallel, the EU sanctions regime concerning Belarus has been expanded in response to that country’s involvement in Russia’s aggression against Ukraine and in addition to the sanctions already in place in view of the situation in Belarus. This sanctions regime consists of an array of financial, economic and trade measures.

The European Commission has prepared an overview of the sanctions imposed and is constantly updating the FAQ. For more information please visit the European Commission web page.

Similar measures were adopted by UK and U.S. authorities.

Information on UK sanctions relating to Russia can be found here.

Information on U.S. OFAC sanctions can be found here.

We strictly recommend to refrain from any further business relationship and execution of payments to/from a sanctioned business partner as the payments can be stopped, frozen or rejected. Sanctioned subjects may turn to competent authorities with the request to issue a general or special license allowing certain transactions if applicable regulatory requirements stipulate such conditions. However, in such cases we evaluate each transaction individually and make a decision based on multiple factors.
 
If you need more consulting on sanctions applications, please contact the local competent authorities or seek legal advice.

Among other prohibitions (e.g., to sell, supply or transfer certain goods to a sanctioned location), the regulations usually prohibit related technical and financial assistance. To understand and manage sanctions risks, Luminor as a financial institution must verify whether the transaction is compliant with applicable legislation and internal policy. Therefore, our request to provide information should be considered as a routine process that applies to all customers. Please note that you must be able to prove that your operations are not prohibited transactions, including to provide supporting documents.

Usually, we request customers to provide invoices for the goods/services, agreements, bills of lading, CMRs, SMGS, import declarations, air waybills, customs declarations, documents proving the origin of goods, packing lists, technical specifications of the goods, HS/CN codes of the goods, end-user certificates, export/import licenses from a competent authority, information about partner or intermediary and business relationship with the partner or intermediary. Please note that depending on the situation we may ask other documents or information, including information on the beneficiaries, CEO of the business partner and other details of business relationship.
 
We recommend, especially for customers engaged in trade and transportation activities, to have at hand supporting documents and information in good quality and order. You should be able to explain the purpose of the transaction, indicate the end user, end destination, justify that the goods/services involved do not fall under prohibitions, etc., even if involved only as an intermediary. A response or confirmation that the goods/services are not prohibited by sanctions does not negate sanctions risk factor if it is not supported by sufficient justification.

If we do not receive the necessary information or requested documents on time or if they do not answer the questions, we will have to reject the transaction and also have the right to terminate the business relationship with you.

All natural and legal persons must comply with the UN, EU and national sanctions regimes and have the obligation to inform the competent authorities about known or suspected cases of transactions with sanctioned subjects. Bank customers are also responsible for staying informed of developments in regulations and restrictions that may affect their customers and businesses.
 
We strongly recommend to responsibly assess the risk of sanctions before working with business partners or providing services to customers. 

• Evaluate your business exposure to sanctions based on your business activity sector and services/goods provided/involved. (Is the import/export/transportation of your products restricted? What currency are you dealing in? Where is your business located and where do you operate from?)
• Consider geographical risk. (Where are your business partners registered? Where are your goods/services destined to or imported from? What is the origin of the goods being purchased/sold? Does it involve sanctioned countries or countries that apply certain restrictions in selling goods manufactured in their country, e.g., US-origin goods?)
• Know your business partners and other involved counterparties and intermediaries. (Who are your business partners? What is their business activity? Could it be related to the defence sector? Are there any sanctioned business partners involved? Are they owned by sanctioned subjects? Who is transporting the goods? How and via what routes?)

We invite customers to make sure that the business partner/customer and their beneficiaries are not on sanctions lists. We recommend that you check your business partner’s and/or customer’s compliance with the sanctions lists not only when establishing new business relations, but also on a regular basis and in the case of long-term business relationships.

Customers who are EU operators are expected to have in place adequate due diligence procedures to ensure that their exports of covered items are not diverted to Russia/Belarus. This could include, for example, contractual clauses with their third-country business partner giving rise to liability in case the latter re-exports the items to sanctioned locations (e.g., Russia/Belarus), as well as ex-post verifications.
 
You should keep in mind that if a restricted item exported from the EU to a third country is re-exported to sanctioned locations (e.g., Russia/Belarus), the competent authorities may consider your failure to conduct adequate due diligence as a breach of the Sanctions Regulation. If the EU exporter knowingly and intentionally fails to conduct such due diligence, this can be considered as participation in a circumvention scheme.

We are obliged to follow applicable sanctions regulations, and thus, we monitor all customer transactions to ensure that no sanctions are breached. Luminor must stay vigilant and stop for further analysis any transactions that could be linked to associated sanctions risks, even if at first glance they do not involve sanctioned subjects, goods, services or territories. Perpetrators may use many methods to evade sanctions, and thus, to ensure sanctions application, it is necessary to apply certain controls, which may include stopping the payment and asking the customer to provide supporting transaction documents. Thus, we recommend customers, especially those engaged in trade and transportation activities, to always have all the relevant documents at hand and in good quality and order.

We recommend carefully checking your business partners; contractors; owners, board members and/or beneficiaries of your business partners; the complete chain of provided and/or received goods and/or services; other entities or factors that are relevant to your economic activity and may pose certain risks. By taking these steps, you can avoid consequences related to reputational, legal and financial risks.

Dual-use goods are items, including software and technology, which can be used for both civil and military purposes. The primary responsibility for the classification of goods and technologies lies with the customers sending or receiving such items.

Luminor asks customers to provide respective documents and explanations, because usually when restrictions on dual-use goods are imposed, the related technical and financial assistance as well as other services are also prohibited.

The prohibition on dual-use goods means that in general Luminor cannot participate in any financial transactions, provide business support or any financial support to customers that sell, supply, transfer, mediate or export such goods to restricted countries/regions, e.g. Russia, and to the certain listed subjects, unless a national competent authority has issued an authorisation. Therefore, Luminor could conduct additional investigations on related transactions and the execution of the payment order may take longer.

Please refer to the following sanctions lists:

• UN sanctions
• EU sanctions; Guidelines for the user of EU Sanctions Map; European Council / Council of the European Union
• US OFAC sanctions; US OFAC Sanctions List search
• The UK Sanctions List
• LT FIU List of Legal persons or other organizations without legal personal status whose property is legally owned or controlled by the entity to which sanctions apply
• Sanctions of the Government of the Republic of Estonia
• Sanctions lists of the Financial Intelligence Unit of Latvia

Please note that the lists of sanctions that financial institutions are subject to may vary according to the countries in which they operate. To fully check for sanctions, you must also check the owners, beneficial owners, board members and other persons in direct or indirect control or those who may have at least 50% ownership of legal entities.

It is important to understand that if a person is included in a sanctions list, it does not necessarily mean that no activities can be carried out with such a person. First, it should be assessed what is the extent of the restrictions imposed on a particular person, country or sector and what actions are prohibited. Therefore, in each case, it is very important to understand what a particular sanction is prohibiting and only then to decide on the next steps.

Note that there is no list of persons subject to sectoral or territorial sanctions and these can only be identified based on information on the client (industry, location, etc.).

• UN sanctions
• EU sanctions; Guidelines for the user of EU Sanctions Map; European Council / Council of the European Union
• US OFAC sanctions; US OFAC Sanctions List search
• The UK Sanctions List
• LT FIU List of Legal persons or other organizations without legal personal status whose property is legally owned or controlled by the entity to which sanctions apply
• Lithuanian Ministry of Foreign Affairs – Implementation of International Sanctions
• Sanctions of the Government of the Republic of Estonia
• Sanctions lists of the Financial Intelligence Unit of Latvia

Understanding U.S. OFAC Secondary Sanctions: What Bank Customers Need to Know

As part of our commitment to maintaining a safe and compliant banking environment, it’s essential for our customers to understand certain regulatory frameworks that could impact transactions, especially when dealing with international payments or foreign business relationships. One of the key areas of focus is U.S. OFAC Secondary Sanctions, which are imposed by the Office of Foreign Assets Control (OFAC) of the United States.

What Are U.S. OFAC Secondary Sanctions?

U.S. OFAC secondary sanctions are measures imposed by the U.S. government that target non-U.S. persons (individuals, businesses, or entities including the financial institutions) that engage in certain activities with countries/ territories that are under comprehensive sanctions, individuals, or entities that are under targeted and/or sectoral sanctions. While primary sanctions directly restrict U.S. citizens, residents, and companies from engaging in prohibited activities, secondary sanctions aim to influence the behavior of foreign parties by threatening to cut off their access to the U.S. financial system or even to be designated by U.S. OFAC and included into U.S. OFAC Specially Designated Nationals List (SDN list).

In simpler terms, if you are doing business with a country/ territory, individual/ entity or you are in involved in the business activities with targeted economy sectors of country that is under U.S. sanctions, you could be at risk of secondary sanctions even if you are not a U.S. citizen or company. The same secondary sanctions can be faced by the bank, as provision of financial services and bank products related to particular sanctioned regions/ territories, or defined sanctioned subjects is also prohibited. These sanctions are designed to prevent non-U.S. parties from helping sanctioned entities evade or circumvent sanctions or engaging in activities that go against U.S. foreign policy objectives.

As part of the updated U.S. OFAC secondary sanctions guidance, there is a heightened focus on Russia's military-industrial base. What subjects fall under definition of Russia’s military-industrial base? This includes:

• all subjects designated under U.S. Executive Order 14024. The Executive Order 14024 targets specified harmful foreign activities of the Government of the Russian Federation and sanctions related individuals and entities including Russian financial institutions. All those subjects are included into U.S. OFAC SDN list. The U.S. OFAC search tool can be found here. 
• any person operating in the technology, defense and related materiel, construction, aerospace, and manufacturing sectors of the Russian Federation economy (“the specified sectors”). The list of the specific sectors and their definition can be found here.
• persons that support the sale, supply, or transfer, directly or indirectly, to Russia of certain critical items (“the specified items”). Those specified items are identified as being critical for Russia’s war effort, including for the production of advanced precision-guided weapons and other critical items, and Russia is actively working to import them from third countries to fuel its war machine. The list of specified items can be found here.

We urge all our customers to ensure compliance with U.S. OFAC  sanctions. The bank may request customers to provide attestations confirming that they are not engaged in any restricted activities related to Russia’s military-industrial base or any other U.S. OFAC sanctioned country/ territory or subject. Additionally, we may ask for sufficient evidence to ensure compliance with U.S. OFAC sanctions that are followed by the bank.

How OFAC Secondary Sanctions Can Affect You as a Bank Customer

The bank follows the respective sanctions (more information please find under the question What is the bank's responsibility and policy on sanctions?) including U.S. OFAC imposed sanctions and has established internal control system to monitor and evaluate potential sanctions risks. Here’s how OFAC secondary sanctions might affect you:

• Transaction Delays or Rejections - if your payment potentially involves a country/ territory/ specified sector or individual/ entity that is subject to U.S. sanctions (directly or indirectly), your transaction may be flagged for further review. In cases where secondary sanctions might apply, your transaction may be delayed till investigation is done and rejected if elevated sanctions risks or dealing with prohibited subjects is identified. Even if the transaction seems in line with declared activity, doing business with prohibited subjects (knowingly or unknowingly) might not be acceptable for the bank.
• Restriction of Usage of The Bank Products - elevated risk of  the breach or circumvention of the U.S. OFAC sanctions as well as risk of U.S. OFAC secondary sanctions that could be related to your involvement in e.g. Russia's military-industrial base (knowingly or unknowingly, directly or indirectly) can limit your access to certain financial services (including execution of transactions), and also may lead to the closure of the bank accounts in case the bank is not able to manage the risk customer behavior and activity posse.

Examples of Activities That May Trigger OFAC Secondary Sanctions

Certain activities that involve comprehensively sanctioned countries / territories or sanctioned individuals/ entities or sectors may result in secondary sanctions risk. These include, but are not limited to:

• Doing business (directly or indirectly) with companies or individuals sanctioned by U.S. OFAC and included into U.S. OFAC SDN list; providing support/ services and being involved in other prohibited activities;
• Doing business (directly or indirectly) with companies or individuals in countries/ territories comprehensively sanctioned by the U.S. (e.g., Iran, North Korea, Russia);
• Involvement in sectors subject to sanctions (directly or indirectly), such as above mentioned “specified sectors” composing Russia’s military-industrial base. 

It’s important to understand the potential risks and ensure that your business dealings and transactions performed are compliant with all relevant sanctions’ regimes.

How You Can Stay Compliant

You are advised to take seriously the impact of the U.S. OFAC sanctions on your businesses or operations. Customers especially those who participate in the international trade activities should take appropriate steps to understand how the U.S. OFAC may apply to them, what risks are posed by operations/ transactions performed and how you can mitigate those risks.  There are following steps recommended by the bank:

• Employ a risk-based approach to sanctions compliance by developing, implementing, and routinely updating a sanctions compliance program;
• Know your customers/ business partners and your customer’s customer. Especially if you are involved in international business/ trade or your activities are related to the military/ dual use goods/ other restricted goods, make sure to thoroughly assess your partners, suppliers, and final beneficiaries to ensure they are not sanctioned by regulatory authorities, there are no imposed restrictions/ prohibitions related to any goods/ services you provide, final beneficiary does not pose any sanctions risks;
• Consider high-risk countries and sectors: Be cautious when conducting transactions involving U.S. OFAC comprehensively sanctioned countries/ territories, such as Iran, North Korea, Crimea region, so-called Donetsk or Lugansk People Republics and specific sectors under U.S. OFAC sanctions. Understand where are your goods/services destined to or imported from? What is the origin of the goods being purchased/sold? Who is the final beneficiary and what is purpose of the usage of the goods?
• Seek legal or compliance advice: If you are unsure whether your activities might be subject to U.S. OFAC secondary sanctions, seek advice from a legal expert who specializes in international sanctions.

Conclusion

U.S. OFAC secondary sanctions are an important part of the global sanctions framework and can have significant implications for your business and related financial transactions. At our bank, we are committed to helping you navigate these complex regulations to ensure that your banking experience is smooth, safe, and compliant with international sanctions imposed. If you have any concerns or need further information about how U.S. OFAC sanctions might affect your transactions, please do not hesitate to contact our bank or use U.S. OFAC official page about sanctions programs which can be found here.