The next sanctions shock for a multinational may not arrive as the name of a supplier appearing on a government blacklist. It could arrive as a payment that suddenly stops working.
In a Monday (Oct. 5) alert, the Treasury Department’s Office of Foreign Assets Control (OFAC) warned foreign financial institutions that those continuing to transact with sanctioned institutions could themselves be targeted “at any time without advance notification.” OFAC pointed specifically to recent actions against banks that provided sanctioned actors such as Iran access to correspondent banking and the international financial system.
And with global supply chain pressures hitting a four-month high, per The Federal Reserve Bank of New York’s Global Supply Chain Pressure Index (GSCPI) released Tuesday (Oct. 6). The alert is a warning that geopolitical risk can travel through the architecture of a payment.
A company may know its supplier. It may know its supplier’s bank. What it may not know nearly as well is which correspondent banks, intermediary institutions and dollar-clearing relationships sit between its treasury department and the ultimate beneficiary.
Read also: Corporate Cash Is Global in Theory, Trapped in Practice
A Clean Counterparty Doesn’t Guarantee a Clean Payment
The implication is bigger than freezing the assets of a sanctioned company. Restricting correspondent access can impair a financial institution’s ability to participate in dollar-denominated commerce.
Correspondent banking is one of the largely invisible mechanisms that makes global commerce possible. A regional bank without direct access to a particular currency or market can maintain a relationship with another financial institution that does. That architecture allows businesses to move money across borders without maintaining accounts at every bank involved in settling a transaction.
OFAC’s Monday alert highlighted its August move to sever U.S. correspondent banking access for Banque Misr UAE, its September designation of Turkey-based Golden Global Bank and its subsidiaries, and its action against Russia’s VTB Bank for involvement in Iranian sanctions evasion, including correspondent relationships with sanctioned Iranian banks.
That changes the question corporate treasury teams need to ask.
Traditional sanctions controls are heavily counterparty-centric: Who are we paying? Who owns the business? Is the company or its beneficial owner sanctioned? Is the destination permitted?
Those questions remain essential. But they may not capture the operational risk of a payment whose route depends on an institution that suddenly becomes commercially toxic.
“The term ‘cross-border‘ signifies that a payment traverses different legal entities, jurisdictions, regulatory frameworks, sanction regimes,” Emanuela Saccarola, Citi‘s head of cross-border payments and services, told PYMNTS last November. “This introduces additional challenges, including complying with the relevant regulations.”
We’d love to be your preferred source for news.
Please add us to your preferred sources list so our news, data and interviews show up in your feed. Thanks!
Read more: Innovation Keeps Expanding Compliance for Mid-Market Firms
Corporate Treasury Risk Is Becoming Business Network Risk
For a CFO, the practical distinction between “illegal” and “our banks will no longer process it” can become remarkably small when payroll, inventory or a critical supplier payment is due.
Still, companies can be accountable for managing payment risk without necessarily having complete visibility into the institutions through which their payments travel. That helps explain why richer payments data is becoming more valuable for reasons that extend beyond faster settlement.
The financial industry’s migration toward ISO 20022 is creating more structured information around parties and payments. Swift says the standard allows richer data to travel end-to-end and can improve compliance processes and analytics. Its Transaction Manager is designed to preserve complete structured data across in-scope transactions, while transaction-screening services increasingly perform sanctions checks in real time.
See more: Federal Approval No Longer Guarantees CFOs a Green Light
The technology does not eliminate correspondent risk. But better data can make the payment chain less opaque. Knowing that a company has $50 million available in a particular market is only one layer of liquidity visibility. The next question is whether the banking pathways needed to move those funds remain usable.
For CFOs, the lesson is not that every correspondent-bank relationship needs to be mapped manually. It is that payment resilience increasingly depends on information that historically sat outside the corporate treasury perimeter.
The PYMNTS Intelligence report “The Cross-Border Opportunity: How Payments Innovation Can Help SMBs Go Global“ in May found 57% of small and medium-sized businesses (SMBs) in the United States buy goods or inputs from overseas suppliers. The report also found 43% of SMBs with global suppliers identify faster payment processing and settlement as their top improvement priority.
The old sanctions question was whether a company was allowed to send the payment. The new question is whether the financial network will still be willing and able to carry it.
For all PYMNTS B2B coverage, subscribe to the daily B2B newsletter.
Add as Preferred Source
