SIFMA today released a white paper outlining recommendations to modernize and standardize how U.S. sanctions are applied to capital markets activities in order to mitigate harms to U.S. investors, improve compliance clarity, and enhance the effectiveness of sanctions policy.
The paper, U.S. Capital Markets Sanctions: A Proposed Framework to Standardize Requirements and Mitigate U.S. Investor Harm, highlights how the rapid expansion of sanctions affecting capital markets activities since 2014 has created a patchwork of sanctions compliance obligations that inflict hardships on everyday American investors and often fail to reflect how modern securities markets function.
SIFMA “and its member firms fully support the important U.S. national security and foreign policy goals furthered by U.S. sanctions,” the paper states. At the same time, “it has become evident to market participants that these sanctions are not tailored to address the realities of the capital markets.”
Further, the paper notes that sanctions have resulted in unintended harms to U.S. investors, including individuals investing through pension plans, mutual funds, ETFs, and IRAs. In some cases, investors have suffered substantial losses and been unable to divest holdings, receive dividends or interest payments, or preserve the value of investments made long before sanctions were imposed.
In the paper, SIFMA calls for a fundamental reset of U.S. capital markets sanctions, particularly with respect to restrictions on secondary market trading between investors. The paper urges the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) to establish a standardized capital markets sanctions framework that would mitigate U.S. investor harms, enable securities firms to better understand their compliance obligations, and enhance OFAC’s efforts to implement sanctions more consistently and effectively. The standardized framework should:
- Allow secondary market trading of pre-existing securities, which Treasury itself noted in the Venezuela context results in negligible financial benefit to sanctioned issuers.
- In the alternative, permit investors to divest sanctioned securities without arbitrary time limits to avoid trapping investors in illiquid positions.
- Provide delayed effective dates so market participants have adequate time to unwind positions and implement compliance controls.
- Issue standardized general licenses authorizing ordinary investment lifecycle activities, such as receipt of dividends and interest payments, investment fund distributions and liquidations, and maintenance or termination of securities lending or repurchase agreements, derivatives, and depositary receipt programs.
- Clarify and streamline blocked property reporting requirements with respect to blocked securities to relieve burdens for both firms and OFAC itself.
The white paper’s proposed capital markets sanctions framework would allow for a more effective U.S. sanctions regime that relieves burdens not only on U.S. investors and firms but also on OFAC itself, without undermining U.S. policy goals or providing meaningful benefit to sanctions targets.
This white paper has been prepared by members of SIFMA’s Anti-Money Laundering and Financial Crimes Committee and Sanctions Working Group with the assistance of Debevoise & Plimpton LLP.
The full white paper is available here: https://www.sifma.org/research/white-papers/us-capital-markets-sanctions
