How asset managers can stay ahead on sanctions compliance

In an era of intensifying geopolitical friction and increasing regulatory scrutiny, asset managers find themselves at the intersection of finance and foreign policy. While historically considered low-risk in sanctions enforcement relative to banks or payment processors, the asset management industry is now firmly on the regulatory radar.

Why? Because today's sanctions regimes are more complex, interconnected, and rapidly evolving than ever before. Gone are the days when compliance simply meant checking a name at onboarding. Today’s environment demands real-time screening, continuous monitoring, and strategic agility.

For asset managers—particularly those dealing with high-net-worth individuals, alternative assets, cross-border portfolios, or private capital—sanctions compliance is no longer a niche concern. It is a core operational and reputational risk.

The Sanctions Landscape Is Expanding – Fast

Since 2022, global sanctions activity has surged across major jurisdictions, driven by geopolitical tensions, armed conflicts, cyber threats, and human rights concerns.

According to data from the U.S. Office of Foreign Assets Control (OFAC), the European Union, the UK’s Office of Financial Sanctions Implementation (OFSI), and the United Nations, over 12,000 entities and individuals are now subject to sanctions globally—with many added in just the past 24 months.

These designations span:

• State actors (e.g., governments and state-owned enterprises)

• Non-state entities (e.g., terrorist organizations, cybercriminal groups)

• Private individuals (e.g., oligarchs, PEPs, and their proxies)

• Entire sectors (e.g., energy, shipping, financial services)

And they’re dynamic. Lists are updated frequently, with no grace period. Once a person or company is sanctioned, any exposure—even indirect—can result in legal and financial consequences.

Why Asset Managers Are Now in the Spotlight

Traditionally, asset managers were not viewed as frontline players in sanctions enforcement. But several factors have changed that:

1. Complex Investor Structures

High-net-worth individuals (HNWIs) and institutional investors often operate through offshore trusts, holding companies, and nominee arrangements. These structures, while legal, can obscure true beneficial ownership—making them prime channels for sanctions evasion.

2. Private Markets and Alternatives

Private equity, venture capital, hedge funds, and real asset investments often involve counterparties in emerging or high-risk jurisdictions, where sanctions risk is higher and transparency lower.

3. Cross-Border Operations

Asset managers may be domiciled in one jurisdiction, raise funds in another, and invest globally. This multi-jurisdictional footprint creates exposure to overlapping and extraterritorial sanctions regimes—particularly U.S. and EU rules.

4. Dollar Transactions and U.S. Nexus

Even if a firm is based outside the United States, it may fall under OFAC jurisdiction if it transacts in USD, uses U.S. custodians, or involves U.S. persons in decision-making. This creates hidden enforcement risk that many firms underestimate.

Know Your Investor: The Cornerstone of Sanctions Risk Management

For asset managers, traditional Know Your Customer (KYC) controls are no longer sufficient. Firms must now adopt a broader and deeper approach: Know Your Investor (KYI).

This includes:

• Screening beneficial owners, not just listed account holders

• Understanding complex ownership structures, especially in offshore vehicles

• Identifying control relationships, where influence—not just ownership—can link to sanctioned entities

• Reviewing indirect exposure, including joint ventures, portfolio companies, and investment partners

Investors who were clear at onboarding can become sanctioned later. Therefore, ongoing monitoring is critical to ensure no exposure emerges during the life of a relationship or fund.

Continuous Screening: Why Static Checks Aren’t Enough

Sanctions designations are updated regularly—sometimes daily. A one-time screening at onboarding offers a false sense of security. If a client is sanctioned mid-way through the investment lifecycle, and the firm fails to detect it, the consequences can be severe:

• Mandatory freezing or blocking of assets

• Regulatory investigations

• Negative media coverage and reputational harm

• Legal liability or fines

• Fund redemptions or loss of investor confidence

Continuous, automated screening helps firms stay alert to these changes, reduce operational burdens, and ensure a fast response. Best-in-class programs now screen across:

• OFAC (U.S.)

• UN Sanctions Lists

• EU Consolidated List

• UK OFSI List

• Local and regional lists (e.g., MAS, HKMA, AUSTRAC)

And increasingly, they integrate adverse media and risk intelligence feeds to detect issues before names appear on official lists.

Don’t Overlook Ownership and Control Rules

One of the most misunderstood aspects of sanctions compliance is the concept of aggregate ownership and control.

For example, under OFAC’s 50 Percent Rule:

"Any entity that is owned 50 percent or more, directly or indirectly, in the aggregate by one or more blocked persons is itself considered a blocked person—even if it is not explicitly named on the SDN list."

This means firms must not only screen listed entities—but also map and evaluate shareholding patterns across portfolio companies, intermediaries, and partners.

This is particularly relevant for:

• Real estate SPVs

• Venture capital syndicates

• Family offices and trusts

• Sovereign wealth fund investments

Technology that can aggregate beneficial ownership data and identify shared control across complex networks is essential to managing this risk.

Extraterritoriality: Understanding U.S. and Global Reach

Sanctions regimes don’t stop at borders. OFAC has repeatedly enforced penalties against non-U.S. firms operating in Europe, Asia, and the Middle East if there’s any U.S. nexus, including:

• Use of U.S. financial institutions

• U.S. person involvement in fund management

• Use of U.S.-sourced technology

• Transactions denominated in U.S. dollars

This means even firms that believe they are not exposed must conduct sanctions impact assessments across all jurisdictions and touchpoints.

The same principle applies for dual-use goods, critical technologies, and sensitive sectors like defense, energy, telecoms, and crypto.

Five Practical Steps to Build a Resilient Sanctions Program

To stay compliant and resilient in this complex environment, asset managers should implement a framework that is:

1. Proactive

• Don’t wait for issues to arise.

• Regularly test controls, simulate scenarios, and audit your client base for changes.

2. Automated

• Use AI and machine learning tools to screen vast datasets continuously.

• Deploy entity resolution systems to detect indirect and hidden links.

3. Integrated

• Embed sanctions controls into your broader AML, fraud, and counterparty risk programs.

• Ensure teams across compliance, onboarding, legal, and operations are aligned.

4. Escalation-Ready

• Have a clear, rapid-response protocol for when a match is found.

• Know when to block assets, report to authorities, or freeze activity.

5. Regulator-Aligned

• Keep up with global guidance (OFAC, UN, EU, UK, MAS, HKMA).

• Benchmark against peer practices and expectations.

The Role of Technology: A Necessary Investment

The complexity of modern sanctions regimes makes manual compliance nearly impossible at scale. Technology is no longer optional—it’s foundational.

Modern solutions should provide:

• Real-time list screening across multiple jurisdictions

• Linkage and graph analytics to reveal indirect ownership and shared control

• Adverse media integration for pre-designation intelligence

• Audit trails to prove diligence and decision-making

• Workflow automation for consistent escalation and reporting

Whether implemented in-house or via RegTech partnerships, technology enables scale, precision, and speed—all of which are essential in sanctions compliance.

Final Thoughts: Sanctions Compliance Is a Strategic Necessity

For asset managers, compliance with sanctions regimes is no longer just about avoiding fines or avoiding the headlines. It’s about protecting investor trust, preserving access to global markets, and ensuring long-term operational integrity.

In a landscape where new sanctions can be imposed overnight, and enforcement can reach across borders, staying ahead means being proactive, informed, and technologically equipped.

Firms that treat sanctions compliance as a strategic advantage—rather than a regulatory nuisance—will not only reduce risk but strengthen their reputation as trusted, resilient market participants.

The question is no longer if your compliance program is robust enough—but how fast it can adapt when the next geopolitical event shifts the global risk map.