Beyond AML: Learning the Hard Way About Sanctions Compliance Gaps in EU Financial Institutions
DOI:
https://doi.org/10.15290/eejtr.2025.09.03.04Keywords:
sanctions compliance, AML/CFT, financial institutions, risk management, Directive (EU) 2024/1640, compliance architectureAbstract
This paper examines the structural and operational challenges financial institutions face in developing effective sanctions compliance frameworks within the European Union, particularly in comparison to the more mature Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) regimes. Drawing on recent work at a medium-sized EU-based bank, the research reflects on how sanctions exposure can be systematically incorporated into institutional risk assessments and compliance practices. A case study of institutional responses to the sudden extraterritorial designation of several EU entities and individuals by U.S. authorities highlights the vulnerabilities smaller institutions face when confronted with conflicting legal regimes, in the absence of harmonised sanctions compliance standards. The analysis shows that, although Directive (EU) 2024/1640 expands the visibility of sanctions within the AML compliance architecture, it leaves significant operational uncertainties unresolved, particularly regarding implementation and supervisory oversight. The paper concludes by outlining key areas for capacity-building, including improved risk identification, targeted due diligence instruments, contractual safeguards, contingency planning, and organisational awareness, in order to strengthen sanctions compliance even in the face of fragmented regulatory frameworks.
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References
Directive (EU) 2024/1640 of the European Parliament and of the Council of 31 May 2024 on the mechanisms to be put in place by Member States for the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Directive(EU) 2019/1937, and amending and repealing Directive (EU) 2015/849 (Text with EEA relevance), OJ L, 2024/1640, 19.6.2024, ELI: http://data.europa.eu/eli/dir/2024/1640/oj.
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