Diligent, a GRC SaaS company, has reported an increase in sanctions activity during the year 2023, owing to new attempts to suppress war efforts in regions including Ukraine and Palestine.
As per the company's Market Intelligence Compliance Trends 2024 report, a total of 21,784 new sanctions were recorded, marking this the highest number of sanctions in the past five years.
The increase in sanctions played a role in discouraging corporations from conducting business with restricted individuals and collectives, and appears to have led to fewer enforcement cases related to these. For instance, the report reveals that only 21 Foreign Corrupt Practices Act (FCPA) enforcement actions materialised in 2023, down from the 26 seen in 2022.
According to Josh Black, Editor-in-Chief at Diligent, the rapidly changing state of sanctions is heightening the need for corporate entities to maintain robust and comprehensive compliance processes. "Recent regulatory developments mean that issuers must also remain cognizant of evolving compliance risks related to M&A and ESG, particularly in Europe and the United States," advised Black.
Regulatory efforts in 2023 aimed to standardise the Environmental, Social, and Governance (ESG) reporting landscape, placing greater emphasis on issuers enhancing third-party oversight. Europe has been pioneering in the realm of ESG regulations, with The Corporate Sustainability Reporting Directive (CSRD) coming into effect in January 2023.
While the U.S. has yet to finalise its climate rules, many organisations are already preparing for enhanced ESG requirements coming from Europe and state-specific legislation such as California Bill SB 253.
Three main themes have been highlighted in the report that corporate boards should be aware of. Firstly, 2023 was an active year for sanctions but saw a decline in FCPA enforcement actions. In line with this, a majority of the 21,784 new sanctions targeted leaders and financial backers of both Hamas and Russia.
Secondly, ESG reporting has evolved from posing a reputational risk to becoming a regulatory risk. EU, Canadian, and Californian regulations are now mandating the reporting of third-party greenhouse gas emissions and human rights practices. The EU’s CSRD aims to standardise global ESG reporting; consequently, U.S. companies with European branches are being called on to comply and report on ESG measures.
Lastly, the Department of Justice’s recent reform push is encouraging self-reporting among companies. However, the effectiveness of the new M&A safe harbour rules remains under scrutiny from compliance experts.
Diligent's data for this report was gathered from 1st January to 31st December 2023. Diligent supports organisations in remaining compliant with its dedicated due diligence solution.