New Sanctions Increased by 50% in 2023, Making Third Party Due Diligence Top of Mind for Compliance Teams, According to Diligent

2023 proved to be a busy period for sanctions activity, with 21,784 new records, according to Diligent, a leading GRC Saas company. The second half of 2023 saw an increase in records created in a bid to stifle war efforts in both Ukraine and Palestine, according to the sanctions list database in the new Diligent Market Intelligence Compliance Trends 2024 report from Diligent.

The increase in sanctions activity, prompting companies to avoid conducting business with restricted individuals and groups, appears to have resulted in fewer related enforcement cases. The number of Foreign Corrupt Practices Act (FCPA) enforcement actions stood at only 21 in 2023, compared to 26 the year prior.

"With sanctions changing rapidly, it is increasingly important for companies to have robust and transparent compliance processes in place," said Josh Black, Editor-in-Chief at Diligent. "Recent regulatory developments mean that issuers must also remain cognizant of evolving compliance risks related to M&A and ESG, especially in Europe and the U.S."

Regulatory developments are also set to standardize the environmental, social and governance (ESG) reporting landscape in 2023, putting the onus on issuers to enhance third-party oversight. For the first time, there will be tangible consequences for companies that fail to comply. Europe leads the way in ESG regulations, with The Corporate Sustainability Reporting Directive (CSRD) made effective in January 2023. U.S. regulators have yet to finalize climate rules, but many organizations still need to prepare for enhanced ESG requirements in Europe as well as state-specific laws such as California Bill SB 253.

Three themes emerge from the report's key findings that boards should have on their radar. These include:

A busy year for sanctions and a quiet year for FCPA enforcement:

• 2023 played host to 21,784 new sanctions records, with a majority targeting leaders and financers of both Hamas and Russia.
• Amid a flurry of sanctions activity, FCPA enforcement actions declined, with 21 enforcements made, compared to 26 a year prior.

ESG reporting evolves from being a reputational risk to a regulatory risk:

• Third-party ESG oversight is top of mind, with regulations from the EU, Canada and California mandating reporting of third-party greenhouse gas emissions and human rights processes.
• The EU's Corporate Sustainability Reporting Directive (CSRD) made effective in January 2023 looks to standardize global ESG reporting by calling on U.S. companies with European branches to also comply and report on ESG due diligence, even as the SEC has yet to formalize climate disclosure rules, which are expected later this year.

The Department of Justice's reform push looks to encourage self-reporting:

• Questions remain as to the effectiveness of recent M&A safe harbor rules. Compliance experts say the rules, which are meant to encourage voluntary disclosure of wrongdoing within six months of a deal closing in exchange for potential declination, lack transparency into what exactly is required for declination to be achieved.
• Companies should review their compensation and compliance policies in response to recent clawback regulations from the Securities and Exchange Commission.

To download the full report click here. To learn more about how Diligent help organizations stay compliant with its purpose-built due diligence solution, click here.

About the report

Data from Diligent Market Intelligence runs from January 1 to December 31, 2023. Further data is available on request, although bespoke analysis may take 48 hours. For more information, please email [email protected]

About Diligent Market Intelligence

Diligent Market Intelligence (DMI) is a market-leading provider of shareholder activism, investor voting, and corporate governance data. Through its web application and data feeds, clients can access the most complete solution for listed company intelligence on the market, with broader and deeper insights than ever before.

About Diligent

Diligent is a leading GRC SaaS company that gives organizations the tools and solutions they need to bring clarity to complex risk, elevate impactful insights and get ahead of a world that is constantly changing. With solutions across governance, risk, compliance, audit and ESG, Diligent empowers more than 1 million users and 700,000 board members and leaders to make better decisions, faster. No matter the challenge. Learn more at diligent.com.

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