New on FinoLib · Volume II: Capital Markets
New on FinoLib, my finance education website: I have published an article called Dodd-Frank vs MiFID II Compared, and How Sanctions Work, from Volume II: Capital Markets. Here is what the article explains, written as a short expert briefing; the full piece, with every worked example, is one click away.
9.3 Sanctions Regimes and How They Actually Bite
The idea in plain words
Sanctions bite in two ways: they block the property of designated parties, and they bar anyone from dealing with them. OFAC, the US sanctions office, extends that to any company owned 50% or more, in total, by blocked persons. US reach goes abroad through dollar clearing, because dollar payments pass through US banks. Penalties vary a lot: the penalty for a single violation can differ about 21-fold depending on whether it was egregious and whether the firm reported it itself.
Key points
■Two designated owners at 30% and 25% make an unlisted company blocked (55%).
■The IEEPA civil maximum is the greater of $377,700 or twice the transaction: $4 million on a $2 million payment.
■Self-disclosure halves the base penalty; non-egregious cases cap at $188,850.
A closer look
Volume I’s Part 1 introduced sanctions conceptually as a tool of economic statecraft. Mechanically, sanctions typically operate through a designated persons/entities list (such as the US Treasury’s OFAC SDN List) — any individual, company, vessel, or country named on such a list becomes effectively frozen out of the financial systems of the sanctioning jurisdiction, and any bank processing a transaction connected to a sanctioned party risks severe regulatory penalties itself, regardless of its own intent.
Decision rule
Screen every party in a payment, including beneficial owners, vessels and intermediary banks, not just the customer. If designated persons together own 50% or more of a counterparty, treat it as blocked; if they own less but exercise control, escalate before processing. When a hit is confirmed after the fact, self-disclose quickly: in the worked example that choice alone moves the base penalty from $377,700 to $188,850 (non-egregious) or from $4 million to $2 million (egregious). Keep sanctions records for 10 years.
The costliest mistake
Hiding a sanctioned party inside a payment message. BNP Paribas removed references to sanctioned entities from payment messages and used “satellite banks” to move more than $8.8 billion through the US financial system for Sudanese, Iranian and Cuban parties between 2004 and 2012; on June 30, 2014, it agreed to plead guilty and pay $8.97 billion. Message-stripping turns every payment into an egregious, willful violation, the top row of the penalty table, so the remedy is a hard rule: payment data is never edited to pass a screen.
9.4 Dodd-Frank vs MiFID II Compared
The idea in plain words
Two big rule books shape modern financial markets. Dodd-Frank, from the US in 2010, targeted systemic risk, swaps and consumer protection. MiFID II, from the EU in 2018, targeted market structure, transparency and investor protection. Don’t mix up their jobs: EU derivatives clearing comes from a separate regulation called EMIR, and MiFID II’s rule separating research fees from trading fees has been partly reversed since 2024.
Key points
■US swaps clearing comes from Dodd-Frank Title VII; the CFTC’s first clearing determination was on November 28, 2012.
■EMIR (Regulation 648/2012) clearing started June 21, 2016; MiFIR adds the trading obligation.
■The UK allowed joint research and execution payments from August 1, 2024; the EU Listing Act does so from June 2026.
A closer look
The 2008 crisis (Volume I’s Part 3) produced two of the most consequential pieces of financial regulation of the modern era, on opposite sides of the Atlantic, sharing similar goals but different emphases.
Decision rule
Map each obligation to its actual source before you design a control: in the EU, clearing and trade reporting to repositories come from EMIR, trading venues, best execution, research payments and transaction reporting to regulators from MiFID II and MiFIR; in the US, swaps clearing and trading from Dodd-Frank Title VII through CFTC and SEC rules, and best execution from FINRA Rule 5310. Then date-stamp the mapping: if a rule is newer than 2023 or still proposed, check whether it was finalized, amended or withdrawn before relying on it.
The costliest mistake
Treating the return of joint payment as a return to hidden costs. In the worked example the research bill is $5 million a year, 5 basis points of the fund; over 10 years that is $50 million of clients’ money. Paid jointly without a budget, a policy and the annual cost information clients may now request, it is the same conflict unbundling was written to expose, and the first question in any review will be who paid and for what. Keep the budget and the allocation records whichever payment method you choose.
What the full article covers
In the full article I take you through these sections:
■9.3 Sanctions Regimes and How They Actually Bite
■9.4 Dodd-Frank vs MiFID II Compared
It includes a look under the hood at the mechanics, a clear decision rule, the one mistake that costs people the most, a recap, a reveal-on-click quiz and the official sources behind every figure.
Volume II: Capital Markets
Read the full article on FinoLib
The complete article, Dodd-Frank vs MiFID II Compared, and How Sanctions Work, with every worked example, diagram, quiz and source, is free to read in Volume II, Capital Markets on finolib.com.
Explore the Finance Education Series: Vol. II — Capital Markets · Vol. I — Global Economy · Vol. III — Finance Encyclopedia · Vol. IV — Finance Careers · Vol. V — Personal Finance