Why Sanctions Compliance Is Built on Best Practice Sanction Screening
Sanctions have been on everyone’s radar of late, and with companies needing to comply with sanctions against Russian companies and individuals, the benefits of sanction screening are becoming better-known.
Before the Ukraine crisis brought sanctions to everyone’s attention, sanction list screenings were already required as part of Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) compliance in many jurisdictions. Today, the war has brought the issue of sanctions and sanction screening to the forefront again.
What Is Sanction Screening?
Sanction screening, or sanctions screening, helps organizations to identify individuals and companies they should avoid doing business with — and is invaluable to ensure a comprehensive approach to sanctions compliance. Sanction screening is the process of cross-checking any new transactions or corporate relationships against sanction screening lists held by government agencies or other bodies that mandate sanctions rules.
Sanction screening, or sanctions screening, helps organizations to identify individuals and companies they should avoid doing business with — and is invaluable to ensure a comprehensive approach to sanctions compliance.
Sanction screening is the process of cross-checking any new transactions or corporate relationships against sanction screening lists held by government agencies or other bodies that mandate sanctions rules.
Why Do We Do Sanctions Screening?
Primarily because it’s mandatory. Sanction screening is required to comply with the sanction rules imposed by, among others, the UN and the US Department of State.
The fines for non-compliance with sanctions regulations can be significant: civil and criminal penalties can exceed several million dollars in the US.
Therefore, sanction screening is needed to ensure that organizations can meet their obligations regarding sanctioned countries, organizations and individuals.
The Challenges of Sanction Screening
Sanction screening poses several challenges for organizations:
1. Ever-changing Sanctions Rules
Sanctions, by their nature, can change swiftly to reflect world events. When Russia invaded Ukraine, new sanctions rules were imposed with little notice. This led to banks “working around the clock” to understand the sanctions and accompanying restrictions on the Russian banking system, as Reuters reported.
Keeping pace with the shifting sands of sanction rules can seem like a full-time job. With penalties significant, Dow Jones reports that “OFAC treats violations as a serious threat to national security and foreign relations. As a result, criminal offenders face monetary fines — ranging from a few thousand dollars to several million — and prison time up to 30 years; organizations cannot afford shortcomings in their sanction screening strategies.
2. The Range of Bodies Imposing Sanctions
There is no single, comprehensive list of sanctioned individuals or organizations. In the US alone, sanctions lists are managed by:
- The US Department of Commerce — Bureau of Industry and Security (BIS)
- The US Department of State — Bureau of International Security and Non-proliferation
- Department of State — Directorate of Defense Trade Controls
- Department of the Treasury — Office of Foreign Assets Control (OFAC)
Organizations also need to be aware of lists held by international bodies, like the UN, or the Financial Action Task Force (FATF), whose member countries include the US. These bodies require sanction list screenings to be completed when onboarding customers or establishing new business relationships.
3. Pressure on Organizations to Stay Abreast of Sanctions Rules
As the US Treasury Office of Foreign Assets Control (OFAC) says:
“Because OFAC's programs are dynamic, it is very important to check OFAC's website on a regular basis to ensure that your sanctions lists are current and you have complete information regarding the latest restrictions affecting countries and parties with which you plan to do business.”
The onus, therefore, is very much on the organization to investigate whether they may potentially be transacting with a sanctioned individual.
This is made more challenging because comprehensive lists of those people may not exist or be easily found. OFAC, for instance, prohibits transactions with Cuban nationals, wherever they are located, and states that: “US persons are expected to exercise due diligence in determining whether any such persons are involved in a proposed transaction.”
4. The Difficulty of Obtaining Up to Date Sanctions Data
As we’ve noted, sanctions rules change regularly in response to world events. Keeping abreast of up-to-date sanctions lists can therefore be an unending process.
Government watch lists can give you an insight into possible new sanctions and help you prepare for change — but you need to have the data from the lists to do this. And the sheer breadth of issuing bodies and authorities you need to check to ensure you have a current, comprehensive list of sanctions makes this a time-consuming and demanding task.
Ensure Sanctions Compliance in Your Organization
Sanctions compliance, and the challenge of watertight sanction screening, may cause headaches for organizations and their legal and compliance teams. But there are ways to stay on top of sanctions and ensure your approach is compliant.
Having access to current sanctions lists ensures your sanction screening policy picks up additions and changes in real-time as authorities issue them. Leading-edge sanction screening software continuously monitors global media for potential sanctions to mitigate your supply chain risks and screens against the most comprehensive lists of sanctions, embargoes, politically exposed persons (PEP) and government watch lists, for assurance that your approach is compliant.
Find out how Sanctions Compliance from Diligent can make your sanction screening process more robust, comprehensive and compliant, keeping you abreast of developing situations across the globe.