Terrorist financing isn’t always obvious.
You might unknowingly do business with its supporters through oversight.
Selecting customers that are threats to national security or human rights abusers.
I have news for you. This doesn’t need to be the case.
My purpose here is to help you avoid regulatory bodies that could disrupt business. Continue if that’s something you’re interested in.
Types of Sanctions
Instead of a “Do not fly” directory, major sanction lists are a “Do not buy” record.
The Office of Foreign Assets (OFAC) is one entity with a goal to maintain compliance. But there are others like the United Nations.
Categories:
- Named sanctions
- Narrative/Implicit sanctions
- Sectoral sanctions
- Targeted financial sanctions
Trade embargoes and bans
The first couple deal with direct or indirect naming of sanctioned entities. And the remaining come from an economic angle.
Complete restrictions like a trade embargo with Cuba make all transactions illegal. Another example would be relevant regulations on exports to China.
Identifying Politically Exposed Persons (PEPs) and Their Role in Sanctions Screening
Risk mitigation continues by recognizing people in obvious positions of influence. And it isn’t just politicians.
- Government roles
- Organization/institutional roles
- Close associates
- Immediate family members
Financial risks decrease by limiting business with folks more tempted by corruption and bribery.
Next, I’ll reveal how the financial industry and a few others require a sanctions screening process.
Mandatory Sanctions Screening Within Specific Industries
Sanctions screening requirements vary by industry.
However, there are some where financial crimes are more likely to occur.
If you’re a part of one such business, risk assessments need to happen. Ongoing monitoring can help keep your relationship with UN nation states and the European Union strong.
Which Companies and Industry Sectors Need to Screen for Sanctions?
Every business should ensure that financial transactions have an effective sanctions screening process.
Especially so in healthcare.
Sanctions breaches create needless liabilities for the health of these companies. No pun intended.
Compliance efforts begin by checking:
- Volunteers
- Vendors
- Contractors
- Physicians
Employees
Federal exclusion databases will let you know if sanctioning bodies consider them ineligible. Make sure your HR and relevant departments add this into their normal process.
Moving on, I’ll discuss financial services companies.
Why is Sanctions Screening Important for Financial Institutions?
Our financial system is currently unstable. Inflation is one culprit, but there are many.
Sanctions screening solutions prohibit illicit activity. If you invest in them.
Benefits:
- Prevent money laundering
- Disrupt financial crime
Beyond disruption, reviewing customer data and transactions helps prevent financial crime.
Anti-money laundering (AML) regulations point the way. But using sanctions screening technology adds another layer of protection.
As a cost-effective solution, prevention is valuable. In the following section, I’ll advise you on when to perform this task.
When Should Sanctions Screening Be Performed to Ensure Compliance?
Sanctions screening work should happen regularly. Certain variables will determine exactly how often.
There’s a general rule to follow though.
Complete this post assessment of your sanctions risks. And after bringing on a customer or third party.
Verifying the identity of those you conduct business with needs to happen. Anonymity is okay for social media. Not for the longevity of your venture.
Be up front with prospects and potential partners. Because ultimately, it’s your neck on the line.
Always remember that you have people dependent on you:
- Spouse
- Kids
- Employees
- Business partners
As such, fend off any pressure or temptation to cut corners.
If an individual is using compulsion, that’s not somebody you want to deal with anyways.
A less than ideal customer is one concern. Dealing with a person under financial sanctions is a whole other beast.
International regulations mandate a risk assessment when trading with a:
- Company
Agency
Specifically, when they conduct business in nations that are currently on global sanctions lists.
You’ll know this ahead of time because you understand the importance of screening preemptively. Knowledge is power. And it can save you money too!
Vetting them before working together is beneficial. Doing it throughout the customer relationship lifecycle is doubly so.
Why?
They might not be on the radar of sanctioning bodies during onboarding. Despite that, they may show up later.
Better to catch it early and ward off future headaches.
As I start to wrap up, I’ll cover possible difficulties that you may come across.
Challenges of Sanctions Management
UK law is different from U.S. law. I point out this obvious fact to show how sanctions compliance isn’t easy.
With multiple sanctioning bodies, relying on an initial risk assessment alone doesn’t cut it.
One ruling body may lift restrictions, while another keep enforcing them. Confusing, but you still want to bypass significant fines either way.
That’s one challenge. Under-screening or over-screening is a second threat.
Resulting outcomes:
- False positives
- False negatives
Sanction lists are to be taken seriously. Just not overly to where it affects your relationship with customers. Or costs you business.
Being flippant can allow unsavory characters to slip through. And an overbearing approach can lead to inaccurate screening.
Sanctions Violations: What Happens if Your Sanctions Screening Process Fails?
It hurts when OFAC’s enforcement penalties hit.
Punishments:
- Legal proceedings
- Fines
- Hit to your reputation
Additional controls
Considered a national security threat, you get more than a slap on the wrist. Namely fines running in the millions and imprisonment for up to 30 years!
Negative impact on future business:
- Your financial performance has trouble recovering
- Your credibility on the global market is tarnished
You have worked extremely hard to establish a positive image both locally and internationally. The power of a negative review is well known. Not as obvious is the power of a court case with OFAC.
To conclude, I have a suggestion for staying compliant with those in authority.
Reidel Law Firm Navigating International Sanctions
As experts in international trade law, we can help you handle the legal aspects of sanctions risk.
And in doing so, keep international organizations and our government happy.
Conducting business across borders becomes much easier when they see reasonable care taken. We are your partners in making this a reality.
Our international trade law division also supports:
- Import Compliance
- Litigation before the Court of International Trade (Section 337, anti-dumping/countervailing, and other trade-related cases)
- Trade Compliance Audits and Training
Call Reidel Law Firm today at (832) 510-3292 or fill out our form to see how we can help you avoid potential sanctions violations.
