Countries and international bodies sometimes impose sanctions on individuals, entities and even countries as a form of punishment or control. It’s important to know who is sanctioned, because you must avoid doing business with them. Doing regular sanctions monitoring as part of your KYC (know your customer) processes helps you avoid the risk of inadvertently engaging with a sanctioned counterpart.
Read on to find out more about what sanctions are, what sanctions lists are, in what cases you need to do sanctions monitoring, and how to do a sanctions screening the easy way.
Sanctions are foreign policy tools enacted by single or multiple countries that apply pressure or punishment to individuals, entities and even countries. There are many, many forms of sanctions, but the one that’s relevant to many businesses is an economic sanction, which bans doing trade or commercial activities with the sanctioned counterpart.
Sanctions are quite simply a form of punishment or pressure that aims to make life difficult for the sanctioned party as a way to make life difficult for them. There are many different types of sanctions, and we’ll focus on economic sanctions as these are what’s most relevant to businesses wanting to do sanctions monitoring as a way to protect their business from falling afoul of the law.
A sanctioned person or entity may find it harder to find a bank, trade or do business with companies, move money etc.
Definition of economic sanctions
→ An economic sanction is a measure by one or several countries to pressure a person, company or country into following international laws.
Economic sanction example
→ After the illegal annexation of Crimea, the EU imposed economic sanctions on Russia, including limiting the access of certain Russian banks and companies to EU capital markets.
Unilateral vs multilateral sanctions
Sanctions can be grouped in many different ways. One of these is whether they are unilateral or multilateral in nature.
Who can be the target of a sanction?
Another way sanctions can be grouped is based on who the target is.
The kinds of activities sanctions can limit
In terms of economic sanctions, these are the kinds of measures that may be included:
As you can see, it might be unlawful for you to do business with a sanctioned party — this is one of the major reasons why it’s important to run sanctions checks against your clients.
Why are sanctions imposed?
There are many, many reasons sanctions may be imposed. Here are just a few:
Sanctions lists gather a country’s or a multilateral body’s sanction targets in one place. It’s a way to flag sanctioned people, businesses or countries, and help prevent financial crimes like money laundering and terrorism financing. The most common sanctions lists globally include OFAC, UN, HMT, EU, DFAT.
Sanctions lists are simply lists of those people/companies that a country or group of countries have sanctioned. They are a way to flag those that may pose a risk of committing a financial crime.
Sanctions lists often include the various alias or names a sanctioned individual or entity goes by. It might include other available identifying information like date of birth and known addresses; what activities the individual has been involved in and in which country; the date the person was sanctioned; identification numbers, and so forth.
Sanctions lists aren’t static. They can be added to at any time, and information about a sanctioned party can also be updated.
By checking your potential customer or other partner agains to see whether they are on a sanctions list you can reduce your risk of doing business with a risky counterpart. In fact, in some cases you may be breaking the law yourself if you do business with a sanctioned entity, so you’re also protecting your business by checking your client list for any sanctions red flags.
Most important global sanctions lists
These are the most common sanctions lists, which you should consult when doing a background check:
An every-growing list of company types need to sanctions monitoring from banks to bookkeepers. Sanctions screening not only helps you mitigate the risk of doing business with a shady individual and the potential associated reputational risk, but it also helps ensure you meet your regulatory compliance obligations.
All companies must play a role in fighting money laundering and other financial crimes by monitoring their customers and transactions.
As part of this, you must ensure that you and your business aren’t violating the relevant sanctions rules by checking that your client or counterpart isn’t sanctioned.
Although some cases are more clear-cut: US citizens or businesses operating in the US are banned from doing business with someone on an OFAC list, in some cases even if you are not operating in the same jurisdiction as where the sanctions is enforced, you may still be required to follow the same guidelines.
This is why it is safer — no matter where you’re doing business and with who — to check global sanctions lists because if your client is found on any such list it’s worth proceeding with caution.
Do you need to check sanctions lists that aren’t by your country?
Many countries follow the sanctions of the UN or the EU, but then also have their own sanctions list that go beyond these sanctions.
Although some of the global sanctions lists we’ve spoken about here may not apply to the jurisdiction you operate it, it’s still worth checking all of these lists as if someone is sanctioned in, say, Australia it may be worth taking a second look at them before going ahead and doing business with them.
Keep in mind, there are also rules in place to prevent circumvention of sanctions by doing business with an out-of-jurisdiction subsidiary, for example, or by doing business overseas. Therefore, it’s better to be safe and follow the sanctions you or your company are required to follow under sanctions law.
What happens if you don’t do a sanctions check?
Failing to do all the relevant sanctions checks — or even worse accidentally doing business with someone who is sanctioned — can result in fines and other penalties.
How much due diligence should you do?
There is no hard and fast answer to this question. It really depends on your business and the risk environment you operate in.
Having a thorough process in place that checks all clients both at onboarding and regularly throughout the customer lifecycle is so important. It’s also crucial to stay on top of changes in regulations, and to ensure that your system can remain current with names being added to and removed from sanctions lists.
When implementing a sanctions monitoring process, it’s worth creating a written policy around it. Don’t forget to include who a match should be reported to and what steps should be taken if a match is found. Unless you have this expertise in-house already, it’s safest to check your policy and the robustness of your processes with an expert.
Find out what sanctions searches you have to do to meet your compliance obligations, or search all the main global lists to be on the safe side. Then go one by one and search your client’s names against each sanctions list via each issuing body’s website before starting a business relationship. OR, use a sanctions screening software like Complytron that searches all global lists with just one search to make your monitoring processes easy and foolproof.
Sanctions screening can be time-consuming and cumbersome. You can manually go through each individual sanctions database (through the various official websites), checking each for the name of your target. But not only is it a time-suck, doing it manually also increases the risk of accidental human error like missing a listing, accidentally forgetting to check one of the lists, or spelling the name of a target wrong and therefore not seeing a match.
Sanctions screening can also be difficult because of challenges like false-positives, false-negatives, different naming conventions/spellings, the use of aliases, lack of additional personal identifiers to corroborate a potential target match, and more.
Manually doing sanctions screening can increase your company’s exposure to fines and other penalties.
It’s much easier and safer to use an automated sanctions screening software. There are several on the market, but Complytron is easy-to-use and affordable. Whereas others are often designed for large companies wanting to do a huge volume of searches, Complytron works for both big companies wanting to do tens of thousands of searches a month and small businesses who just need to do a handful of searches. Read on to find out more.
It’s safest and easiest to use a sanctions screening software to automate your searches. Such software automatically searches the main global sanctions lists, so you never miss spotting if one of your clients is sanctioned.
Here are just some of the benefits of using an automated sanctions screening software:
Our sanctions monitoring tool is a database of all the major global sanctions lists, so you can check them all with one search. Try it for free now.
Is there anything else you should be mindful of?
Yes. “Bad actors” are always looking for ways to circumvent your processes. Include these kinds of things in your AML/KYC processes to make your systems as foolproof as possible:
Add sanctions lists monitoring to your KYC/AML processes now. Claim your 7-day free trial.
Sanctions are a form of punishment or pressure that restricts or prevents certain activities. They can be imposed against people, businesses, organisations, countries, or industries. They take many forms, ranging from prohibiting business engagement with a specific person to blocking a country from exporting a certain type of product.
These are some of the main global sanctions lists:
Automated sanctions screening is best, using a product like Complytron. All you have to do is type the name of your target into our search field and we’ll scan all the global sanctions list in one search. We can also offer batch screening (screening your entire database at once), and ongoing background screening (screening your entire database regularly to ensure you’re notified if someone’s status changes).
Here’s what to do if you suspect your client is on a sanctions list:
The SDN List includes individuals and entities, which are controlled by, or acting on behalf of, countries targeted by US sanctions. The Consolidated Sanctions list encapsulates all other US sanctions not listed in the SDN List.
Sanctions are serious, and your business needs to sanctions monitoring to both ensure that you’re not doing businesses with a sanctioned (and therefore risky) individual or entity, and so that you can prove you comply with the relevant AML/CFT compliance requirements. There’s no reason for sanctions monitoring to be cumbersome either. See how easy it is with Complytron.
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