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explainer: sanctions lists (and why you need sanctions monitoring)

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.

What are sanctions?

In summary

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.

  • Unilateral: When one country goes out on its own and imposes a sanction on a person, entity, country etc. These apply to people that live in or companies that operate in that country, so you should always check your home country’s sanctions lists. It’s worth checking some of the main sanctions lists like the US’s OFAC or the UK’s HMT sanctions list as they can give you important clues on your client’s level of risk, even if you’re not operating in these geographical locations.
  • Multilateral: When a body like the UN or the EU imposes a sanction — meaning that all members of that body have to sanction the listed person, entity or country. It’s always worth checking these global sanctions lists, as it’s safe to say anyone found on these lists is likely to represent a high risk.

Who can be the target of a sanction?

Another way sanctions can be grouped is based on who the target is.

  • Individuals: Sanctions may be very narrowly targeted against a specific person, usually a politician, business leader or a terrorist, for example. This makes it difficult for these people to do business and curtails their freedoms without impacting their industry or country more broadly. 
  • Entities: Companies or organisations (including terrorist organisations) may be sanctioned as a way to make it financially difficult for them to operate. 
  • Industries: Entire industries in a specific country may be sanctioned or embargoed as a way to place pressure on a foreign government or to protect the sanctioning country’s own industry. For example, sanctioning oil exports from Iran ultimately put pressure on the Iranian government.
  • Countries: To exert maximum pressure, an entire country may be sanctioned meaning that you cannot do business with any person, company, or industry of that particular nation.

 

The kinds of activities sanctions can limit

In terms of economic sanctions, these are the kinds of measures that may be included:

  • Restrictions on trade
  • Bans on engaging in commercial activities
  • Asset freezes.

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:

  • When diplomacy fails, sanctions are another way to apply pressure
  • Sanctions are another way to apply economic pressure to a specific group of people, like specific politicians or business leaders 
  • Certain type of sanctions can hurt the economy and make life harder for everyday people, and in turn they may put pressure on their politicians
  • It can be a way to punish or put pressure on politicians without resorting to military action
  • It can make it more difficult for the individual or entity to continue to operate financially, which is important in the case of terrorist organisations, for example
  • Certain sanctions involve freezing assets or forbidding making funds available to the sanctioned entity

What are sanctions lists?

In summary

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

global sanctions lists

These are the most common sanctions lists, which you should consult when doing a background check:

  • OFAC: “OFAC” stands for The Office of Foreign Assets Control and it operates under the US Department of the Treasury. It enforces economic and trade sanctions based on the political and national security interests of the United States. OFAC publishes many different sanctions lists. For example, individuals and entities owned or controlled by or acting for or on behalf of targeted countries, and individuals, groups, as well as entities that are not country-specific. These are called “Specially Designated Nationals” and added to the SDN list. OFAC also publishes non-SDN lists, which is a collection of sanctioned parties that do not fall in the SDN category. These are referred to as “Consolidated lists.”

  • UN sanctions: These sanctions are decided by the UN Security Council and are a way for the international community to prevent or resolve threats to international peace and security. Keep in mind that although the UN relies on member states to enforce these sanctions, UN sanctions should not be confused with those that specific countries impose independent of the UN. Although there are many types of sanctions,  the UN’s economic sanctions focus on limiting or banning trade with the sanctioned party.

  • HMT: The UK’s sanctions list is often referred to as HMT, which stands for Her Majesty’s Treasury’s Office because it’s HM Treasury that administers financial sanctions. Other sanctions are administered by other departments, for example, the UK Border Agency implements travel bans.

  • EU sanctions: The European Union – via the European Council – adds individuals and entities to its sanctions list in line with its Common Foreign and Security Policy objectives. EU nationals or persons located in the EU or doing business in the bloc are obligated to operate in line with the EU’s sanctions policy. Each member state is responsible for administering and enforcing the sanctions regime.

  • DFAT: Australia’s Department of Foreign Affairs and Trade runs the Australian Sanctions Office, which is responsible for that country’s sanctions list. In addition to the UN sanctions, which Australia is a treaty to, these additional sanctions cover those that Australia autonomously imposes based on its foreign policy. These sanctions laws apply to activities in Australia and to overseas activities undertaken by Australian citizens and Australian-registered bodies corporate.

Who needs to do sanctions monitoring?

In summary

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.

Our sanctions check tool searches all of these databases, go ahead and try it now for free

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.

  • You may be liable for fines and even jail time. For example, in Europe, 6AMLD can give severe penalties for those individuals and entities who don’t do their best to prevent money laundering by checking their clients against the relevant sanctions lists. 
  • Damage to your reputation. Most companies don’t want to be associated with someone who is laundering money, financing terrorism or involved in any kind of financial crime. If you’re caught doing business with someone who is sanctioned, you could do irreparable damage to your business.

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.

How to do a sanctions check?

In summary

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.

Why automated sanctions screening is best

In summary

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:

  • One search searches all global sanctions lists at once. A solution, like Complytron, consolidates all the relevant lists in one database. Your analysts simply use our search bar and search the target’s name across all the main sanctions lists.
  • Accuracy. Searching global sanctions lists manually opens you up to human error, but using a software removes this factor.
  • Straightforward. Sanctions lists can run into hundreds of pages, and can be difficult to find online and navigate. With a sanctions screening software, your analysts use just the one interface they are familiar with. Solutions like Complytron can also be embedded within your existing system, so analysts never have to leave your in-house ecosystem.
  • Connects to your system. With a sanctions screening software like Complytron, you can connect sanctions screening to your existing system, making searches even more seamless.
  • Up-to-date. Sanctions lists are updated often with names being added and removed. If your client gets added to a sanctions list between searches, you won’t know about it unless you regularly search the sanctions lists. Using an automated software, like Complytron, removes this time-consuming step. Your entire customer database can be checked on a daily basis so you always know if someone’s status changes as soon as it happens.

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:

  • Search all known name variations, including with and without middle names
  • Think of whether the name may be translated to other languages
  • Consider the naming conventions of where your target is from as it may not be the same as your own
  • Check any known pseudonyms or aliases (sometimes referred to as AKAs)
  • Corroborate a match with other known information like date of birth, mother’s name and so on.

frequently asked questions

  • What are sanctions?

    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.

  • What are the main sanctions lists?

    These are some of the main global sanctions lists:

    • OFAC (US)
    • UN sanctions
    • HMT (the UK)
    • EU sanctions
    • DFAT (Australia)
  • How can you do sanctions screening?

    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).

  • What should you do if your client is on a sanctions list?

    Here’s what to do if you suspect your client is on a sanctions list:

    1. Double check that their personal identifying information matches what’s on the sanctions list. It may just be a false-positive (i.e. they share the same name, for example, but they are not the same person)
    2. If you can, ask your client for further identification (if you don’t already have it) so that you can double check whether the match is true
    3. If you are certain, or have a strong suspicion, notify your compliance officer right away. Follow your KYC/AML policies.
    4. Understand your reporting obligations and notify the relevant authorities. For example, in the UK it’s the Office of Financial Sanctions Implementation. It may be a criminal offence not to report sanctions related information to authorities, so you must report it even if you haven’t engaged in business with the sanctioned party yet. In the US, there are voluntary self-disclosure rules, so you should report if any business activity has taken place.
    5. Only proceed to do business with the sanctioned individual/entity if authorities have given you the green light. Keep in mind, engaging with sanctioned entities increases your exposure to risk, including reputational damage. Doing business with a sanctioned person or entity has many potential pitfalls, so proceed with caution.
  • What is the difference between OFAC's SDN List and its Non-SDN Consolidated 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.

The bottom line

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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Disclaimer

This content is for general informational purposes only and does not substitute personalised professional advice. Although we aim to be both up-to-date and accurate, errors can occur. In addition, certain pieces of content, like interviews, podcasts and webinars, may contain opinions that do not necessarily reflect the position of our company. If you have noticed an error, omission or bug, please contact us at contact@complytron.com

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