The sanction list screening
Entrepreneurs and organizations face significant challenges with the obligation of sanction list screening. Various global anti-terrorism regulations impose penalties on business contacts with individuals, organizations, or companies connected to a terrorist organization or affected by embargoes. It is also important to focus on the trade of goods listed in a goods-related sanction list. If a person, organization, or company fails to conduct regular sanction list screening, they violate this requirement, may face sanctions themselves, and can be held criminally liable.
Who is responsible for sanction list screening within the company?
As a principle, the obligation of sanction list screening should not solely rest with the management but should be embedded in the responsibilities of each department. Considering the severe penalties, the accounting, sales, and human resources departments are particularly involved.
The accounting department is required to verify whether outgoing payments are intended for individuals, organizations, or companies listed on a sanction list. Such payments must be halted. The sales department must also ensure that each business transaction is cross-checked for matches with a sanction list. Nowadays, human resources departments conduct regular employee screenings during the hiring process and for existing employees.
Sanction list screening – why do I have to conduct it?
As mentioned earlier, it is prohibited for individuals, organizations, or companies to maintain business contacts with entities listed on a sanction list as part of counterterrorism efforts. A sanction list is an official directory that includes persons, groups, organizations, or economic goods associated with terrorism or past terrorist activities. Sanction lists are categorized into two types:
- • Person and entity-based sanction lists
- Goods-related sanction lists
Person and entity-based sanction lists aim to prevent the financing and benefits of terrorism while supporting embargoes.
Goods-related sanction lists, often referred to as goods lists, include goods and products subject to special import tariffs or export restrictions. Export restrictions commonly apply to dual-use goods that can be utilized for both civilian and military purposes.
Companies that violate international anti-terrorism regulations, such as making payments to terrorist organizations or disregarding export restrictions, risk criminal sanctions. These sanctions can be severe, including fines starting from
- 500,000 euros or
- imprisonment for up to 15 years.
Violations can not only have legal consequences for individuals or companies but also lead to reputational damage when made public. No company wants to be associated with entities that fail to exercise due diligence in sanction list and embargo checks.
To avoid such penalties, it is crucial to proactively conduct regular screenings of employee and customer data, as well as trade goods, using the CYC sanction list screening.
Sanction lists – this is important.
Currently, there are countless different sanction lists. The basis of most of these lists is the UN Sanctions List published by the UN Security Council. The individuals and organizations listed on this list are to be avoided by all UN member states.
The European Union itself publishes its own sanction list, which incorporates and expands upon the entries from the UN Sanctions List. Other countries, based on international registers, maintain their sanction lists. This applies, for example, to:
- United Kingdom
- United States
Which sanction lists are relevant for which companies? This question usually arises from the economic focus of a company or the legal jurisdiction of the sanction lists. For example, if a company operates exclusively within Europe and has no business relations with Japan, the Japanese sanction list can be disregarded.
Conducting the sanction list screening
Sanction lists are often updated multiple times per week by the respective authorities. Therefore, it is not sufficient to conduct a screening only at the beginning of a business relationship or to do it every 2-3 weeks. Considering the severe penalties imposed for non-compliance, it is necessary to perform screenings more frequently. The timing of the screenings can be determined by the company, but since sanction lists change frequently and sometimes on short notice, a continuous and automated matching process is highly recommended.
Match on the sanction list
For sanction list screenings without a match, there is no further action required by the relevant parties in the company. However, if the sanction list screening yields a positive result, further steps must be taken.
A match based on name similarity does not automatically mean that the person in question is the same as the one listed on the sanctions list and the business contact. To clarify, additional criteria such as date of birth, place of birth, or the organization’s location must be taken into account. These additional attributes are typically included in the sanction lists.
If the suspicion of a match is substantiated, the relevant authority should be notified. The authority will conduct further comparisons and subsequently inform the company of the final result. If the suspicion is confirmed, financial payments must be immediately frozen, and the initiation or establishment of business relationships should be terminated promptly.
Challenges in Sanctions List Screening
Before and during the sanctions list screening, companies can face numerous issues and challenges. Some of the recurring difficulties we encounter include the following:
- The sanctions list screening takes up too much time and requires significant manpower.
- Anti-terrorism regulations are legal requirements that can be complex and intricately designed.
- Companies that fail to perform timely updates of the sanctions lists or are unable to do so for other reasons risk legal consequences.
- The results of the sanctions list screening can be misinterpreted, leading to incorrect consequences.
- Incomplete or inaccurate entries complicate the sanctions list screening process.
- In addition to well-known sanctions lists, there may be other national sanctions lists that are relevant to the respective company.