Restricted party screening in the US: A guide for businesses

Any companies operating in the US need to ensure they remain compliant with federal trade rules. One of the most important aspects of this is ensuring you know exactly who you are doing business with, and in particular whether they are subject to any government sanctions.

This is known as restricted party screening, or denied party screening, and it's a vital activity for any company working internationally. It's not an easy process, yet the penalties for any failures can be high. So what must firms be aware of to ensure they are meeting their obligations in this area?

Restricted party screening is a key component of the US' export control laws, which ensure that highly sensitive technologies or items with potential military applications do not end up in the wrong hands. Following processes for knowing your business partners is therefore critical in ensuring you are not evading sanctions, whether intentionally or unwittingly.

Firms that are found to be doing business illegally with restricted or denied parties face severe legal consequences. These range from financial penalties and the loss of export licenses all the way to potential prison sentences of up to 20 years.

The US government won't hesitate to enforce these rules either - especially if companies are dealing directly or indirectly with figures on terrorist watchlists or those representing sanctioned states like North Korea.

Restricted party screening and denied party screening are often used interchangeably, but there are a few key differences. While a denied party may face a total ban on exports, a restricted party might only require extra scrutiny and steps, such as securing a new license or being unable to receive certain categories of items. Therefore, it's important to know the exact restrictions that may be in place for any individual or company.

One of the major challenges of ensuring compliance with screening rules is that there are many lists of restricted parties across multiple government departments, including the Department of Commerce, Department of State and Department of the Treasury. Some of the most important to be aware of include:

Commerce Department:

• Denied Persons List
• Unverified List
• Entity List
• Military End User (MEU) List

Department of State

•  Arms Export Control Act (AECA) Debarred List

Department of the Treasury

• Specially Designated Nationals List
• Foreign Sanctions Evaders List
• Sectoral Sanctions Identifications
• Correspondent Account or Payable-Through Account Sanctions (CAPTA) List

While the US offers a Consolidated Screening List (CSL) search to check names against multiple lists in one place, these resources are constantly being updated and may provide only partial results, or fail to sufficiently narrow down searches that use common terms.

It's vital that every company with operations in the US has a clear policy for how to check potential business partners against restricted and denied lists. This should include clear answers to the following questions:

• Which restricted parties list will we screen against?
• How often should these processes occur?
• Which parties in our database should be screened?
• What screening method should be used?
• How should the results be formatted and documented for audit purposes?

The US Commerce Department's Bureau of Industry and Security (BIS) highlights several key steps that any firm seeking to do business with foreign nationals or organizations should follow, regardless of whether or not these parties are physically present in the US. These include:

1. Read and understand the Know Your Customer guidance provided in the Export Administration Regulations (EAR).
2. Be familiar with 'red flag indicators' that can help recognize potentially illegal transactions. A list of such warning signs are provided on the BIS website.
3. Check all parties to your transaction (including freight forwarders, intermediate consignees and the ultimate consignee) against the key US government lists referred to above.
4. Contact BIS' Office of Export Enforcement immediately if you are asked to take part in a transaction with a suspected restricted person or entity.

Relying solely on tools such as the CSL may let some names slip through the net. Therefore, using services such as MIC’s Export Control Management (MIC ECM) solution, which allows for central management of all company transactions under relevant export control laws, is highly recommended. This offers clear status information and comprehensive check reports for each transaction to ensure a complete and consistent audit trail.