The importance of an effective denied party screening solution

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What are the key challenges facing firms when it comes to denied party screening?

One of the most important aspects of maintaining regulatory compliance in international trade is understanding who you're doing business with. While Know Your Customer processes are a requirement for many industries, they are especially vital for traders in order to ensure they are complying with rules related to export controls.

The process of ensuring firms are maintaining compliance is called denied party screening, or DPS. Denied parties can be individuals, corporate entities or even nation states that governments have prohibited or restricted their citizens and companies from doing business with.

The importance of denied party screening

Sanctions lists are put in place for a number of reasons, from preventing the export of potentially dangerous technology and materials to hostile countries to penalizing individuals for actions deemed unacceptable.

For example, in recent years, the US and EU have initiated export restrictions against hundreds of Russians - both government officials and other citizens - working in areas related to the country's invasion of Ukraine, from weapons manufacturers to financial institutions.

Governments take failures to abide by these sanctions very seriously. It is therefore a key responsibility of every business to ensure they are not breaking such rules whenever they do business with overseas entities.

Penalties for such breaches can be severe and wide-ranging. This could include the revocation of export licenses or very heavy fines, with some cases reaching into hundreds of millions of dollars. In some circumstances, companies may even face criminal charges with the prospect of prison for individuals.

Why is DPS so challenging?

One of the biggest issues facing businesses when it comes to DPS is the sheer volume of data they will have to search through. There are over 1,300 lists of sanctioned parties around the world, with more than 140 in the US alone, with government agencies including the Commerce Department, State Department, Treasury Department and Justice Department all holding their own data on restricted and denied parties.

While the US offers a Consolidated List to try and simplify this, it remains a major challenge. Added to this is the fact that such lists aren't static - they are constantly being updated in response to changing global environments - and it becomes very difficult to conduct a comprehensive screening process manually.

Identifying denied parties is also often not a clear cut process. As well as individuals in institutions with full sanctions against them, there are restricted party lists, where bans only apply to certain categories of goods, such as dual-use items with both civilian and military applications. Determining if items fall into restricted categories is another critical aspect of meeting compliance rules that can quickly prove complex. 

Meeting DPS requirements

In order to be effective, DPS activities must be conducted on a regular basis, not only upon the first interaction with a new recipient. This adds more time and effort to the process, making it almost impossible for firms to rely on manual screening in order to maintain compliance with export rules.

Therefore, it pays to have access to a smart software solution that can streamline the process by automatically comparing the information of every individual and organization a company works with against every relevant sanctions list.

Automating these procedures not only saves time, but also greatly reduces the risk of errors that might see a denied party's inclusion on a list overlooked. It also creates a clear, auditable trail that can demonstrate firms have conducted their due diligence should any future issues arise.

With the right software solutions, exporters can rest assured that they know exactly who they are doing business with and there will be no regulatory issues that could cause delays or lead to financial losses. This helps them export with confidence and lets them focus attention on other areas.