What do firms need to manage sanctions lists and automated screening?

Legislation | | MIC Customs Solutions |

How can firms go about ensuring they remain compliant with sanctions screening rules through the use of automation?

Ensuring firms know who they are doing business with is a critical part of international trade. If companies are not able to gain full visibility into their partners, suppliers and customers, they may inadvertently fall foul of numerous laws around the world, potentially leaving them exposed to penalties such as fines or loss of licenses.

One of the most important compliance activities is ensuring enterprises are not working with any denied parties. These could be organizations, government entities or individuals whose details are held on the many sanctions lists maintained by governments around the world.

However, this is no easy task. With so many lists of sanctioned parties - which are constantly being updated - it can be complex and time-consuming to perform these essential checks manually. Therefore, it pays to have systems in place that can streamline the process through the use of automation.

So what do firms need to know about sanctioned lists and automated screening in order to maintain compliance and keep international trade flowing without disruptions? 

What are sanctions lists?

Sanctions lists are created by governments or international bodies that prohibit companies from doing business with prescribed entities or individuals. While primarily used to target illicit activity, they are also used by governments as part of their foreign policy tools, increasingly targeting unfriendly states.

In recent years, the use of sanctions lists have become more complex - for example, focusing on specific sectors and activities rather than just named entities - which can leave more room for interpretation.

Among the most important lists of sanctioned parties that organizations will need to be looking at are:

OFAC Sanctions List - Applies to all US citizens and corporate entities, as well as any organizations using US goods or trading in US dollars.
EU Consolidated List of Sanctions - Covers EU citizens and corporate entities established in any of the 27 member states.
UN Sanctions - Published by the UN Security Council and effective in all 193 UN member countries.

All businesses must comply with sanctions screening requirements, regardless of their size or the sector they operate in. In basic terms, this is achieved by entering their customers' details into a publicly-available search tool to determine if there is a match with a sanctioned party. This can be done manually, but it is a very complex and time-consuming process.

It is also important not to treat sanctions screening as a one-off activity when firms begin a business relationship. Because sanctions lists are constantly being updated and names added or removed, it is vital to maintain a regular schedule of checks to ensure existing customers have not been newly included. 

The challenges of keeping up with evolving sanctions lists

A principal challenge of sanctions screening is the sheer scale of the task. There are over 1,700 sanctions lists globally, making it almost impossible to monitor all these without help. However, aside from the volume of lists, there are a wide range of other potential problems that businesses may experience if they attempt to conduct their screening efforts manually.

Among the main issues businesses are likely to experience include:

  • Outdated information - If firms are reliant on legacy databases, they may not update lists quickly enough and result in newly-sanctioned entities being mistakenly cleared.
  • Incomplete data - If firms do not have a full set of information about their partners, this could result in names that appear on sanctions lists being missed because they do not flag up as a match.
  • False positives - At the other end of the scale, an overly-cautious approach to screening may incorrectly flag non-sanctioned entities, requiring extensive manual review to ascertain whether the alert is genuine.
  • Complexity - Managing sanctions screening across multiple jurisdictions and languages, and for entities that may have many name variations, is an especially tricky process.
  • Divergence - In many cases, some entities may appear on one list of denied parties, but not another. Dealing with such businesses or individuals requires extra caution in order to guarantee compliance with various regimes.

How automated screening can help maintain compliance

All of these issues, however, can be tackled with a robust sanctions screening plan that embraces automation. With the right technology, firms can eliminate the manual processes involved in checking customers against a multitude of lists and also rest assured that the systems are always comparing names to the most up-to-date lists, using the most complete set of details.

Automated solutions work by employing technology to continually analyze these vast data sets on a regularly scheduled basis, or even in real-time, in order to identify any denied parties. What's more, these tools can screen for multiple languages and entries to address many of the complex challenges businesses face.

Get this right and sanctions screening processes are not only more accurate, but much faster. This allows organizations to streamline their operations and improve efficiency, while still retaining peace of mind that they are compliant with critical trading rules in every territory where they operate.