Home – Managing Supplier Risk: Why Sanctions Regimes Should Be On Your Radar

Managing Supplier Risk: Why Sanctions Regimes Should Be On Your Radar

Posted on 04-14-2015 by Ulyana Androsova


 Last week, Mark Dunn, the due diligence segment leader for Risk and Compliance at LexisNexis, offered his insights during an ISM Webinar entitled “Mitigating Risks and Impact of Sanctions Regimes on Your Supply Chain.” It’s a growing area of concern, but as Kelly Barner noted in the Buyers Meeting Point blog, the risks “… are outside of the norm for most supply chain and procurement professionals: money laundering, bribery, corruption and diplomatic or economic sanctions.” Yet, as organizations – and their supplier networks – become more global, these considerations pose a tremendous financial and reputational threat.

Let’s Talk Sanctions and Regulatory Compliance

You hear about sanctions in the news quite often. Just in the last few weeks, in fact, sanctions against Cuba and Iran have dominated headlines as the current U.S. administration considers easing its regulations in the light of changing relationships with these countries. The list of sanctions regimes, however is much longer and more complicated than just these two nations.

  • Sanctions are intended to change practices considered violations of international law, human rights or other policies that go against democratic principles.
  • Sanctions are leveled against whole countries, specific organizations or even individuals, also known as Politically Exposed Persons or PEPs.
  • Sanctions are coercive or restrictive in nature and may include travel bans, as is the case with Cuba, along with asset freezes, trade embargoes and more.

Governments publish lists of sanctions, which adds to the complexity of managing risk because you must verify against fragmented sources of information including U.N Security Council Sanctions Committees, the U.S. Office of Foreign Assets Control (OFAC), the European Union’s Common Foreign and Security Policy (CFSP), and the U.K. HM Treasury. OFAC alone has 28 sanctions programs covering everything from rough diamond trade and cyber-related sanctions to sanctions in response to on-going conflicts around the world.  How can you ensure that your organization – and the suppliers you rely on – rigorously adhere to sanctions?

Without Enhanced Due Diligence, You Pay the Price

During the Webinar, Mark pointed out that while financial services organizations have been the primary target of enforcement actions, agencies like the U.S. Department of Justice (DOJ) are stepping up their actions against corporate entities.

  • In 2014, Dutch aerospace company Fokker accepted a deferred prosecution agreement and $21 million fine for violating trade sanctions by selling U.S. manufactured goods to Iran, Sudan and Burma.
  • Just this year, oil service company Schlumberger pled guilty and agreed to pay a $232 million fine for similarly violating trade sanctions.

The cost goes beyond fines. Most deferred prosecution agreements (DPAs) and non-prosecution agreements (NPAs) come with other costly strings attached-from probation, restrictions on operations in certain countries, more rigorous regulatory compliance reporting and independent audits for sanctions compliance. Plus, organizations face untold reputational damage.

Are you ready to manage supplier risk wherever it may occur?

3 Ways to Apply This Information Now

  1. An enhanced due-diligence process in place can help you protect against supplier risk given the more aggressive sanctions compliance taking place today. Check out our solution.
  2. Check out the ISM Webinar “Mitigating Risks and Impact of Sanctions Regimes on Your Supply Chain” to dive deeper into the topic.
  3.  Share this blog on LinkedIn to keep the dialogue going with your colleagues and contacts. 

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