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Sanctions Surveillance: Due Diligence & 9 Other Crucial Steps to Help Prevent Costly Sanctions Breaches

April 23, 2021

The first quarter of 2021 isn’t even on the books, yet the Office of Foreign Assets Control (OFAC) has already announced three settlements totalling $10,095,875 for apparent sanctions violations. During a speech in early March, OFAC Director Andrea Gacki talked about sanction priorities and shared OFAC’s expectations and recommendations for mitigating compliance risk, including the importance of due diligence.

Take the “Xinjiang Supply Chain Business Advisory” issued last July. It recommended that companies with potential supply chain exposure to Xinjiang “to consider the reputational, economic, and legal risks of involvement with entities that engage in human rights abuses in Xinjiang, such as forced labor.” Referring to the Advisory, Director Gacki said, “Companies conducting business in Xinjiang, or would otherwise be exposed to XPCC, should conduct risk-based due diligence and institute appropriate controls to ensure they are not engaging in prohibited transactions.” Of course, due diligence is just one piece in the complex compliance puzzle that companies face in view of constantly changing sanctions regimes.

Best practices for mitigating sanctions risk

Sanctions involve a wide range of measures—from asset freezes to trade embargoes—to exact pressure on individuals, organizations, and nation states to meet international and national standards of conduct. What’s more, the number of sanctions regimes continues to grow, further complicating on-going risk management.

The costs of inadequate sanctions screenings are significant, including potential reputational damage, substantial fines, and exclusion from future business contracts.

How to create an effective sanction screening process

Keeping a constant eye on sanctions, watchlists, politically exposed persons (PEPs), and state owned enterprises (SOEs) demands a proactive approach. Here are 10 best practices to follow when implementing sanction checks:

  1. Take a top-down approach by building a culture of compliance from the Board and C-suite to managers and employees.
  2. Maintain up-to-date policies and procedures that evolve with the entire sanctions environment, from UN Security Council sanctions to those implemented by the United States.
  3. Clearly communicate these policies and procedures to employees and any third parties operating on behalf of your organization.
  4. Actively train employees and third-party agents to ensure they understand sanctions compliance obligations, as well as how to recognize and address sanctions compliance.
  5. Implement a risk-based sanction screening process tailored to the specific nature, size, and risk of your business operations.
  6. Align sanction screening to third-party due diligence procedures including consistent, sanction, watch list and PEP checks during due diligence.
  7. Ensure procedures include escalation contacts, both for sanction enquiries and violation reporting.
  8. Implement ongoing third party risk monitoring across sanctions, watchlists, blacklists, PEPs and SOEs, as well as adverse news and company financial data to stay alert to emerging threats.
  9. Audit and regularly review sanction screening policies, procedures, and training to ensure your processes keep pace with change.
  10. Reinforce policies and procedures with independent audits and testing.

Want more details on these critical steps?  Download the factsheet.

Don’t wait for an enforcement action to put these best practices in place. Arrange a free trial of Nexis Diligence™ to see how it enables sanctions due diligence and more!