Due diligence you can trust

What is a Sanctions List?

Financial sanctions are given to organisations or individuals suspected or proven to be involved in illegal activities. A sanctions list is designed to prevent illicit crimes, as well as encouraging a change of behaviour and limiting problematic activity from high-risk groups.

Entities that are sanctioned appear on a sanctions list that financial institutions, as well as other organisations, are required to view before they conduct business with a new partner or customer. This ensures that sanctions given to criminal organisations are enforced, as they cannot continue to do business in the UK or the respective country.

Sanctions lists are a compilation of various offenders, including extra details about who they are and what activity they're restricted from engaging in. This means they can include massive amounts of information and are not very user-friendly. Sanctions lists exist all around the world and are a product of each government’s investigations against financial crime as well as international sanction lists. They can include individuals, businesses or entire countries, and in the UK there’s a total of 26 sanctions lists that are implemented by the HM Treasury.

Why are Sanctions Lists Important?

Sanctions lists play an important part in preventing financial crime, and assist law enforcement in minimising illegal activity like money laundering. By conducting a sanction list search, businesses can also avoid involvement with criminal activity.

Not every entity on a sanctions list has directly committed a crime: a UK sanctions list will also capture those who are found to act illegally on behalf of another entity. Financial institutions are required to comply with regulations that involve a sanctions lists check, to assist with anti-money laundering (AML) efforts. Sanctions typically come with major criminal or civil liability and penalties; understanding compliance requirements is crucial to any financial firm's operations.

Who is put on a Sanctions List?

To determine who and what gets put on a sanctions list, either the government passes acts to categorise them or they can come from an international body, such as the United Nations Security Council Resolution.

Internationally, when individuals act against a foreign policy they become what is called a Specially Designated National (SDN) by the Office of Foreign Asset Control (OFAC). When an entity is placed on the OFAC SDN list, they’re effectively restricted from the international marketplace, so as well as national sanctions, this list acts as a worldwide caution.

Generally, sanctions lists are guided by the laws, acts and treaties in place. When a person, firm or country violates these, they become a high-risk entity and move onto the sanctions list. On UK sanctions lists, you can expect to find entities connected to:

• Money laundering activities
• Terrorism funding
• Human, narcotics or weapons trafficking
• Serious human rights violations
• International treaty violations

As financial crimes have severe consequences on the economy and government funding, entities that have committed financial crimes are often prohibited from making financial transactions in the country they're sanctioned in an attempt to increase financial stability.

Financial institutions can search the sanctions list and determine which activity the entity is listed under, if they are an individual or a company and what restrictions they're subject to. Businesses can find the lists directly on the UK government website where they have consolidated options and updated lists.

Finally, sanctions are also used to manage conflict in foreign areas when other means of conflict resolution are inappropriate. Sanctions on foreign financial institutions (subject to trade restrictions) will limit the interaction with the identified parties, and is a non-violent way of encouraging a change of behaviour.

Who Must Comply with Sanctions Measures?

The restrictions to working with entities found on the financial sanctions list apply to all individuals and companies operating in the UK. This means that when conducting business and when considering working with a new customer, institutions must follow sanction compliance to avoid significant fines.

There are some best practice procedures to follow to assist in regularly following the treasury sanction list. Customer due diligence (CDD) and Know Your Customer (KYC) processes are not only helpful tools to ensure you comply: they’re obligatory because they allow you to identify sanctions. These are part of AML and CDD requirements and are carried out during the customer onboarding journey.

During these checks, high-risk customers are identified, and people or firms with sanctions, politically exposed people (PEP) and other regulatory lists are either prohibited or restricted from being onboarded.

Types of UK Financial Sanctions

In the UK, a sanctions list generally falls into two categories.

Asset Freezes

People and companies on the asset freeze sanctions list are temporarily blocked from accessing their assets, as they have not abided by laws and regulations. This also protects the UK and its economy from the risks associated with financial criminals.

Markets and Service Restrictions

This sanctions list enforces restrictions on listed people and organisations from engaging in a broad variety of financial markets and services. This is designed to protect the markets and firms they would otherwise engage with.

Using Sanctions Lists

On paper, sanctions lists are straightforward, but in reality, using them to gather the information needed to comply with AML can be more complicated. It usually involves processing big amounts of data because as well as the names of listed entities, these lists also hold extra information like their geographic location, aliases and illegal activity.

Financial service companies often manage a lot of customers and always have an influx of new ones to onboard. At this high volume, organisations might run into major administration and resource challenges when searching through sanctions lists that they need to overcome.

There are some great tools that businesses can utilise to screen and search these lists and streamline the financial sanctions checklist requirements. However, there are AML compliance requirements that need to be met when using these tools, so these resources must be regularly updated for accuracy and relevance.

Nexis Diligence is designed to efficiently and expertly manage customer due diligence and ensure businesses comply with sanctions lists, as well as any other financial crime prevention needs. To remain a credible competitor, Nexis Diligence complies with the standards set by the Financial Conduct Authority (FCA).