Sanctions Guide: Compliance Essentials

In the intricate web of international business and trade, sanctions emerge as critical tools wielded by governments and international bodies to influence foreign policy, punish non-compliance, and maintain global security.

Sanctions are punitive measures, legislated and enforced to restrict or entirely halt certain types of interactions and transactions with targeted countries, entities, or individuals. These measures serve as a non-military strategy to address international concerns, such as human rights abuses, terrorism, and nuclear proliferation.

The imposition of sanctions reflects a collective endeavour to uphold international norms and safeguard economic and geopolitical stability.

When an individual or a wider institution fails to comply with laws or regulations, penalties (referred to as sanctions) may be imposed on them. This can happen in any jurisdiction, and depending on the nature of the sanction it can impact an individual or institution’s ability to engage in business transactions.

Sanction searches allow organisations to protect themselves from working with persons or institutions who are prohibited from specific activities and transactions. The reasons for their sanctioning can vary wildly, from political issues to financial and economic disputes between different countries.

What are Sanctions?

In order to stop people and/or institutions from engaging in certain industries, sanctions are imposed. They are often meted out in the wake of the involved parties engaging in, or being suspected of engaging in, illegal activities. Both government entities and certain financial institutions have the authority to issue a sanctions list.

In addition to sanctions, an individual in a prominent public position – such as a law enforcement official or a senior government member – may be more vulnerable to criminal influence like corruption and bribery. In these instances, they are referred to as politically exposed persons (PEPs).

By searching a PEP or sanctions list, organisations can ensure that the people and/or institutions they intend to transact with are not a money laundering risk. That’s why these searches are a key part of any anti money laundering (AML) screening process.

Types of Sanctions

Sanctions manifest in various forms, each tailored to exert pressure in specific areas of a targeted entity's operations. Financial sanctions, trade sanctions, and diplomatic sanctions are the primary types employed to achieve policy objectives. These measures, singularly or combined, aim to coerce compliance with international standards without resorting to armed conflict.

Financial Sanctions

Financial sanctions are pivotal in the international community's toolkit for enforcing compliance and security. By limiting access to the global financial system, these sanctions can significantly impact a target's economy.

Examples include blocking transactions with certain individuals, entities, or countries and restricting access to financial markets and services. The objective is to pressure entities into altering behaviours that are deemed a threat to international peace and security.

Trade Sanctions

Trade sanctions operate by restricting a country's ability to import or export goods and services. These can be comprehensive, affecting all trade, or selective, targeting specific industries like arms, oil, and technology. The intent is to weaken the target's economy and diminish its ability to fund activities contrary to the sanctioning body's policies or values.

Diplomatic Sanctions

Diplomatic sanctions involve reducing or completely cutting off diplomatic ties with a country. This could mean recalling diplomats, expelling the target country's diplomats, or restricting participation in international organisations and events. Such sanctions serve as a form of political isolation, signalling disapproval and attempting to coerce change by limiting the target's international engagement.

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Implementing Sanctions Compliance

For organisations operating across borders, establishing a robust sanctions compliance program is paramount. This program should include clear policies and procedures, comprehensive screening and due diligence processes, and considerations for cybersecurity to mitigate the risk of breaches and unauthorised data access.

Policies & Procedures

The foundation of an effective compliance program lies in the development of clear policies and procedures. These guidelines should reflect the latest regulatory requirements and best practices, providing a roadmap for identifying, managing, and mitigating sanctions-related risks.

Screening & Due Diligence

Thorough screening and due diligence are critical components of sanctions compliance. Organisations must vet their customers, partners, and transactions against global sanctions lists to ensure they are not inadvertently facilitating prohibited activities. This process involves continuous monitoring and updating of information to reflect changes in sanctions regimes.

Cybersecurity & Sanctions

Cybersecurity also plays a crucial role in sanctions compliance, safeguarding sensitive data against unauthorised access and ensuring the integrity of compliance-related processes. Robust cybersecurity measures help prevent breaches that could expose organisations to regulatory penalties and reputational damage.

Key Sanctions Regimes

Globally, several key sanctions regimes wield significant influence, including those imposed by the United States, the European Union, The UK, and the United Nations. Each regime has its objectives, targeting specific countries, entities, or individuals with measures designed to address threats to international peace, security, and human rights.

US Sanctions

The United States employs a comprehensive sanctions program, administered by the Office of Foreign Assets Control (OFAC). These sanctions target a wide range of activities, including terrorism, narcotics trafficking, and actions that threaten national security.

EU Sanctions

The European Union's sanctions policy focuses on promoting international peace and security, preventing conflicts, and responding to emerging global threats. EU sanctions are applied as part of its Common Foreign and Security Policy (CFSP).

UK Sanctions

Following its departure from the European Union, the United Kingdom has established its sanctions regime, underpinned by the Sanctions and Anti-Money Laundering Act 2018 (SAMLA). This framework allows the UK to implement and manage its sanctions independently, targeting a range of issues from human rights abuses to counter-terrorism. Specific measures in place include asset freezes, travel bans, and trade restrictions against individuals, entities, and countries.

UN Sanctions

United Nations sanctions are implemented to support international peace and security efforts. These measures are decided by the UN Security Council and can include arms embargoes, travel bans, and financial restrictions aimed at both state and non-state actors.

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Sanctions & KYC

The relationship between sanctions compliance and KYC is integral to the effective management of financial crime risk. KYC processes enable organisations to verify the identity of their clients and assess their risk profiles, including exposure to sanctions. By integrating sanctions screening into KYC protocols, businesses can more effectively identify and mitigate potential compliance risks.

Sanctions Compliance Challenges

Businesses face numerous challenges in maintaining sanctions compliance, particularly when operating in multiple jurisdictions with varying regulatory requirements. Navigating global compliance demands a deep understanding of the diverse sanctions regimes and the ability to adapt to their evolving nature. The dynamic landscape of international relations further complicates compliance efforts, requiring continuous vigilance and adaptation.

What is a Sanctions List Search?

When a financial sanction is enacted, it applies to all types of transactions and there is no minimum financial limit. These financial sanctions are designed to stop organisations from putting themselves at risk by transacting with a sanction-listed individual or institution.

With a sanction search tool, organisations can check against publications across the region – e.g. the United Kingdom or the European Union – to find PEPs, high-risk individuals and other sanctioned persons who are listed.

Depending on the platform you use for your sanctions screening, this is an easy way to reduce the time and effort required to perform detailed sanctions checks against listed targets.

International Sanction List

International sanction lists are a consolidated list of individuals and institutions who have been sanctioned by different authorities around the world, including but not limited to the United States, European Union, United Kingdom, Dutch Authority for the Financial Markets and the United Nations.

When a sanction search is conducted, an organisation will be able to see whether a prospective employee or potential business partner appears on a jurisdiction’s sanctions list of convicted persons and/or institutions. This information is collected from daily publications produced by a variety of financial and regulatory authorities from around the world. Additional consultation is also provided by major anti-corruption organisations such as Interpol and the FBI.

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Benefits of Using a Sanctions List Checker

Searching for potentially compromised individuals and institutions via a sanctions list checker allows organisations to screen potential employees and business partners against up-to-date sanctions lists on an ongoing basis. The ultimate goal of using this tool is that your organisation is protected and you won’t be in breach. Here are some of the biggest benefits:

• Time-saving: Less time spent screening targets through traditional processes.
• Easy to use: Sanctions search platforms are user-friendly and don’t require complex configuration.
• Cost effective: By using a single platform, your overall screening costs are reduced and dependent only on your usage.
• Protected data: Sensitive client data is stored securely to ensure the protection of your information. Know your customer (KYC) policies and procedures should also be followed here.

Risks of Failing to Screen for Sanctions

For organisations that fail to screen for sanctioned individuals and institutions when conducting AML checks, they run the risk of transacting with listed people and/or organisations who have engaged in – or are suspected to have engaged in – criminal financial activities. Depending on your jurisdiction, if you are found to be transacting with someone on a sanctions list then you may be liable to pay a significant fine, or worse, face a prison sentence.