Navigating the challenges of global sanctions screening isn’t a walk in the park. It is a marathon, not a sprint. It is not easy; you need to train all year round, and you still aren’t sure you can complete it when it is time. Besides, the floor is lava! The rules keep changing, making it more complex than ever to abide by the sanctions check mandated by the regulatory authorities. However, if only it could be an option as running a marathon. Abiding by a sanctions check is mandatory, and businesses can be penalized for being in violation.
The bright side is complying with global sanctions screening doesn’t have to be overwhelming and complicated. With the right tools and information, companies can be on the right side of regulatory screenings and don’t have to cave under pressure.
In this article, we will explore global sanctions screening, its importance, challenges, and ways to build an effective global sanctions screening strategy customized to your business needs.
Global Sanctions Screening: An Introduction
Firstly, let’s understand what sanctions are. Sanctions are penalties and restrictions imposed by a government, regulatory authorities on other countries, and PEPs such as diplomats, government officials, and influential citizens. Sanctions screening is mandatory to counter money laundering and terrorist financing. Not following the sanctions protocol can lead to several criminal and civil penalties.
When strategically applied via businesses, these can be a way to curb financial fraud and crimes by preventing money laundering, terrorist financing, and horrendous crimes like child trafficking. These are also political means or an aspect of foreign policy tools to pressure a country’s leadership to sit up, take notice, and comply with international regulations if it is found to be abetting such an offense. While sanctions can come in handy in such conflicts, it is important to note that most political sanctions are temporary. Once a country fulfills the expectations of the regulatory authorities or a desired political result is achieved, the sanctions are lifted, and all is well in the geo-political realm.
Global sanctions screening by businesses is on a broader and more complex level. Companies must run and scan their new and older customers for sanctions regularly and at different stages of the customer life cycle as mandated by the international authorities. These sanctions can be imposed on certain refugees emigrating from troubled, conflicted nations, businesses with a shady past or financial history, and PEPs associated with illicit trades or war crimes.
Checking customers’ names and identifying such risk-prone entities against the global sanction list is called screening. Failing to do so can attract heavy fines and risk negative media exposure.
The sanctions list is regulated and maintained by top international bodies. Some of them are- The European Union External Action Service (EU EEAS), His Majesty’s Treasure (HMT), The Office of Foreign Assets Control (OFAC) and The United Nations Security Council. While the former two bodies govern rules for European and UK jurisdiction, the latter two carry a consolidated and comprehensive list of economic, political, and trade sanctions for business entities, politically exposed persons, and countries irrespective of location. It applies to all and everyone.
And while it may all seem straightforward, it isn’t. Regulatory authorities and governments have difficulties reaching a consensus and aligning all the sanctions. And no wonder it has resulted in never-ending confusion, complacency, and backsliding of sanctions screening in financial firms that ought to be more compliant than ever today.
Global Sanctions Screening Challenges Faced by Businesses
While economic and trade sanctions aren’t new to businesses, there has been a paradigm shift in their compliance and expectations of the regulatory authorities while the gap between them is widening. Despite heavy fines and negative media publicity and sentiments, businesses struggle to have robust and practical strategies to identify and counter sanction risk.
Here are a few challenges that businesses find themselves in when complying with global sanctions screening:
The ever-increasing scope of sanctions requirement:
There is a wide range of targets and countless authorities of different countries, and there is only a limit to what a business can follow. The watchlist keeps getting bigger and bigger, whereas the understanding is still elementary.
In a never-before coordinated and collaborated action by Canada, the US, the UK, and the EU, sanctions were imposed on China for its inhumane treatment of the Uyghurs. In the EU, such a sanction is imposed under the new Global Human Rights Sanctions (GHRS), which also saw sanctions imposed on Russia during the Ukraine war and unrest and on Libya for enforced disappearances and extrajudicial killings. The GHRS sanctions mean travel restrictions, trade restrictions, and asset freezing. These sanctions otherwise are known as Global Human Rights Sanctions in the UK and Canada.
The governments may have a different viewpoint on sanctions as well. The Biden government wants an amendment to lift the sanctions imposed on Iran that the then-Trump government supported. After Brexit, the UK also takes a different standpoint on a few aspects of the global sanctions list. It has listed autonomous sanctions on four Zimbabwe security chiefs for violation of human rights.
Apart from such deviations, general licenses are issued by the authorities to businesses to conduct activities with the entities despite sanctions. A specific license is required for each instance in case of frozen assets, but there is a provision of a general license that gives relaxation in various cases. The US and the UK regimes issue general licenses as of now.
These are only a few instances that showcase the complexity and extent of the global sanctions list. Besides, it becomes unmanageable when it comes to a banking, real estate, or mortgage business. The banks must deal with unnumerable sanctions based on the country they operate within- requiring unmatchable expertise and technical prowess.
Changes and updates to the global sanctions list at lightning speed don’t help either. However, this doesn’t mean businesses have it easier and can cite it as a loophole. The regulatory bodies are stricter than ever, and if there is a wave of fresh sanctions every day, companies have been paying a tsunami of fines for non-compliance. There is tremendous pressure on institutions and businesses to stay updated with the global sanctions screening norms.
Sanctions just don’t mean trade restrictions:
Governance, humans, and business disruption become collateral damage when a trade sanction is placed on a country. An array of global sanctions was placed on Russia during the Russia-Ukraine conflict, which led to a reduction in foreign investments in the country, inflation, and a budget deficit in areas like education and healthcare. Similarly, it is speculated that G7 countries would likely implement such economic sanctions on China in the event the Taiwan crisis deepens. If only it were that easy. China’s economy is the second biggest in the world, ten times Russia’s. Its place in the global economy and supply chain can’t be undermined. Also, placing trade sanctions on China would mean disrupting global value chains, resulting in $3 trillion worth of losses in trade, equivalent to the GDP of the UK.
Meanwhile, the UK is still figuring out how to build its supply chain after trade between Britain and the EU is non-existent. The UK border control is now in full effect after Brexit, and as a result, the freight rates are astronomical, and trade agreements are suffering due to bureaucratic delays.
Sanctions are a part of ESG:
Now, we also know that it is not just money that is being circulated surreptitiously. It also has other repercussions, especially when it comes to human lives and sometimes children’s. In this charged atmosphere, ESG is no longer a buzzword. Customers hold businesses accountable for their stance towards Environmental, Social, and Governance standards. The stakes are high, and nothing should be an excuse for non-compliance.
What next?
Businesses need to understand that they can’t be risk-aversed or completely compliant. Sanctions may have many repercussions regarding disruption and human lives, which might be out of a business’s control. However, it absolutely doesn’t mean that they can cost a business its justified growth and expansion. Abiding by a global sanctions screening implies that a business has proper sanctions checks in place and complies with the regulations. A business shouldn’t abet the financial crime or flout the regulations. That’s all. As long as a business does that, it can stay ahead of the regulatory challenges while flourishing and pursuing its goals.
The best strategy is to manage it effectively. Given the geopolitical conflicts, borderless banking, cash-free transactions, the rise of cryptocurrency, and how the regulatory authorities are still coming to the terms of its scope, it is imperative that the global sanctions list is followed and cross-referenced.
Complying with the global sanctions check in-house is a mammoth task, and the in-house team may not be prepared, equipped, or trained to handle it effectively. Instead, experts at the Sanctions Database can help you deal with the global sanctions screening effectively.
Implementing Effective Sanctions Compliance with Sanctions Database
The landscape of global sanctions screening has become more complex to navigate, and the need to stay compliant with it is more relevant than ever. Sanctions Database is here to help you with the latter. Here’s how:
A Targeted Framework for Risk Assessment
The Sanctions Database team understands all businesses are different, and a one-size-fits-all sanctions check can’t be the answer to the screening requirements it needs to stay compliant. The first step is understanding your business and coming up with a robust strategy to address the challenge and effectively bridge the gap between them. The team identifies the threats and operational loopholes to come up with a plan to address them by running regular risk assessments. The Sanctions Database data screening team ensures customer screening is completed at various stages and regularly. Early sanctions screening is facilitated for new customers without delaying the onboarding process or services.
Leveraging Technology and AI to Improve Compliance
It is impossible to manually counter the depth and complexity of the global sanctions list. Technology comes to the rescue to establish a process and perform stringent regular sanctions checks. Sanctions Database’s global sanction scanner drives automation for business operations and improves sanction compliance. Countless data and documents are cross-checked, investigated, reviewed, and analyzed against the global sanctions list and with accuracy. While it can be complex and complicated to cross-check and reference different sanctions lists provided by different regulatory bodies across multiple jurisdictions simultaneously, it is a non-issue with the Sanctions Database global sanction scanner. This also reduces the risk of misidentification due to false positives and fuzzy name matching, proving to be a reliable tool for global sanctions screening. It has a transliteration feature that reduces the possibility of matching a similar-sounding name within the database.
Optimize Operational Costs and Workforce
The employees work better knowing their efforts and time are spent on their core expertise and not filtering through heaps of complex and varied data. Since businesses don’t have to hire extra resources, and the entire process is automated because of the Sanctions Database’s global sanctions scanner, the operational costs are reduced, and this money can be used to expand the business.
Sanctions Database’s efficient global sanctions screening approach, coupled with the expertise of its team, can improve and enhance your company’s compliance with global sanctions screening. So, what are you waiting for? Contact Sanctions Database now!