The 5 steps of sanctions list screening

What is a sanctions list check?

Sanctions list screening has been in place since the beginning of the Russia's war against Ukraine They're on everyone's lips. These so-called sanctions have been imposed for several decades as a means of combating legal violations.

There are now numerous sanctions lists. Sanctions lists are directories that include individuals, companies, and even assets against which economic or legal measures have been imposed.

Checking such sanctions lists is now mandatory for almost every company – failure to comply can result in heavy penalties.

Who is required to conduct a sanctions list check?

Every company based in the EU must comply with the provisions of the EU regulation and the Foreign Trade and Payments Act (AWG) Conduct a sanctions list check. This applies both when establishing a business relationship and during ongoing business operations.

In detail, this means: Whether customers, business partners or suppliers – as a company you must be sure that all of them are not on a sanctions list.

Which sanctions lists should be checked?

If you only do business in Germany – that is, with business partners based in Germany – then an audit is required. German and EU sanctions lists relevant.

As soon as your business becomes more international, you must also be aware of the relevant sanctions lists of the respective countries. Therefore, check whether the name of your customer or business partner appears on any of these lists.

The indirect prohibition on provision

While it's seemingly straightforward to check the name and address of individuals against a sanctions list, this becomes significantly more complex with legal entities. This is because you not only have to check the company name, but also identify the legal owner(s) and verify their compliance with sanctions lists.

For example: Let's say you do business with a foreign supplier of packaging materials. The company itself is not on the sanctions list; paper goods are also permitted. However, a Russian oligarch owns 50% of the company's shares. With this 50% stake, he has significant economic influence over the company and profits from its success. He is the so-called "Economically justified“ of the company.

He is now on the EU sanctions list as an individual. Even if the company itself is not on the list, doing business with the paper company is prohibited in this case. This is known as the "indirect prohibition on making goods available." This must be taken into account when checking against sanctions lists.

Tip: Beneficial owners can be with KYCnow at the touch of a button investigate – and digitally check against 1.200 blacklists, watchlists, PeP lists and sanctions lists.

Sanctions – a definition

We now know what a sanctions list check is and who is required to undergo one. But what does it actually mean to be on such a list?

To understand this, let's first look at the concept of sanctions. This encompasses various measures that can be implemented by organizations or states. These measures aim to combat violations of international law, human rights abuses, the development of weapons of mass destruction, or terrorism.

These measures include, for example, trade embargoes, financial controls, or travel bans. Their aim is to bring about a change in behavior among the sanctioned individuals, companies, or states.

The success of sanctions is controversial; in the past there have been many examples where this "peaceful" form of punishment did not achieve the desired goal.

Current: Measures in the context of the Ukraine war

The current example of sanctions is Russia's war against Ukraine, which began in February 2022.

As of September 2023, the European Union already has 11 (!) sanctions packages. [1]decided. Each package brought more restrictions on Russia as a state, on individuals, and on Russian companies.

Assets of individuals, banks and companies were frozen, and travel bans were imposed on, among others, Putin, Prigozhin and Lavror.

Furthermore, Russian banks have been excluded from the SWIFT network. There is an import ban on Russian oil and coal and an export ban on luxury goods to Russia. A clear overview of the measures adopted can be found [here/on the website]. here.

Beware of sanctions – avoid fines

The fact is: sanctions are in place and will continue to be highly relevant in day-to-day business as an economic tool. Therefore, ongoing processes and audits must be integrated into company operations to meet the requirements in the long term and thus avoid fines.

In the following, we will look at the exact procedure of a sanctions list check as well as technical options for support.

Sanctions list screening process

For the sanctions to be enforced and achieve their objective, all economic operators must cooperate by observing and implementing the numerous measures. Which brings us back to the sanctions list screening process. This process essentially involves five key steps.

1. Who needs to be tested?

The first step is to identify the target group to be audited. This includes all natural and legal persons with whom you have a business relationship:

• Customers
• Contracting parties
• Employees
• Supply chains
• Traders
• Suppliers
• Carriers

You will need basic information from these individuals and companies – such as name and address.

2. Identify relevant sanctions lists

The next step is to determine which sanctions lists are relevant to your business. Sanctions lists exist at both the national and international levels. The problem is that there is no comprehensive overview of all sanctions lists worldwide.

Therefore, detailed research is required. Which country does the person/company come from? And which sanctions lists apply in this case?

3. Check business partners against sanctions lists

Once you have identified the relevant lists, the check can begin. In the third step, you compare the name and address with all necessary sanctions lists. Don't forget: The beneficial owners must also be checked – keyword: indirect prohibition of provision.

A sanctions list check must be carried out at the outset of any business relationship. However, you must also check your existing customer base regularly. This is because you only have two days to implement changes to a sanctions list after a company has been added.

This requires an ongoing process – ideally with the support of a automated tools for sanctions list matching.

4. Document results

Once your sanctions list check has been completed and all names have been verified, you must document the results. Be sure to also note the date of the check to ensure you can understand the legal situation in effect at that time.

Comprehensive documentation is very important. Firstly, so that you can refer to it internally at a later date. Secondly, in case of an external audit, this provides proof that you have fulfilled your obligations.

5. Take action

Have you been flagged on a sanctions list? In this case, you must act extremely quickly. The first step is to freeze all business dealings with the individuals or companies in question.

Then it is necessary to coordinate the next steps with the relevant internal departments and external authorities.

Automating sanctions list screening

Identifying the customer and partner base, including beneficial owners, and identifying all relevant sanctions lists – ideally on a daily basis – is virtually impossible without technical support.

To help you comply with your obligations and avoid fines, we developed KYCnow. With KYCnow, you receive the information at the touch of a button. Master data on 68 million natural persons and 380 million legal entities.

With KYCnow, you can also identify beneficial owners and check against sanctions lists in just a few seconds.

We would be happy to introduce you to KYCnow without obligation. Book your free demo appointment now and see for yourself.

Sources

[1] Ukraine war: Tenth sanctions package against Russia | German Federal Government

Photo credit: Photo by Scott Graham on Unsplash