Certain crimes and other activities by individuals, governments, or other organizations can present grave risks to countries – if not the international community. A common way of deterring these behaviors is to impose sanctions: restrictions aimed at depriving bad actors of the means or will to continue their illicit conduct.
To increase the impact of sanctions, national and international regulatory bodies create and enforce sanctions lists. These public documents require (or at least encourage) people and companies to add to the pressure on sanctioned entities by refusing to do business with them.
So exactly what is a sanctions list? What are some examples of organizations that create and enforce them? What kinds of activities could land a person, company, or other group on one? And most importantly: why do businesses need to stay compliant with sanctions lists, and how can they effectively do so?
This piece will discuss the answers.
What is a Sanctions List?
A sanctions list is a record of countries, governments, organizations, and individuals that are currently being penalized by a regulatory body. These penalties – or sanctions – typically involve restrictions on trade, financing, diplomatic contact, military capability, or sporting participation.
An entity can be added to a sanction list for engaging in behaviors that are illegal or otherwise dangerous, either in a specific country or the broader global community. These behaviors include:
- Money laundering
- Human trafficking
- Smuggling drugs or weapons
- Aiding the development and spread of weapons of mass destruction
What is the Purpose of Sanctions Lists?
Sanctions lists serve two key purposes. The first is to pressure sanctioned entities to cease their illicit activities. The idea is to subject them to public scrutiny, as well as deprive them of financial and material resources. In doing so, the goal is to make sanctioned entities incapable of or unwilling to continue their misconduct.
The other is to prevent people and companies from having dealings with sanctioned entities, as this would constitute abetting their illegal or dangerous behavior. It would also reflect poorly on the reputation of a person or business getting involved with sanctioned entities.
Who is Subject to Sanctions?
Sanctions can be leveled against countries, governments, groups, or individuals. Entities end up on sanction lists because they break national or international laws, or because they do something else that puts a country or the broader global community at risk.
Who Imposes and Enforces Sanctions Lists?
Sanctions lists can be published by individual countries, regional unions, and international organizations. In most cases, sanctions lists are mandatory to follow. People or organizations caught dealing with entities on legally-binding sanctions lists face criminal penalties, and perhaps also being added to sanctions lists themselves.
Some major regulatory bodies that create and enforce sanctions lists include:
- United Nations Security Council (UNSC) – [International]
- World Bank Office of Suspension and Debarment (OSD) – [International]
- Office of Foreign Assets Control (OFAC) – [United States]
- Global Affairs Canada – [Canada]
- European External Action Service (EEAS) – [European Union]
- Office of Financial Sanctions Implementation (OFSI) – [United Kingdom]
- Department of Foreign Affairs and Trade (DFAT) – [Australia]
- Ministry of Economy, Trade, and Industry (METI) – [Japan]
- Ministry of Commerce (MOFCOM) – [China]
Key Sanctions Lists to Monitor
Some primary sanctions lists a business may need to keep a watch on include the following:
- UNSC Consolidated List [International]: A list of all individuals, groups, and other entities sanctioned by the United Nations.
- World Bank Listing of Ineligible Firms and Individuals [International]: Individuals and companies prohibited from participating in projects funded by the World Bank.
- Specially Designated Nationals (SDN) List [United States]: Individuals, groups, or other entities sanctioned by the US for terrorism, drug trafficking, and other activity posing a threat to US national security, foreign policy, or economic policy.
- Consolidated Sanctions List [United States]: The US’s non-SDN sanctions list for Individuals, groups, or other entities sanctioned for reasons other than those related to the SDN list.
- European Union Consolidated Financial Sanctions List [Europe]: A list of all individuals, groups, and other entities subject to financial sanctions by the European Union.
- UK Sanctions List [United Kingdom]: A list of all individuals, groups, and other entities sanctioned by the United Kingdom.
- Consolidated Canadian Autonomous Sanctions List [Canada]: A list of all individuals, groups, and other entities sanctioned by Canada.
Sanctions List Checks: Maintaining AML Compliance
Money laundering is definitely a crime that will land a person, company, or other organization on a sanctions list. And most lists they get added to will be mandatory ones, making it criminal – not just inadvisable – to do business with them.
So when onboarding a new customer, it’s critical to check sanctions lists to see if the prospective client has been caught – or at least suspected of – laundering money. This is a key part of Customer Due Diligence (CDD), which is one of the main components of Know Your Customer (KYC) identity verification. It helps businesses not only avoid running afoul of the law, but also preserve their reputations by avoiding dealing with shady entities.
How to Stay Compliant with Sanctions Lists
A business must be compliant with several different sanctions lists at once. There is usually some degree of overlap between them, but it’s better for a company to be thorough and not risk ending up with damaged credibility (or even criminal liability). So here are some tips for staying compliant with all applicable sanctions lists at all times.
Find out which lists are relevant to your business
International sanctions lists generally must be followed by everyone. However, some sanctions lists will only apply to a business depending on where it’s headquartered, where it does business, and what industry it’s in. An example is the OFAC sanctions list, which only applies to US-based businesses and people.
Many national and regional sanctions lists tend to match international ones, but not always. So knowing exactly which lists are relevant or not is a first step towards becoming compliant without wasting resources.
Check the extended supply chain
It’s not enough for a business to do a sanctions list search for the specific person, company, or organization it wants to onboard. It’s also important to check the status of entities related to the one under scrutiny, including suppliers, affiliates, and beneficial owners.
Regulatory agencies can still fine businesses for failing to have adequate KYC controls in place if an onboarded client isn’t on a sanctions list, but an associated entity is.
Use tools to automate sanction list searches
Many sanctions lists can be searched manually or have built-in search functions like the OFAC Sanctions List search. But for larger businesses that may onboard hundreds of customers daily, it’s very inefficient to search each applicable list, one at a time, to see if an individual client is on it.
Unit21’s Onboarding Orchestration solution makes it easy for teams to automate this process through rule creation. Unit21 has integrated with an industry-leading set of partners for KYC, account fraud signals, synthetic identity signals, PII risk scoring, sanctions, and PEP screening, along with adverse media reporting.
Conduct ongoing sanctions list and transaction monitoring
Meeting AML regulations isn’t just about screening clients at onboarding. It also means paying attention to existing customers, as circumstances surrounding them may change. They could become involved in money laundering, or end up on a sanctions list for another reason.
That’s why it’s important for a business to have an AML monitoring solution: to make sure it isn’t caught being non-compliant with sanctions lists because it failed to realize an existing customer had been put on one.
Manage Sanctions List Compliance with Unit21
Complying with sanctions lists requires a robust KYC/KYB regimen, as well as AML monitoring capabilities. A business needs to both weed out sanctioned entities during onboarding, as well as cease dealings with existing customers that become sanctioned at a later date.
Also helpful is a compliance management system to keep track of applicable sanctions lists. This includes any changes made to them over time that may require a business to discipline a client or modify its screening procedures. Try a demo of Unit21’s platform to see how it can help your business smooth out its compliance with sanctions lists.