Relevant Sanctioning Bodies For Your Business
The first step to compliance is to determine which sanctioning bodies are active in the countries they operate in and the countries of the partnerships, trade deals and alliances they’ve entered into. In the United Kingdom, you need to consult the Office for Finacial Sanctions Implementation, also known as OFSI. In the US, you need to consult the lists issued by the US Office of Foreign Assets Control (OFAC). If you are an EU citizen or a corporate entity constituted in a member state, you have to keep abreast of the EU Consolidated List of Sanctions, and if you reside in a country that belongs to the United Nations, you must comply with the UN Sanctions list. (This article will focus on the UK Sanctions Regime.)
The UK Sanctions Regime
The UK sanctions regime applies to persons and entities where the UK government has imposed sanctions unilaterally or when they have implemented sanctions imposed by the United Nations, per the Sanctions and Anti-Money Laundering Act. This regime imposes serious and extensive restrictions that prohibit or restrict dealing with designated persons (i.e. individuals appearing on sanctions lists). The law restricts businesses and individuals from:
- dealing with the economic resources of designated people;
- receiving payment from or making funds available to persons on the sanctions list
- making payments to designated persons, irrespectively of whether or not these payments are legitimate in nature.
No business may intentionally participate in activities that would either directly or indirectly circumvent these restrictions or facilitate or otherwise enable the commission of any of these offenses.
Bear in mind that the Economic Crime (Transparency and Enforcement) Act has removed the knowledge test from sanctions breach offenses; a breach offense will be committed regardless of whether or not a person had a reasonable suspicion that they were dealing with a frozen asset. Frozen assets and any suspected breaches must be reported to OFSI. Non-voluntary breach disclosures carry significant monetary penalties.
If a business is unsure of how to proceed with a client or wants to proceed with a sanctioned client, it will need to apply for a special license from OFSI before proceeding. While this license is pending, the business will need to suspend the transaction and consider whether or not a suspicion of terrorist financing or money laundering exists that requires reporting to the National Crime Agency (NCA). The sanctions regime applies in addition to regular reporting obligations related to anti-money laundering and counter-terrorist financing legislation. For example, a business may wish to apply enhanced due diligence measures when dealing with an entity from a high-risk country, even if they do not appear on a sanctions list.
Checking Clients Against Sanctions Lists
Businesses should adopt a risk-based approach to checking clients (both new and existing) against sanctions lists. Some clients may pose a higher risk and require enhanced due diligence checks, especially:
- clients linked to jurisdictions subject to sanctions (even if they reside locally)
- clients/transactions involving politically exposed persons (PEPs) from jurisdictions subject to sanctions
- clients/transactions involving complex corporate structures in jurisdictions with high terrorist financing risks
- clients who seem unable to receive funds or transact from a bank account in their name, with no apparent reason
If a business has a generally low risk of working for clients on the sanctions list but does work with clients with higher risks individually, a manual check against the Consolidated Sanctions List should suffice. However, to rule out any possibility of falling foul of sanctions, it’s best to use a software solution to perform these checks, especially if your business is at a higher risk of encountering clients on a sanctions list.
If a client does appear as a possible sanctions match, it’s important to review all of their identity information against the information on the sanctions list, including their name, date of birth, address, passport numbers and other information. Businesses may wish to request additional information if they are unsure whether or not they are a match.
Sanctions lists that businesses may want to consult include the HM Treasury’s consolidated list, the UK financial sanctions targets by the regime, the EU sanctions list and EU regimes sanctions list, UN sanctions list and US sanctions lists. It’s also a good idea to review high-risk jurisdiction lists, including the European Commission list of high-risk third countries, the FATF list of monitored jurisdictions and the Transparency International corruption perceptions index.
Manual checks can be time-consuming and prone to errors and false positives that take up resources to verify. To remain fully compliant with ease, speak to our sanctions.io team and learn about how we can help you with your Sanctions compliance by utilizing our leading Sanctions screening solution. With sanctions.io you not only have access to global sanctions lists but also to our AI-based name matching technology which helps to reduce significantly false positives while making sure no real matches slip through the cracks. Learn more here.