Reducing Trade Risks with Screening Programs

Marc Roy


February 3, 2020

Between the e-commerce boom and the current trade wars, companies face growing challenges around compliance with government regulations and requirements. A highly fluid sanctions landscape, tightening restrictions on trade partners, and the frequency of denied party screening updates have left many in need of new strategies, technologies and processes to mitigate business risk.

While some have made concerted efforts to address denied party screening practices, others are either unaware of their importance or believe their organizations are exempt from the conversation—a fairly common misconception plaguing companies today. Regardless of industry or size, a business that does not review with whom it is conducting business (whether it is selling goods and/or services) prior to an import, export or financial transaction is exposing itself to a greater risk of transacting business with denied or restricted entities and the potential for major penalties. These include substantial fines, suspension or loss of export privileges, criminal charges, and even jail time.

For example, in 2018, French bank Société Générale agreed to a $53 million settlement with the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) for violating U.S sanctions against doing business with foreign entities in Cuba, Iran and Sudan. Similarly, PanAmerican Seed Co. reached a $4.3 million settlement with the Treasury Department in 2016 for violating export compliance regulations by exporting flower seeds to Iranian distributors.

To mitigate risk, it is critical for companies to take proper precautions to ensure they are not violating any trade restrictions. Relying on manual efforts to accomplish this is no longer a viable option for most companies, given increasingly complex supply chain relationships, exploding delivery volumes and the need for faster transactions, not to mention the potential for human errors that can cause a ripple effect throughout the entire organization.

Instead, technology solutions and new tactics can help bolster a company’s ability to remain compliant under strict government scrutiny and provide the right insights into where, when and with whom to conduct trade. In fact, many organizations that violated sanctions programs administered by government agencies like OFAC and the Securities and Exchange Commission have had their fines and other penalties significantly reduced because of a pledge to enact a denied party screening program, or enhance their existing governance, risk and compliance processes.

Here are four important sanctions programs to consider as part of a governance, risk and compliance strategy:

  1. OFAC Screening

Since OFAC enforces economic and trade sanctions against targeted countries, some organizations have implemented OFAC screening software to help maintain compliance year-round. These solutions allow access to international and regulatory sanction watch lists administered by the U.S. Department of Treasury on a daily basis, so companies can cross-reference which organizations are eligible for trade. As a result, companies of all sizes and in all industries can reduce the risk of violations associated with sanctioned individuals, parties and embargoed countries.

  1. Sanctioned Party Ownership Screening

It is also pertinent for companies to be fully informed about the partners with which they currently conduct business. This is especially the case if the ownership of these partners by entities on OFAC lists (including the sectoral sanctions list pertaining to Russia and Ukraine) and EU sanctions lists meets or exceeds prescribed percentage limits, as set out by U.S., European or other government bodies. This helps ensure compliance with the law and protects their assets from potential damage. By screening, companies can reduce the risks related to improper business interactions and dealings, be better equipped to stay compliant with current regulations, and avoid potentially hefty penalties.

  1. Politically Exposed Persons Searches

While the implementation of the Foreign Corrupt Practices Act (FCPA) has helped to reduce the bribery of foreign officials to facilitate a U.S. company’s acquisition of business contacts or contracts, companies must remain vigilant in identifying politically exposed persons (PEP). These are usually current or former officials affiliated with foreign political parties, or individuals associated with corporations owned or operated by a foreign government. PEPs may also be family members or others with whom the individual in question is personally or professionally close. To help organizations steer clear of these individuals, sophisticated PEP search capabilities can better identify the status of current and potential customers and help avoid impropriety.

  1. Adverse Media Research

Even though organizations might be familiar with potential business partners, they sometimes overlook the opportunity to dig deeper into publicly available information to better understand the current status or reputation of a given company. Tools that facilitate advanced media searches for negative news coverage can be helpful. Especially given the important influence social media can have on a business’s bottom line, news can have such a powerful impact on decision-making processes. Companies can leverage the search tool to build greater awareness about organizations that might be in hot water elsewhere, then make an informed decision as to whether a potential customer matches their strategic goals or values.

While remaining compliant with shifting government and trade regulations can pose many challenges, companies that routinely screen every transaction for the multitude of denied, restricted and sanctioned parties can find themselves ahead of the compliance curve. By developing thoughtful compliance strategies, organizations can minimize their exposure to sanctioned countries and denied parties, and ensure that they are both transparent and successful.

Marc Roy is vice president and general manager of compliance solutions at Descartes Systems Group.
Marc Roy is vice president and general manager of compliance solutions at Descartes Systems Group.