How To Choose Whom You Trade With: A blog detailing how to handle business partners when dealing with sanctions or restricted parties.
In the world of international trade, it is important to consider who you are doing business with, where they are from and what they want to do with the product you send to them. This is important when you deal with sanctions or restricted parties. There may be a government regulation against trading with individuals or entities from certain countries, and in some regions, there may even be a restriction on trade for specific products.
Sanctions regimes can be imposed by a single government (such as the United States), or by multiple governments acting in concert (such as the European Union). They can also be imposed by international organisations such as the United Nations and World Bank.
Sanctions are typically imposed by a government or other international body to prevent certain activities from occurring. Sanctions can include:
Arms embargoes
Asset freezes
Bans on dealing with certain people or companies
Bans on investment in particular sectors
Bans on exports or imports to particular countries
Discover four steps that you can take to prevent sanctions violations by knowing your counterparty.
Step 1: Determine if you are covered by sanctions.
The first step is to determine whether you are covered by the sanctions. The key question is, do you have any business relationship with any of the sanctioned entities?
A first step is to find out if there are sanctions or embargoes against the countries where your business partners are. You are much easier to encounter a banned person or entity in Russia than in Germany, for example. Next, you want to get familiar with sanctions and check your own and destination country's regulations. This will clarify if or not your export is subject to sanctions or not. Some areas you may want to explore are US, EU, UK, UN, Chinese or Russian Sanctions.
Step 2: Adopt the motto “Prevent rather than cure”
Prevention is critical in terms of sanctions compliance.
Regulators all across the world look down on organisations that fail to recognise dangers and take preventative measures to mitigate such risks. Being aware of the obstacles that sanctions compliance provides, being up-to-date on global trends, and predicting future changes are all critical considerations when determining the preventative measures that should be put in place and ensuring that they continue to function effectively.
The implementation of rules and processes, customer screening systems, training, due diligence, transaction monitoring, and transaction screening are all key preventative steps that businesses should consider.
But know this: There is no one-size-fits-all solution for sanctions compliance, and risk assessments should be at the centre of all compliance programmes.
Understanding the sanctions risk posed by your firm and its third parties is the greatest place to start when developing an effective sanctions compliance structure.
Step 3: Adopt sanction-proof internal processes and procedures
Understanding the underlying reasons for apparent sanctions violations is also incredibly beneficial for developing and implementing a successful sanctions compliance programme, as well as determining the preventative steps that may be suitable. Make sure you don’t fall for these traps - fundamental causes of sanctions violations, which include the following:
the absence of a structured penalties compliance programme;
compliance tasks are decentralised, and there is no formal escalation mechanism.
an audit function that is ineffective or unable;
failing to comprehend the scope of punishments;
insufficient punishments screening; and
inadequate customer and third-party due diligence
We help companies achieve export compliance. Contact us for more details.
Step 4: Screen your partners
Speaking of the last bullet point, a due diligence background check will help you evaluate the risks of doing business with a company or person. A thorough background check may reveal that a potential partner has been the subject of legal action or has ties to people or businesses you would prefer not to work with.
We do this by screening against a variety of sanctions and watch lists, including:
U.S. government watch lists (OFAC, BIS, DDTC)
EU and UK sanctions
United Nations sanctions
Also, screen against PEPs (politically exposed persons) and individuals who are connected to them.
This can be done by a specific software that screens against restricted entities; however, you can also do this manually if you have access to the relevant list. No matter if you use software or a manual search, be sure to include both their name and their address. You will also want to check against any aliases or subsidiaries those entities may use.
Takeaway
It is important to know who you are doing business with, where they are from, and what they want to do with the product you send to them. This is especially true when dealing with sanctions and restricted parties.
While due diligence can be time-consuming, it will help you avoid penalties and fines, as well as improve your company's reputation. Government agencies have restrictions on the sale of certain goods or items to certain countries and/or individuals. Due diligence can help prevent exporting these items illegally.
As the world becomes more digitally connected, the need for transparency in business is more important than ever. It's not enough to have an idea of who you are doing business with—you need to know for certain.
That is why at Customs Manager Ltd. we provide a full range of due diligence services and offer sanctions support.
More Reading
Sanctions on Individuals, Entities and Bodies require businesses to know their customers very well. We provide some top tips that you may wish to consider before engaging in a business venture
(FREE) Sanctions make it hard for businesses to trade in certain countries and certain people. But there are steps companies can take to avoid trading with sanctioned persons.
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