know your customer (KYC)

What is a Sanction?

A sanction refers to a punitive measure or penalty imposed on a country, entity, organisation, or individual by governments or international bodies.

What is a Sanction?

A sanction, in the context of international relations and law, refers to a punitive measure or penalty imposed on a country, entity, organisation, or individual by one or more governments or international bodies. Sanctions are used as a tool to influence behaviour, promote compliance with international norms, and address various concerns, such as human rights violations, terrorism, nuclear proliferation, or economic misconduct.

Sanctions can take different forms and may include the following measures:

  1. Economic Sanctions: Economic sanctions involve restrictions on trade, investment, or financial transactions with the targeted entity or country. This can include embargoes, import/export restrictions, prohibitions on certain goods or services, freezing of assets, or restrictions on access to international financial systems.

  2. Arms Embargo: An arms embargo is a specific type of sanction that prohibits the sale, supply, or transfer of weapons and military equipment to the targeted country or entity. It aims to limit the ability of the targeted party to engage in armed conflict or human rights abuses.

  3. Travel Bans and Visa Restrictions: Travel bans and visa restrictions prevent individuals associated with the targeted entity or country from travelling to specific countries or obtaining visas. This measure restricts their international mobility and can isolate them diplomatically.

  4. Asset Freezing and Financial Restrictions: Asset freezing involves the prohibition or restriction of access to funds or assets held by the targeted entity or individual. It aims to prevent them from using financial resources for illicit activities or to exert pressure for compliance with international norms.

  5. Diplomatic Measures: Diplomatic measures can include reducing or suspending diplomatic relations, recalling ambassadors, or expelling diplomats as a means of expressing disapproval or applying pressure on the targeted entity or country.

Sanctions are usually imposed by individual countries or groups of countries, such as the United Nations Security Council, the European Union, or regional organisations. The severity and scope of sanctions can vary, ranging from targeted measures against specific individuals or entities to comprehensive sanctions affecting an entire country's economy.

The purpose of sanctions is to encourage the targeted party to change its behaviour, comply with international norms, or resolve disputes through peaceful means. However, the effectiveness of sanctions can vary, and their impact on the targeted entity or country, as well as unintended consequences, should be carefully considered when implementing such measures.


What is the most notable list of Sanctions?

The list of sanctions is extensive and constantly evolving as new sanctions are imposed, modified, or lifted by various countries and international bodies. Here are some examples of notable sanctions lists:

  1. United Nations Security Council (UNSC) Sanctions Lists: The UNSC has established several sanctions regimes targeting specific countries, entities, or individuals. These include sanctions lists related to countries such as North Korea, Iran, Libya, Sudan, and Somalia, among others. The lists include targeted individuals, entities, or organisations subject to travel bans, asset freezes, arms embargoes, or other restrictions.

  2. Office of Foreign Assets Control (OFAC) Sanctions Lists (United States): The U.S. Department of the Treasury's OFAC maintains multiple sanctions lists targeting countries, entities, and individuals involved in activities such as terrorism, narcotics trafficking, human rights abuses, and proliferation of weapons of mass destruction. Examples include the Specially Designated Nationals and Blocked Persons List (SDN List) and the Foreign Sanctions Evaders List.

  3. European Union (EU) Sanctions Lists: The EU maintains sanctions lists that apply to specific countries, entities, or individuals. Examples include sanctions related to Russia/Ukraine, Belarus, Syria, and various terrorism-related sanctions. These lists include individuals, entities, or organisations subject to travel bans, asset freezes, arms embargoes, or other restrictions.

  4. Her Majesty's Treasury (HMT) Consolidated List (United Kingdom): The HMT Consolidated List is a comprehensive sanctions list maintained by the United Kingdom. It includes individuals, entities, or organisations subject to financial sanctions, trade restrictions, or other measures due to concerns such as terrorism, human rights abuses, or nuclear proliferation.

  5. Canadian Special Economic Measures Act (SEMA) Sanctions Lists: Canada's SEMA provides the legal framework for imposing economic sanctions. Canada maintains sanctions lists related to countries such as Russia, Iran, Syria, and Venezuela, among others. These lists include individuals, entities, or organizations subject to asset freezes, trade restrictions, or other sanctions measures.

  6. Australian Autonomous Sanctions Lists: Australia maintains autonomous sanctions lists targeting countries, entities, or individuals involved in activities such as terrorism, human rights abuses, or weapons proliferation. The lists include sanctions related to countries like North Korea, Iran, and Russia, among others.

  7. United Nations Consolidated Sanctions List: The United Nations maintains a consolidated list of individuals, entities, and organisations subject to various sanctions measures imposed by different countries or international bodies. This list provides a centralised resource to identify individuals and entities subject to sanctions globally.

It's important to note that these are just a few examples of notable sanctions lists, and there are numerous other countries and organisations that impose sanctions independently. Businesses and individuals should consult the specific sanctions lists relevant to their jurisdiction and comply with the regulations and requirements in their respective countries.


How Can Organisations Mitigate Sanctions Compliance Risk?

Organisations can take several steps to mitigate sanctions compliance risk and ensure they are operating in accordance with applicable sanctions regulations. Here are some key measures that can help in mitigating sanctions compliance risk:

  1. Stay Informed: Organisations should actively monitor and stay informed about sanctions regulations and updates. They should regularly review relevant sanctions lists issued by government authorities or international bodies and ensure they have access to reliable sources of information on sanctions-related developments.

  2. Implement Robust Compliance Programs: Organisations should establish comprehensive sanctions compliance programs that include policies, procedures, and controls designed to identify, assess, and mitigate sanctions-related risks. These programs should be tailored to the organisation's size, the nature of the business, and the jurisdictions in which they operate.

  3. Conduct Risk Assessments: Regularly assess the organisation's exposure to sanctions risk by conducting thorough risk assessments. Identify high-risk areas, such as countries, industries, customers, suppliers, or business partners, and implement enhanced due diligence measures for higher-risk entities.

  4. Customer and Business Partner Due Diligence: Implement robust Know Your Customer (KYC) and Know Your Business Partner (KYBP) processes to perform identity verification of customers and business partners and assess their risk profile. This includes screening against sanctions lists, conducting background checks, and monitoring transactions and relationships for suspicious activity.

  5. Transaction Screening: Implement effective transaction screening processes to identify and flag transactions that may involve sanctioned entities, countries, or prohibited activities. Automated screening tools can be utilised to efficiently and accurately screen transactions against relevant sanctions lists.

  6. Training and Awareness: Provide regular training and awareness programs to employees to ensure they understand sanctions regulations, the organisation's compliance policies and procedures, and their role in mitigating sanctions risk. Training should cover topics such as identifying red flags, reporting suspicious activity, and handling sanctions-related issues.

  7. Establish Internal Controls and Auditing: Implement internal controls, including segregation of duties and appropriate authorisation processes, to ensure compliance with sanctions regulations. Conduct regular internal audits to assess the effectiveness of sanctions compliance measures and identify areas for improvement.

  8. Maintain Records: Maintain accurate and up-to-date records of all sanctions compliance activities, including due diligence documentation, transaction screening results, and any actions taken to address sanctions-related concerns. Proper record-keeping helps demonstrate compliance efforts and assists in potential investigations or audits.

  9. Engage External Expertise: Consider engaging external experts, such as legal advisors or compliance consultants, who specialise in sanctions compliance to provide guidance, perform risk assessments, and ensure adherence to relevant regulations.

  10. Ongoing Monitoring and Review: Continuously monitor and review sanctions-related developments, including changes in sanctions lists or regulations, to ensure compliance programs remain current and effective. Stay proactive in identifying and addressing emerging risks and adapting compliance measures accordingly.

By implementing these measures, organisations can enhance their ability to detect and prevent sanctions violations, demonstrate a commitment to compliance, and mitigate the risk of financial and reputational damage associated with sanctions non-compliance.

What is the difference between Sanctions and Politically Exposed Persons?

Sanctions and Politically Exposed Persons (PEPs) are distinct concepts but can be interconnected in the context of financial compliance and risk management. Here's an explanation of the difference between the two:

  1. Sanctions: Sanctions refer to measures imposed by governments or international bodies to restrict certain activities or transactions with specific countries, entities, or individuals. Sanctions are typically implemented due to concerns such as national security, human rights violations, terrorism, weapons proliferation, or other illicit activities.

Sanctions can involve a range of restrictions, including financial sanctions (freezing assets, prohibiting financial transactions), trade embargoes (restricting imports/exports), travel bans (restricting individuals from entering or leaving specific countries), and more. Sanctions are enforced by governments and regulatory bodies, and compliance is mandatory for businesses and individuals subject to the respective jurisdiction's laws.

  1. Politically Exposed Persons (PEPs): PEPs are individuals who hold prominent public positions or have close associations with high-ranking government officials. PEPs are considered higher-risk individuals due to their potential exposure to corruption, bribery, money laundering, and other illicit activities.

PEPs can include government officials, politicians, senior executives in state-owned enterprises, judges, military personnel, and their close family members or associates. Financial institutions and businesses engaged in regulated activities are required to exercise enhanced due diligence when dealing with PEPs to mitigate the risk of money laundering, terrorist financing, bribery, and corruption.

While PEPs are not inherently sanctioned individuals, their status as politically exposed makes them subject to enhanced scrutiny and due diligence obligations under anti-money laundering (AML) and know-your-customer (KYC) regulations. PEP screening is a process used to identify and assess the potential risk associated with PEPs when establishing business relationships or conducting financial transactions.

In summary, sanctions are government-imposed measures restricting certain activities or transactions, while PEPs are individuals who hold prominent public positions or have close associations with high-ranking government officials. Sanctions are broad-based restrictions targeting countries, entities, or individuals, while PEPs are individuals of higher risk due to their political connections. Both sanctions compliance and PEP screening are essential components of effective financial compliance and risk management.

What can Organisations get started with Sanction Checks?

  1. Understand Applicable Sanctions: Familiarise yourself with the relevant sanctions regulations that apply to your organisation based on your industry, jurisdiction, and the countries with which you conduct business. Identify the key authorities responsible for issuing sanctions lists and enforcing sanctions compliance.

  2. Identify Sanctions Lists: Determine the primary sanctions lists that you need to screen against based on your business operations. Common lists include those maintained by the United Nations Security Council, the Office of Foreign Assets Control (OFAC) in the United States, the European Union (EU), and other national authorities.

  3. Select a Screening Solution: Choose a reliable and reputable sanctions screening solution or software that suits your organisation's needs. Look for features such as automated screening against multiple sanctions lists, real-time updates, and configurable risk assessment parameters.

  4. Gather Necessary Data: Collect the required data for screening, which typically includes customer or business partner names, addresses, dates of birth, passport or identification numbers, and other relevant information. Ensure the accuracy and completeness of the data to enhance screening effectiveness.

  5. Conduct Initial Screening: Initiate the screening process by inputting the collected data into the screening solution. The software will compare the provided information against the selected sanctions lists to identify potential matches or hits.

  6. Evaluate and Resolve Matches: When a potential match or hit is identified, carefully evaluate the details to determine if it corresponds to a sanctioned entity or individual. Conduct additional research, if necessary, to validate the match and assess the level of risk involved.

  7. Determine Risk Mitigation Steps: Develop a process for determining appropriate risk mitigation steps for identified matches. This may involve escalating the case to compliance or legal professionals, conducting enhanced due diligence, or deciding to terminate the business relationship, depending on the severity of the match and applicable regulations.

  8. Document and Maintain Records: Keep detailed records of the screening process, including the date and results of each screening, any matches found, and the actions taken to resolve them. Maintain these records for audit purposes and to demonstrate compliance efforts.

  9. Establish Ongoing Monitoring: Implement a system for ongoing monitoring of customers, business partners, and transactions to detect any changes in their risk profile or the imposition of new sanctions. Regularly screen updated sanctions lists to ensure ongoing compliance.

  10. Review and Enhance Procedures: Periodically review and enhance your sanction screening procedures to address any emerging risks, changes in regulations, or lessons learned from previous screening activities. Stay updated with sanctions-related developments and adjust your processes accordingly.

It's important to note that sanctions screening is a complex process, and organisations may benefit from seeking guidance from legal or compliance professionals with expertise in sanctions compliance to ensure effective implementation and adherence to applicable regulations.

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