21 June 2023
Compliance Bulletin – June 2023
International Sanctions Screening
Sanctions screening is the process of determining whether a country sanctions a person, company, or other entity. In the financial services industry, this process would normally be part of the KYC (know-your-customers) process.
Historically, sanctions screening has been a blind spot for business including law firms under the assumption that sanctions screening would be more relevant to large corporate entities. Sanctions screening was also identified as a top challenge for many organizations.
Sanctions are a tool used by countries or international organizations to put economic or political pressure on a country to discourage, punish, or influence certain behaviors.
Before we elaborate our view on the importance of sanctions screening, we would like to share some of the important roles of sanctions:
- Guarding national security of states;
- Maintaining international peacekeeping;
- Fighting financial crimes.
The Importance of Sanctions Screening Process
Sanctions list has never been more important as geopolitical tensions and financial crime continue to rise.
In 2014, one of the largest banks (globally), BNP Paribas paid nearly USD 9 billion in fine due to processing a transaction which is deemed to fail compliance with the sanctions imposed by the US government.
At the onset, it appears that sanctions screening is relevant for international businesses and might be less relevant for businesses in countries such as Indonesia. However, the reality is that in today’s globalized and digitalized world, a vast amount of businesses are international to a certain extent; it could be international clients or suppliers, or source of the goods/services.
One good threshold/example could be if businesses transact using US Dollar, the parties (even if non-US entities) avail themselves to the US financial system from the perspective of the US Office of Foreign Assets Control and could be subjected to US sanctions laws.
Sanctions laws typically impose hefty financial penalties and could lead to material reputational damage.
Having said the above, we set out below several reasons why sanctions screening is important:
- Avoid financial penalties and reputational damage
- Stay compliant with sanctions laws
- Reduce money laundering exposure risks
- Minimize risk of fraud
Implementing Sanctions Screening
The number of providers of automated sanctions screening is increasing in the past years. Commercially, the costs to work with these providers have been considered within the commercial model of a business.
Other key steps need to implement sanctions screening:
- Clear guidelines and procedures of sanctions screening. This includes escalation processes should there be any warning being triggered.
- Training for employees to implement and ensure compliance with the guidelines and procedures.
- Maintenance guidelines to ensure the sanctions screening guidelines and procedures are up to date.
We are keen to have a deep dive of the necessity of sanctions screening for our client, including the sufficient approach to ensure compliance.
Download PDF version here.
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MURZAL & PARTNERS
For more information, please reach us at Murzal & Partners Law Firm to:
e-Mail: info@murzallawfirm.com
Telp: +62 21 29930869
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