EU-Based SME Performs Due Diligence Checks on Iranian Customer and Intermediary

Conducting Thorough Due Diligence Checks

In a recent case study, a European Union-based small to medium-sized enterprise (SME) demonstrated its commitment to conducting thorough due diligence checks before entering into a contract with an Iranian customer.

The SME, which intended to sell personal care products worth EUR 50,000 to the Iranian customer, engaged in a first-level due diligence check on both the target and the intermediary based in a third country. The self-disclosure and checks on the website of the targets revealed that the shareholders of the targets were individuals.

Internet Search and Sanction List Checks

The SME then conducted an internet search, which confirmed the activities of both companies as distributors of goods in the civil sector. The company searched for the names of the targets and their shareholders in the EU financial sanction list without identifying any matches.

Based on these findings, the SME concluded that the Iranian customer posed a low risk and decided to provide the data required by the bank for the financing of the transaction.

Recognizing the Need for Further Checks

However, the company recognized that further checks were necessary to ensure compliance with international sanctions. In this case, a second-level due diligence check was conducted, which involved collecting information on corporate details, including registration details, directors, and shareholder structure.

The SME also identified the need for an extended approach, which would involve conducting more in-depth checks, including interviews with key personnel and reviews of financial records. This level III due diligence check is considered a global best practice approach, which requires maximum efforts and costs (up to 6 weeks).

Combining Due Diligence Checks

In this case, the combination of levels II and III due diligence checks allowed the SME to mitigate risks associated with the transaction and ensure compliance with international sanctions.

What Does This Mean for Businesses?

This case study highlights the importance of conducting thorough due diligence checks on customers and intermediaries before entering into transactions. It also emphasizes the need for businesses to adapt their approach to different risk levels, using a combination of levels II and III due diligence checks as necessary.

By taking these steps, EU-based SMEs can ensure compliance with international sanctions and minimize risks associated with transactions involving Iranian customers and intermediaries.

Key Takeaways

• Conduct thorough due diligence checks on customers and intermediaries before entering into transactions
• Adapt your approach to different risk levels using a combination of levels II and III due diligence checks as necessary
• Ensure compliance with international sanctions by conducting rigorous due diligence checks