Sanctions Screening Failures Lead to Enforcement Actions

A recent report has underscored the significance of effective sanctions screening in preventing violations of economic sanctions imposed by governments. The report analyzed numerous enforcement actions taken by the Office of Foreign Assets Control (OFAC) and the UK’s Office of Financial Sanctions Implementation (OFSI), finding that failures in sanctions screening can lead to severe consequences for companies and individuals.

Consequences of Sanctions Screening Failures

• Several cases have been highlighted where companies failed to adequately screen their transactions against OFAC’s Specially Designated Nationals (SDN) List, resulting in enforcement actions.
• Examples include:
  • GE’s sanctions screening software failing to generate an alert on Cobalt Refinery Company, despite being listed on the SDN List.
  • Haverly Systems, Inc being fined $75,375 for invoicing a Russian oil company without properly screening against OFAC’s sectoral sanctions.

Importance of Effective Sanctions Screening Programs

• Companies that have implemented effective sanctions screening programs have been able to avoid or mitigate enforcement actions.
• Examples include:
  • Sojitz (Hong Kong) Limited revising its screening procedures after detecting violations.
  • NewTek Inc implementing bulk name screening and geo-IP blocking measures.

Complex Sanctions Require Complex Screening

• The report emphasized the need for companies to adapt their sanctions screening programs to comply with complex sanctions regimes, such as:
  • OFAC’s 50 Percent Rule requiring companies to screen against entities owned in the aggregate by one or more blocked persons.
  • Sectoral sanctions requiring companies to detect multiple factors, such as targeted parties and prohibited activities.

Internal Controls

• The report highlighted the importance of internal controls in preventing sanctions violations, including:
  • Effective screening tools and procedures to identify potential sanctions violations.
  • Adequate personnel and policies for reviewing alerts and adjudicating violations.

Cryptocurrency Screening

• The report noted that cryptocurrency transactions are increasingly being used to evade sanctions.
• OFAC’s SDN List includes cryptocurrency addresses that should be blocked, and compliant cryptocurrency exchanges play a critical role in enforcing the block.
• Companies must implement effective screening tools and procedures to identify sanctions evasion via cryptocurrency.

Investigation and Evaluation

• After potential violations are identified through the screening process, manual investigation is required to determine whether there is a true match.
• The report emphasized the importance of:
  • Incorporating repetitive false matches into whitelists to prevent future alerts.
  • Reviewing whitelists regularly.

Conclusion

Overall, the report highlights the need for companies to prioritize sanctions compliance and implement effective internal controls to prevent violations. Failure to do so can result in severe consequences, including enforcement actions and fines.