Sanctions list screening: Overview of obligations

Introduction:

Sanctions lists and their verification are essential tools for ensuring compliance with international and national regulations. They serve to check business contacts for possible connections to sanctioned persons, organisations or countries. Companies should carry out these checks regularly to avoid legal consequences and economic risks.

Background information: Sanctions list screening

What is a sanction?

The term ‘sanction’ refers to a measure used to encourage individuals or organisations (sometimes entire countries) to change their behaviour. Sanctions are often a political response to human rights violations, acts of war, terrorism or money laundering, for example. Sanctions are imposed by the UN, the European Union or individual nations, for example. Depending on the content of the sanction, a distinction is made between different types – such as economic sanctions (also known as ‘embargoes’) and diplomatic sanctions.

What are sanctions lists?

A sanctions list lists individuals, organisations, companies and, in some cases, entire countries that are subject to sanctions. Possible consequences:

• Restrictions or prohibitions apply to business relationships with these entities.
• No economic resources or money may be transferred to the listed individuals, organisations or countries.
• Diplomatic relations with the sanctioned country are suspended.

What is a sanctions list check?

Legal regulations require many organisations and companies to check sanctions lists. EU regulations, for example, stipulate that all business contacts with listed persons or entities must be prohibited. Such sanctions list checks (also known as ‘sanctions list screenings’) are based on a comparison of relevant sanctions lists with the respective suppliers, business partners and, in some cases, even employees.

Prerequisite for compliance: What are the obligations relating to sanctions lists?

No business with listed entities

Companies must immediately halt all transactions and contracts in the event of sanctions list hits in their business contact and employee lists. This is stipulated by various EU regulations and national laws, such as the Foreign Trade Act (AWG) and the Money Laundering Act (GwG), as well as the laws of other countries (such as the US OFAC lists).

Obligation to report hits during sanctions list checks

If the sanctions list check returns a hit, you should check the data again carefully. Could it be a false positive? If not, then contact the relevant authority immediately! Depending on the sanctions list, this could be, for example…

• the Federal Office for Economic Affairs and Export Control (BAFA)
• the Deutsche Bundesbank

… it is often possible to report this via a reporting portal or online form.

Documentation requirements for sanctions list screening

Sanctions list checks should always be documented. It is best to keep the audit logs of all audit runs – regardless of whether there was a sanctions list hit or not.

In the event of hits, the documentation should make it possible to trace, even after a long period of time, why, for example, it was decided to report the hit to the competent authority. For example, archive the following data:

• Data of the person or organisation concerned
• Date of the check
• Sanctions list concerned and details of the hit
• Check software and search parameters used

Ideally, you should also keep the report of the hits themselves. Electronic storage of the documents is sufficient, but they should generally be available for at least ten years. Suitable software is a simple and automated solution for documenting sanctions list checks.

Frequency: When is a sanctions list check mandatory?

Sanctions lists and the associated regulations are updated on a regular basis. For example, the persons listed may change, trade bans may be extended or exemptions may be removed. Anyone who wants to ensure compliance should therefore check sanctions lists at regular intervals. Specifically, this means that sanctions lists must be checked…

• when a new contract is concluded with business contacts or employees.
• when a transaction involving assets, funds or goods is planned (especially cross-border).
• if there are changes in existing business relationships (e.g. change of managing director).
• if sanctions lists are amended or newly issued (often in the event of changes in the political situation, such as the war in Ukraine).

In addition, the list of existing business contacts and employees should be continuously checked against sanctions lists.

Target group: Who is required to check sanctions lists?

As a general rule, all companies must always comply with the current sanctions lists. It is irrelevant whether business contacts exist beyond the EU borders or not. It is therefore a misconception that only internationally active companies are obliged to check sanctions lists.

In fact, even small, locally operating companies can violate applicable law if they fail to screen sanction lists – for example, through a sanctioned employee or an unchecked payment transaction. Many companies are also unaware that individuals, organisations and countries on US sanction lists often have to be taken into account as well. This is even the case if they are not included in the EU’s sanction regulations.

However, the risk of violating sanctions is particularly high for:

• Companies involved in foreign trade (exporters and logistics companies)
• Banks and other service providers in the financial sector
• Companies in the arms industry

Consequences: What happens in the event of violations?

A violation of current sanctions lists (whether negligent or intentional) can lead to serious legal, economic and general consequences. Depending on the nature and extent of the violations, these may include:

• Fines
• Prison sentences for those responsible
• Claims for damages
• Professional bans for compliance officers
• Company dissolutions
• Termination of contracts
• Termination of loans
• Exclusion from supply chains
• Damage to reputation and loss of customers due to negative media coverage

Instructions: How to perform sanctions list screening?

Would you like to check customers, other business partners or employees against sanctions lists? Then you must check the German and EU sanctions lists either manually using tools or by means of software. In the first case in particular, in-depth specialist knowledge is required in order to carry out sanctions list checks independently and without errors. The further procedure in detail on sanctions list checks.