10 misconceptions about restricted party compliance and screening



With the Biden administration barely more than halfway through her first year in office, she has already made it clear to the corporate world the importance of complying with the rules for screening denied parties. It is one of the main cornerstones of the policy which also includes tackling the pandemic, sorting out critical supply chain shortages and putting the economy on the path to recovery.

Recent developments include new export sanctions and controls against China, Russia and Myanmar, updated guidelines on restrictions on end-users of military / military intelligence, and a stronger focus on ensuring that companies do not do business with organizations that are partially or fully controlled by denied parties.

It all has to do with the fact that e-commerce is booming, thanks to the coronavirus disease (COVID-19), which has been the catalyst for unprecedented growth in e-commerce as people around the world have become more comfortable to shop online. As a result of all of these factors, the chances of businesses unintentionally violating compliance regulations have grown exponentially higher.

Export compliance violations that have made headlines in recent months have included a large enterprise resource planning (ERP) firm and an online money transfer service. Fines of several million dollars have been imposed in these cases. There is the additional, but not disclosed, funding to address reputational damage. It could have been worse, however, as the penalties could also have included revocation of export privileges and criminal charges with possible jail time.

The solution to mitigate these types of risks? Businesses must continually monitor their trade chain partners and every financial transaction to eliminate unwanted parties. And, they must ensure that goods, technologies and services are not destined for a sanctioned or embargoed country. Screening must therefore be an integral part of the governance, risk management and compliance strategy of each organization.

Who needs to screen?

The simple answer is that all businesses should look for the denied parties (also known as restricted, excluded, and blocked entities). Even companies that do not export should check because these so-called “bad actors” can operate nationally.

A common misconception, however, is that only a select group of sensitive or high-risk industries should be considered (e.g. aerospace, defense, telecommunications, IT, energy, research, financial institutions). While it is true that they hold the bar high when it comes to complying with US and international export, trade and financial laws, it is just as true as ordinary businesses in all industries. too have an obligation to comply with compliance requirements.

Unfortunately, for many types of businesses, the mistaken belief persists that compliance and denied party screening does not apply. By raising awareness among businesses of the following misconceptions about compliance and narrow party screening, organizations can take a proactive and vigilant approach to mitigate risk and avoid costly penalties.

Screening myths from denied parties

1. The filtering does not apply to our company, our industry or our country.

When producers can be penalized for breaking compliance laws, it should send a clear signal that the rules apply to all businesses, not just industries sensitive to homeland security. The regulations cover businesses both inside and outside the United States that engage with the United States in any capacity, as well as all monetary transactions processed through U.S. banks and financial institutions. With the Biden administration’s stronger stance on international trade compliance, companies would do well to keep pace with new regulatory requirements in their risk management processes.

2. We don’t need to filter because we are providing services, not products.

If the money changes hands, the parties to the transaction must be screened because only one disapproved party in the mix can win an FBI visit. Imagine using the following defense argument: “I didn’t sell them a physical product; I just sold these people a vacation package. According to the regulations, it would not fly, which means that service industries such as tourism and hospitality, transport and logistics, accounting and finance, legal and many more are certainly not on the hook. .

3. We rely on a third party (eg a freight forwarder) to perform the check for us.

Many companies make the mistake of thinking that the burden of compliance is on the transport or transportation company, but this is not always the case. The United States government may designate the owner or seller of the exported (or imported) merchandise as the exporter of record, transferring responsibility for compliance to both organizations.

4. Our company operates nationally, so monitoring is not required.

It might seem logical, but an often overlooked fact is that there are a significant number of US nationals located in the United States who can be found on watch lists. How is it possible? This is because this group of people have been caught breaking US soil compliance laws. Therefore, it would be wise for organizations to carry out screening regardless of the destination of the shipment.

5. Export laws do not apply to us because we are located outside of the United States.

Regardless of where an organization’s head office or subsidiaries are located, it is highly likely that some, if not all, of transactions pass through the U.S. financial system at some point in the purchase or purchase process. Supply Chain. As such, these transactions fall under the jurisdiction of the Office of Foreign Assets Control (OFAC) of the United States Department of the Treasury and therefore should be screened.

6. We don’t need to filter because we don’t export to countries subject to sanctions or embargoes.

Avoiding countries under sanctions or embargoes is only one of the major variables to take into account in the risk management equation. Not doing business with a refused party is another. These are mutually exclusive because not all of the refused parties reside in an embargoed country. The point is, although some countries are subject to trade restrictions, virtually all countries have refused parties within their borders. Believe it or not, excluded people have even resided in Antarctica at one point.

7. Our goods are EAR99, so we don’t need to filter.

In a recent case, a company was fined for delivering scrap metal to China. Why? Because the article ended up in the hands of a refused party. The EAR99 designation means that the item being shipped does not require an export permit in most situations. The key words here are “most situations”. Notwithstanding EAR99, senders should still research the rejected parties in addition to ensuring that they are not doing business with an embargoed country.

8. We have already screened our customers and contacts.

There’s a reason watchlists change frequently, even daily. This is because new entities are constantly being added. There are so many bad actors that are being discovered in the world all the time. So it makes sense to say that someone who is not on a list today could be on a list tomorrow. The best way to mitigate the risk in this scenario is to conduct an ongoing review. To ensure compliance, organizations would be best served by filtering all transactions at multiple points throughout the business workflow or sales cycle.

9. We only need to filter the person we’re shipping to.

One of the most misunderstood areas of export compliance are end-use requirements. End-use compliance involves asking buyers for documents confirming that they are the final destination of the goods and that they will use the product they receive as intended. While obtaining an end-user declaration does not guarantee the veracity of the buyer’s claim, this process demonstrates that a company has taken additional steps to ensure compliance with compliance laws. ‘export and trade. This due diligence will leave them in good stead if problems arise.

ten. We’re just gonna pay the fine.

Treating fines as a business expense creates more problems than it solves. This is because after the first offense the government will be watching you closely. If there are other violations, expect fines to increase, along with other tougher measures, including revocation of export privileges, criminal penalties and jail time. And, in all of these results, reversing negative media attention would be nearly impossible.

While screening rejected parties is generally not seen as a way to foster business growth, it is fundamental to helping ensure that national security and economic interests are maintained.

Since filtering is mandatory, forward-thinking companies find that compliance solutions, software and infrastructure give them a huge strategic and competitive advantage over their competitors whose tactics and practices may not be as equivalent. robust, or worse, may be non-existent. These companies see compliance as a growth factor because by avoiding problems they can focus on their core business and hopefully attract customers who value a strong compliance program.


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