Sanctions and Sanctions List Review in the Ukraine War

Due to the war in Ukraine, sanctions are on everyone's lips and a topic in private conversations and in the press or news. The world has joined forces not to counter violence with violence, but to impose sanctions on Russia across the board. People have realized that this is a way to exert enormous pressure. The central weapon in 2022 is thus the control of financial flows. Anti-terror and boycott lists now include oligarchs, politicians such as Putin, his foreign minister Lavrov and those close to them, as well as over 100 Duma deputies. In general, supporters and co-decision-makers appear on the lists. The sanctions list check thus moves into the focus of all companies that have business relations with Russia.

Sanctions lists instead of embargoes

While other countries immediately imposed sanctions, Switzerland initially held back - probably in the belief that, as a financial center, it would not have to impose sanctions against Russia so soon. But after strong protests, it now followed the EU's line.

Sanctions lists were originally a reaction to the terrorist attacks of September 11, 2001, and UN Security Council Resolution 1373/2001 obliged all United Nations countries to implement them. This prohibits the provision of any economic resources, i.e., assets, services, goods or certificates, to terrorist organizations and individuals at home and abroad. These sanctions lists replace total embargoes on states and target companies, corporate networks and individuals. The U.S. issues sanctions lists through the Bureau of Industry and Security (BIS) and the Office of Foreign Assets Control (OFAC). In addition, there are lists from the EU, the UN and worldwide from countries such as Canada, Japan and Switzerland.

Business possible - but not without sanctions list check

Now, the sanctions have not ruled out business with Russia per se, but they have made it significantly more difficult, and in some cases no longer practicable. Companies are faced with the choice of doing without Russian business or accepting risks and resistance. Since parcel services no longer deliver to Russia, exporting goods has become much more difficult. The restrictions on payment transactions are even more serious, as many Russian banks are on the sanctions lists. For business partners abroad, payment or receipt of money has thus become impossible. Without Swift and IBAN, trading partners can no longer access their money. Retail chains are going out of business in Russia because commercial transactions are no longer possible without a payment infrastructure. 

In addition, there are embargoes on items that may not be supplied as part of export controls. This means that even Russian companies not on sanctions lists are barred from items related to gas and oil production and machinery. This also applies to restrictions on the supply of luxury goods to Russia.

All companies have a duty

All companies are affected by the sanctions list screening obligation - regardless of size, national or international business. They are obliged to carry out sanctions list screening for every business contact, regardless of the country in which the customer, supplier or trading partner is based. Swiss companies must screen their business partners and employees against their own Swiss list, but it also makes sense to consider the most important US lists.

No company today can afford to ignore the sanctions list check. Anyone who does so may be targeted by the U.S. authorities and will then have to negotiate penalties. If they fail to reach an agreement, they run the risk of being listed themselves. Companies thus damage their reputation, lose business partners and even risk insolvency. This is because the penalties are draconian: up to 10 years' imprisonment for a deliberate violation and fines of up to 500,000 euros for a negligent violation. The U.S. also threatens extraterritorial criminal prosecution - due to lack of access to the management, the entire company is then placed on a U.S. list. 

Compliance is generally checked as part of audits or by customs. However, stricter controls are not to be expected despite the current war.

Sanctions list screening needs software

Companies have always had to pay attention to the sanctions lists. Even before the war, the number of records, lists and updates was steadily increasing: in 2019, there were 30 lists and more than 110,000 records worldwide. In 2020, there were more than 600 updates. Since the start of the war, the number of updates on various lists has grown enormously once again - and with it the demand on the quality of the sanctions list check. At the latest, it is no longer possible to check randomly or manually. 

The Kempen-based company Sapper is a leader in compliance software with its domino® tool. They have reacted to the new circumstances: Previously, all available lists worldwide were maintained on a daily basis for business partner screening - based on publications by the US authorities, the EU and other countries with their own lists. Now, Sapper transmits the current status of the sanctions lists to its customers several times a day, because today it can no longer afford a greater frequency. This customer service is unique, Sapper can provide the infrastructure for this tighter cycle of list updates.

At Sapper, we also notice that existing customers who previously considered only a few lists necessary have increased their range and booked new lists. Sapper makes this possible within 24 hours. German companies with Russian subsidiaries have also woken up: The subsidiaries were often not adequately equipped - these processes are now being put to the test.

Permanent screening necessary

The sanctions list check is a challenge even without current conflicts. This is because a one-time comparison at the beginning of a collaboration is not enough. Companies must be able to prove throughout the entire business relationship that their partners are not on lists. Sapper's tool therefore automatically triggers new checks when updates are made. This also applies to applications that are fully integrated with SAP. Companies can thus be sure that they will know if business partners have ended up on a new list over the duration of the business relationship. For all business transactions that are mapped in the ERP, screening already takes place at the start of the workflow. CRM systems can also be connected to an early warning system. 

Ad-hoc checks ensure that business relationships with partners on sanctions lists are not initiated in the first place. Business transactions outside the ERP, such as management activities like consulting contracts, LOIs, rentals and leases, asset sales, and services can also be checked individually. The following applies to all: The audit must always be verifiable via reporting.

In view of the large number of checks required, it is important to keep the error rate as low as possible. This is because business processes are blocked in the event of hits. The error rate of the domino® tool is 0.1 to 0.3 per mille. This low rate in combination with speed and accuracy represent the USP. The tool checks over 84 million transactions worldwide every day. The algorithm scans each word and letter individually and can thus compensate for hearing and spelling errors such as misspellings. Even if the quality of the lists is poor, it finds hits.

Conclusion: Take sanctions list review seriously

Sanctions and the review of international sanctions lists have become more prominent in the minds of companies with the Ukraine war. They need to ensure that they do not have business relationships with listed individuals and organizations in order to avoid draconian penalties. This is only possible with modern software. Sapper's tool offers updating of the lists several times a day - so companies are on the safe side.

Author:
Marie-Helene Wessel is the managing director with power of representation of SAPPER INSTITUT GmbH in Kempten (Germany), manufacturer of the domino® software mentioned in the article. www.sapper.de