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Sanctions Lists in Focus: Importance and Procedures

What should be considered with sanctions lists and how can companies proceed with the audit? Find out more in SCHUMANN Insights.
Schumann Insights, Blog Post
, Prof. Dr. Matthias Schumann

The Necessity of Global Sanctions Lists: Security Measures in Focus

The current global conflicts and crises, starting with Afghanistan and the IS and continuing with the Ukraine war and the latest attacks by HAMAS on Israel, emphasize the great necessity of measures for combating terrorism and preventing activities that support it. In this context, the European Union has passed a Terrorism and Embargo Act, which forbids doing business with companies on the associated lists. In the USA there are even stricter embargo regulations, which not only affect particular countries such as Iran, North Korea and Syria, but also include sanctions against trade with Russia. In addition, embargo lists from the United Kingdom and other countries are of great importance.

Compliance with these regulations is essential as infringements could result in hefty fines and exclusion from trade. This means that companies doing international business not only need to check their customers against sanctions lists but also their suppliers. Sanctions could mean that business relations with the listed companies are not allowed. It is therefore even necessary to check the transport company that delivers the goods to the customers.

Optimal Compliance and Risk Minimization through IT-Supported Processes

Performing such checks is extremely complex and ideally involves the use of IT-supported systems such as KYC software. When taking on new customers or suppliers it is essential to establish immediately whether they are on sanctions lists, which would prohibit a business relationship right from the start. This sanctions list information is especially complex because it originates from various countries and is constantly updated. It is therefore advisable to make use of information service providers, who bundle this information and keep it up-to-date constantly.

However, a one-off check is not enough. Customer and supplier relationships must be monitored continuously because the entries on the lists can change. Therefore, IT-supported monitoring of this data is indispensable.

IT solutions can check automatically whether there are correlations between the data of your customers and suppliers and the sanctions lists being checked. Any match found will be presented to the relevant employees for further investigation because not all such matches are unambiguous. As a rule, the automated check is followed by manual assessment for a small proportion of the companies being investigated.

If checks against sanctions lists are being performed, it is also recommendable to check for business relationships with politically exposed persons. There are lists for this as well. Performing this measure helps to avoid bribery and assists your company in preventing the risk of sanctions for such business relationships, which could result in considerable negative effects.

The implementation of these processes makes it possible for your company to carry out comprehensive evaluations of your business partners in a coordinated manner, especially in the area of credit management. You thereby contribute actively to the minimization of risks and compliance with international law.

About the author
Prof. Dr. Matthias Schumann

Since 1991, Prof. Dr. Matthias Schumann has held a professorship in Business Administration and Information Systems (Chair of Application Systems and E-Business) at the University of Göttingen. He also heads the joint computing center of the Faculty of Economics and the Faculty of Social Sciences. He is a shareholder of Prof. Schumann GmbH.

Prof. Schumann's research interests include information systems at financial service providers and systems for credit management, as well as issues related to knowledge and education management. Prof. Schumann has a wide range of experience in consulting companies, extensive lecturing activities and more than 350 publications.

University of Göttingen

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