Although denied party screening (DPS) has been around for 25 years, several recent developments related to U.S. trade sanctions and cybersecurity may be contributing to the increased attention it is garnering on the world stage:
- Mega Fines: The huge fines for companies conducting business with denied or restricted parties are making headlines. In the U.S., the largest criminal fine in a sanctions case to date—$1.19 billion—was levied in March of this year.
- Strong on Security: The new administration in the U.S. has taken a strong position on national security and protecting American workers, as epitomized in the pledge by Wilbur Ross, the new Secretary of Commerce, to be “aggressively enforcing strong trade policies.”1
- Cybersecurity Sanctions: The new administration has also extended cybersecurity-related sanctions controls established in 2015 with the recent release of 44 names—all Russian— on OFAC’s list of Specially Designated Nationals and Blocked Persons (SDN List). The named cybersecurity threats include GRU, Russia’s largest foreign intelligence agency, and FSB, Russia’s security agency responsible for counterintelligence, counterterrorism and surveillance (formerly KGB).
Many different types of sanctions lists are maintained by governments and organizations around the world—and with new entries updated, in some cases, on an hourly basis, DPS becomes essential to mitigating the risk of trading with denied, sanctioned and restricted parties.
Why DPS is Critical for Global Commerce
DPS today goes beyond traditional export compliance. With the continued rise of ecommerce, business integration and global connectivity, having a technology-enabled dynamic screening practice to review data at all levels can help to reduce business risk. The top reasons why screening technology is important include:
- Continuous changes: Businesses must keep pace with denied, restricted, and sanctioned lists that are in continuous flux. All are updated regularly—daily and even hourly—and new threats, such as malicious cyber-enabled activities, spur new lists.
- Number of lists: Numerous government agencies and international organizations maintain lists of restricted or sanctioned parties. The sheer number of global lists and entries calls for technology that can screen data and automatically review a number of lists simultaneously.
- Historical screening: The need to periodically review past DPS compliance over a given range of time is critical to minimize risk. Historical screening is also valuable for assessing the compliance history of acquired or merged companies.
- Volume of data: The number of lists and rapid rate of changing entries is compounded by the sheer volume of information and records that must be screened, including large data warehouses housed in ERP and other systems.
- Large penalties: The frequency, number, and amount of DPS fines is increasing. In addition, revocation of export privileges or prison time of up to 20 years per violation are possible outcomes of non-compliance.
- Audit trail: Companies may be required to demonstrate reasonable care in their business transactions to avoid or reduce penalties. With U.S. exporters and agents required to maintain records for five years, leading businesses are implementing solutions that include an audit trail.
- Screening financial transactions: In addition to anti-money laundering (AML) and Combatting Terrorist Financing (CTF) programs, companies must screen transactions to or through financial institutions or face substantial penalties and fines for non-compliance.
- Ecommerce: Commercial transactions conducted online are also subject to trade sanctions and restrictions. With the continued explosion in online shopping, DPS is critical to ensure compliance of ecommerce transactions and shipments, both domestic and international.
Whether companies transact business domestically or across international borders, the need is growing to approach the task of DPS systematically to keep goods flowing, ensure compliance, and mitigate the risk of penalties. What is your company doing to tackle DPS challenges? Let me know.
Ken is the Head of Denied Party Screening at Descartes. Previously, Ken served for nearly 25 years as the Managing Partner for MK Data Services. Prior to that, Ken was an Export Administration Specialist at the U.S. Department of Commerce.