Tech Critical As Government Sharpens Focus on Sanctions Violations

In the past year, political shakeups around the world have added new layers of complexity to the already complex ocean supply chain. Within this, trade sanctions in particular have evolved dramatically in the last few months, and are putting greater pressure on companies to remain compliant. 

While trade restrictions have been in place, and lifted, in various capacities for decades, the volume and velocity at which new sanctions have been imposed and against whom has quickly evolved, even within the last few months. Take the U.S. for example. In late summer, the government imposed hardline sanctions against Venezuela, Iran and Russia within a matter of days. In a blink of an eye, it became illegal for companies to do business with anyone or anything identified on the government’s denied party lists.

The maritime sector is in a particularly challenging position as it relates to trade sanctions, with mega fines hitting numerous parties within the ocean supply chain. 

On the carrier-side, some of the world’s largest container shipping companies themselves have been cited by the Office of Foreign Asset Control (OFAC) for transporting cargo within restricted regions such as Sudan, Iran and Cuba, among others. These penalties, while later reduced, have been in the millions of dollars, resulting in negative media coverage and damage to brand reputation as a result. 

In the U.S., vessels can be denied entry into a U.S. port if they are found to be on OFAC’s Specialty Designated Nationals (SDN) blocked list, even if they had to dock in an embargoed country for minor repairs. This Notice to Mariners provides an overview from OFAC, including a review of current sanctions programs, enforcement, and reporting procedures and requirements. In addition to OFAC, a number of other agencies are involved in ocean trade in the event of violations, including Bureau of Industry and Security (BIS), Customs Border and Protection (CBP), Transportation Security Administration (TSA) and US Department of Commerce (DOC). 

Additionally, with the rise of e-commerce globally, shippers are also being held increasingly accountable for their business dealings with restricted parties. In August, oilfield services company COSL Singapore Ltd. reached a settlement with OFAC to pay $415,350 after the company violated U.S. sanctions on Iran when it shipped, or attempted to ship, oil rig supplies from the U.S. to Singapore and the UAE, and from there to four separate oil rigs located in Iranian territorial waters. 

Prior to that, in July, Singapore’s TransTel was fined $12,027,066 for causing at least six separate financial institutions to engage in the unauthorized exportation or re-exportation of financial services from the U.S. to Iran over a nine month period.

With maritime shipments compromising the vast majority of cross-border TEU volume, and trade sanctions showing no signs of slowing, companies can no longer afford to treat denied party screening (DPS) as a check-box activity. At a time when governments are more aggressively pursuing those in violation of sanctions, technology is the only feasible way companies can get ahead and identify potential conflicts. By taking a proactive, technology-driven approach to DPS, companies can effectively transition from manual to on-demand or automated screening, more quickly screen against hundreds of Denied Party lists, account for known and unknown aliases, spellings and variances and, ultimately, ensure compliance with domestic and international laws. Leading carriers may also have systems in place that immediately flag certain Harmonized System (HS) codes, which will automatically deny goods for shipment pending further due diligence.

While there is no one-size-fits-all approach, companies should consider the following four factors in particular to ensure a robust and sound technology-driven DPS strategy:

Know Your Needs – The best way to screen for denied parties is different for every company, and must be considered based on the unique needs of the business. For example, for companies currently using an ERP solution, a customer or vendor transaction-level screening practice may be more effective to identify conflicts. For other companies, web-based software-as-service (SaaS) tools may provide greater flexibility on-demand, while those processing large volumes of transactions may benefit from using an API-based tool. Furthermore, with greater market consolidation among carriers in particular, acquiring companies may require solutions that offer more sophisticated screening of previous transactions made by the companies they’ve purchased.  

Speed is a Factor – Denied party lists can—and do—change hourly. Given this, companies must have access to the most up-to-date lists as quickly as possible. With hundreds of lists to potentially screen against, the ability to join forces with DPS-focused partners or providers who are tasked with monitoring for changes and inputting updated data into systems in near real-time provides a significant advantage.  

Flexible Searches are a Must – With hundreds of active denied party lists in circulation, companies must have the ability to run flexible scans to adequately identify potential hits. Why? Because many of the lists are nothing more than data dumps, especially from unofficial sources, riddled with misspellings and misinformation. In this case, technology that allows for exact and inexact matching, as well as fuzzy logic search structures, is imperative. Without it, companies may get too many false positives, or miss actual matches all together.

Trust but Verify – When screening against denied parties, a positive match doesn’t always mean a law has been broken. DPS solutions are designed to help companies more efficiently sift through lists and identify potential conflicts; however, further analysis and investigation is almost always required before action can be carried out. Thus, employees handling DPS within their organizations should maintain close ties to regulatory/compliance, finance and legal teams in order to understand the latest government sanctions, legal ramifications and the workflow required if/when a potential conflict is discovered. 

In the current geopolitical climate, it’s difficult to say who or what may appear on denied party lists – and when those changes might occur. Companies that take a sophisticated, technology-driven approach to DPS now will be best prepared to face future changes and, ultimately, better-equipped to reduce risk and protect the business as a result.

Sophia Nisha is Director of Denied Party Screening Solutions, Descartes.