Sanctions are an important component of the United States’ approach to foreign policy and are employed to help the US government achieve diplomatic objectives and punish violations of international law around the globe. The US sanctions system is complex and changes constantly in response to internal security interests and geopolitical developments – with new sanctions designations introduced and withdrawn regularly. Firms that fail to achieve sanctions compliance face strict penalties: in 2019, the US government handed out a record $1.28 billion in sanctions fines across 30 enforcement actions in what was a major clampdown on noncompliance.
In order to contribute to the fight against international crime, and avoid potential fines, firms that do business in the US must understand their sanctions responsibilities, and how to implement US sanctions list screening effectively as part of an AML/CFT program.
The United States’ primary sanctions enforcement agency is the Office of Foreign Assets Control (OFAC) which was originally founded in 1950 to block Chinese and North Korean assets during the Korean War. Today, OFAC is responsible for administering and enforcing US economic and trade sanctions which are introduced to achieve political and diplomatic objectives or in response to crimes or human rights abuses committed by both individuals and governments.
What are US Sanctions?
The sanctions imposed by the US, and enforced by OFAC, essentially set up trade embargoes that prohibit US citizens and entities from trade or economic dealings with sanction targets and freeze the assets of targets that are held in US financial institutions. The US imposes two categories of sanction:
- Primary Sanctions: these directly prohibit trade or freeze the assets of a target country or person. Primary sanctions apply to all US citizens and permanent residents, and entities located in the US.
- Secondary Sanctions: these prohibit foreign persons from engaging in transactions with third countries (such as Iran, Russia, and North Korea). Secondary sanctions are intended to prevent non-US persons from engaging in activity that might harm US security interests.
The names of individuals, entities, and countries that are subject to US sanctions are indexed by OFAC on the US sanctions list. OFAC works to maintain the US sanctions list and prevent transactions with the indexed targets. Where violations are found to have taken place, OFAC has a range of enforcement powers, including imposing financial penalties and prison terms (after judicial review).
The US’ sanctions list is actually composed of a number of separate lists that designate different categories of target. Those include:
- The Blocked Persons and Specially Designated Nationals (SDN) List: The OFAC SDN List is a record of both individuals and companies that have been sanctioned by the US government. Targets included on the SDN list may present a direct threat to the economic or national security of the United States or may be conducting those activities on behalf of a state sponsor.
- Consolidated List: Sanction targets that are not included in the SDN list may be indexed in the Consolidated List (although some may appear in both).
- Sectoral Sanctions Identifications List: The SSI List indexes targets of US sanctions on Russia.
- Foreign Sanctions Evaders List: Individuals and entities that have violated or attempted to evade sanctions are indexed on the FSE List.
- Non-SDN Palestinian Legislative Council List: The NS-PLC List indexes members of the Palestinian Legislative Council.
The US’ approach to international sanctions involves programs targeted against US-sanctioned countries and special policy-based sanctions programs. The programs are designed to deter and punish both state-level actors such as governments from engaging in criminal activity, human rights abuses, or actions that threaten US national security, while the policy-based sanctions target individual actors.
Notable country-specific US sanctions programs include:
- Chinese Military Companies Sanctions
- Cuba Sanctions
- Iran Sanctions
- North Korea Sanctions
- Syria Sanctions
- Syria-Related Sanctions
- Sudan and Darfur Sanctions
- South Sudan-Related Sanctions
- Ukraine and Russia-Related Sanctions
- Yemen-Related Sanctions
Special policy-based US sanctions programs include:
- Counter Narcotics Trafficking Sanctions
- Counter Terrorism Sanctions
- Cyber-Related Sanctions
- Foreign Interference In a United States Election Sanctions
- Global Magnitsky Sanctions
- Magnitsky Sanctions
The penalties for non-compliance with US sanctions vary by the seriousness of the offence but may involve fines of up to $1,000,000 per violation and prison sentences of up to 20 years (or both). Sanctions penalties may be applied to US and foreign persons.
OFAC may issue general licenses that offer exceptions to sanctions compliance for the trade of certain products and materials, such as medicines and medical equipment. Similarly, OFAC may issue specific licenses for parties that are seeking to engage in a specific type of prohibited activity.
US firms, and firms that do business in the US, must put a sanctions screening program in place that is capable of checking customers against the relevant OFAC sanctions lists. An effective screening process should deliver accurate, efficient results and be updated regularly to reflect the frequent changes to OFAC sanctions lists as targets are added and withdrawn.
False Positives: Since the scope of US sanctions is vast, screening processes can often result in a high number of false positives as a result of misidentification. US sanctions on China or Iran, for example, include targets that use non-Western naming conventions or that use non-Latinate characters, generating a high level of noise during sanctions checks. Screening solutions should also take into the account the prevalence of aliases.
False positive remediation is costly and places an added administrative burden on compliance teams Accordingly, firms should seek to integrate suitable technology tools to manage the vast amounts of data required by US sanctions screening and add automated speed and efficiency to the false positive remediation process.
Sanctions KYC: US sanctions screening compliance must also be built on a foundation of effective KYC. To that end, firms should seek to implement a number of important AML/CFT controls and processes including:
- Customer identity verification through suitable due diligence.
- Transaction monitoring in order to detect suspicious activity and transactions that may involve sanctioned persons.
- Screening for politically exposed persons (PEP) that may be subject to sanctions or be at greater risk of being involved in sanctioned activity.
- Screening for adverse media stories that involve customers and that might indicate involvement in sanctioned activity.
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Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.
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