Economic sanctions are an essential part of the EU’s Common Foreign and Security Policy (CFSP) and are employed as part of the international effort to combat money laundering, terrorism financing and other financial crimes. To this end, the EU compiles and issues a sanctions list to all member-states which must be incorporated into the AML/CFT programs of financial institutions across the bloc.
What Is the EU Sanctions List?
The EU Sanctions List is a consolidated list of countries, entities, and individuals, engaged in or suspected of money laundering or terrorism financing activities – and therefore subject to economic sanctions by the European Union. EU Sanctions are linked to United Nations Security Council Resolutions but the EU imposes its own autonomous sanctions – against Russia and Iran, for example – in line with its foreign policy objectives. EU sanctions may involve:
- Financial asset freezes
- Restrictions of market access, trade, investment, or technical assistance
- Arms embargoes
- Travel bans
EU sanctions are issued by the European Council: every member of the council must agree on the sanction measures unanimously before legislation can be drafted that puts them into legal effect. Some, like financial asset freezes, are implemented directly by EU governance. Other sanctions, such as arms embargoes, are implemented by member-states themselves via domestic legislation – which means sanction measures must be transposed into local law.
Who Has to Comply with EU Sanctions?
Sanctions imposed by the EU apply to financial institutions and individuals within the territory or jurisdiction of the European Union. Sanctions also apply to EU citizens operating outside EU territory.
To ensure compliance, obligated financial institutions must integrate an EU sanctions search as part of their AML/CFT program when onboarding new customers. Failure to comply may trigger financial penalties and criminal charges against responsible individuals. The EU does not perform enforcement activities itself but delegates those actions to the relevant authorities in each member-state.
Why Is It Important to Have a Sanctions Screening Tool?
To comply with the EU’s AML/CFT regulations, financial institutions from member-states must perform EU sanctions screening for every new customer or client but, since the list changes frequently, performing those checks manually can be time-consuming and inaccurate. By contrast, performing automated checks with a sanctions screening tool minimizes the risks of the manual process, easing the administrative burden on employees and crucially, helping firms deliver the compliance performance that regulators require.