Check your business partners against the OFAC list

A sanctions list is a publicly accessible directory of companies, organizations, or individuals upon whom economic and/or legal restrictions have been imposed. It is prohibited to do business with companies, organizations, or individuals under sanction. The purpose of sanctions lists is to combat international terrorism by depriving individuals, organizations and institutions associated with terrorist activity of funds and economic resources. Economic resources include services, goods, rental arrangements, and the transfer of property or technology. Counter-terrorism sanctions were intensified in the wake of the September 11 terror attacks. Companies, organizations, and individuals suspected of having links to terrorism have been subject to increased checks since this time.

A sanctions list check is required to perform business transactions in a legally compliant manner. Failure to carry out these checks may have legal consequences. If sanctions lists are ignored and sanctioned persons, companies, or organizations go on to receive financial or economic resources, this can lead to heavy fines or even imprisonment. The managers of a company are the primary subjects of such fines or sentencing in the event of a transgression. In some cases, the people responsible for exports within the company may be threatened with such a fine or sentence.

There are also economic and financial risks to your company in the event of non-compliance, meaning that that sanction list checks are also part of effective risk management. The extent of this risk can be demonstrated by the case of Deutsche Forfait AG. In February 2014, the company, and Ulrich Wippermann in particular (a member of the publicly listed company’s board of directors), was accused of having conducted oil transactions with the National Iranian Oil Company (NIOC) – a company already subject to sanctions. As a result, many customers considered it too risky to work with Deutsche Forfait AG, as there was a high risk of being added to the OFAC list themselves. The non-compliance with Iran sanctions led to an estimated financial loss of €150 to 200 million for the company, which is also why the company filed for insolvency in September 2015. Aside from non-compliance with the company’s legal obligations, the company’s public image will also be damaged by any violation.

According to EU regulations and the Foreign Trade and Payments Act, every company that is resident or economically active within the EU is obliged to check the European Common Foreign and Security Policy (CFSP) list. The CFSP lists individuals, organizations, and companies against whom the EU has imposed financial sanctions. This list combines all the lists of names associated with counter-terrorism directives as well as the country-specific embargo regulations. The CFSP is the most important sanctions list for companies based in or economically active within the EU. The current CFSP list is available online.

On top of this, companies based in the EU are also expected to observe US sanctions lists. The United States demands global compliance with its export control legislation, which is why you must check whether your company’s activities are subject to US jurisdiction. Where this is the case, you must include US sanctions lists in your checks – also to exclude negative economic consequences, since US sanctions are the most wide-reaching in economic terms. You can check whether your business activities fall under US jurisdiction by asking yourself the following four questions:

1. Are you handling US products (either directly or indirectly)? For example, do you use US products in the manufacturing of your goods, or do you trade products originating from the United States?
2. Are your products subject to US export control legislation?
3. Does your company have a US-based subsidiary, or are you a US-based subsidiary of another company?
4. Are US citizens responsible for your company’s exports?