Economic and trade sanctions are restrictions put in place by national governments and global intergovernmental organizations to achieve foreign policy, national security, and crime reduction objectives.
Sanctions work by cutting off access to financial systems, blocking trade, and freezing assets connected to sanctioned parties. The goal is to restrict sanctioned parties’ economic activity and isolate them from national and international finance and trade.
Specific sanctions measures relevant to financial institutions, money services businesses, and related industries include:
- Blocked financial transactions and investment: Prohibitions on financial transactions, lending, bonds issuances, equity investments, and joint ventures.
- Import and export controls on goods and services: Restrictions on importing or exporting certain products, technologies, or services to or from a sanctioned country.
- Asset freezes and seizures: Blocking access to financial assets, property, bank accounts, and shares.
- Trade financing restrictions: Denying access to credit, guarantees, and insurance that facilitates trade.
Companies operating across borders must navigate complex sanctions rules that vary by jurisdiction. Failing to comply with sanctions exposes them to legal prosecution, substantial financial penalties, and severe reputational damage. An effective sanctions compliance program is essential for managing risk and ensuring lawful cross-border business.
What Is Sanctions Compliance?
Sanctions compliance refers to the internal policies and procedures companies implement to ensure they adhere to applicable sanctions regimes. Sanctions compliance programs involve screening customers, suppliers, and transactions to avoid violating trade restrictions.
Sanctions compliance best practices include:
- Sanctions risk assessments
- Sanctions screening during customer onboarding and KYC processes
- Export licensing and customs clearance procedures
- Periodic audits by sanctions compliance teams
Through sanctions compliance measures, companies avoid inadvertent violations as rules frequently change. Structured programs also mitigate regulatory and criminal liability risks if violations do occur.
Who Creates Sanctions?
Many countries and international bodies create sanctions, although which sanctions regime is relevant to a particular company depends on where they are located, the regions in which they do business, and with whom they do business.
U.S. businesses should primarily focus on sanctions overseen by the U.S. Office of Foreign Assets Control (OFAC), part of the U.S. Department of Treasury. OFAC implements U.S. sanctions by designating sanctioned parties and publishing the Specially Designated Nationals and Blocked Persons (SDN) list and other OFAC sanctions lists that U.S. companies and individuals must comply with. For additional information, view our overview of OFAC screening requirements.
Other major sanctions regimes it may be helpful to be aware of include:
- The European Union: The European External Action Service (EEAS) administers sanctions for the European Union. Sanctions compliance is the responsibility of individual member countries.
- United Nations: The U.N. Security Council can enact multilateral sanctions with global scope. U.N. sanctions obligate all member states.
- United Kingdom: The U.K. Office of Financial Sanctions Implementation (OFSI) handles national sanctions in line with U.N. and E.U. directives. OFSI actively enforces sanctions prohibitions under U.K. law.
What Are the Penalties for Breaking Sanctions Laws?
OFAC enforces economic sanctions in the U.S. and can impose both civil monetary penalties and criminal penalties on U.S. companies that violate sanctions.
Civil penalties can be substantial, often exceeding several million dollars. The exact amount varies by sanctions program. For example, sanctions authorized under the International Emergency Economic Powers Act (IEEPA) have a maximum penalty of $307,922 for each violation or double the value of the violating transaction.
Criminal penalties for OFAC sanction violations can be even more severe. Monetary fines for each breach of sanctions laws can range from a few thousand to several million dollars. In addition, prison time of up to 30 years can be imposed, particularly for having prior knowledge of and willfully violating sanctions laws.
Other sanctions-issuing organizations have similar civil and criminal penalties for financial sanctions violations.
How Can Organizations Implement a Sanctions Compliance Program?
Organizations should implement structured sanctions compliance programs to appropriately adhere to complex sanctions rules that frequently change. Companies have unique sanctions compliance requirements, but an effective program will include at least the following components.
- Sanctions Screening: Screen all customers, suppliers, and transactions against regularly updated sanctions lists to identify prohibited dealings before they occur.
- Sanctions Risk Assessment: Continuously evaluate regions, counterparties, and customers to detect potential sanctions risks as operations, sanctions laws, and sanctions lists evolve.
- Senior Management Accountability: Appoint dedicated sanctions officers to actively monitor compliance. Ensure buy-in across leadership.
- Sanctions Training: Institute mandatory training to educate employees on sanctions regulations relevant to their daily roles.
- List Updates: Routinely check the relevant sanctions list for updates. Many sanctions lists are updated on at least a weekly basis.
Sanctions Compliance with Alessa
Sanctions compliance can be labor-intensive, time-consuming, and expensive. Alessa’s Watchlist and Sanctions Screening Software cuts the cost of sanctions compliance with fast, accurate, and timely global sanctions coverage. Our sanctions compliance solution provides:
- Global PEP and sanctions screening
- Real-time, periodic, and event-based screening
- Machine learning and rules-based analytics
- Configurable workflow management for flagged transactions
- A sophisticated and configurable scoring model to reduce false positives
Contact our AML and sanctions compliance experts today to learn how Alessa can streamline and optimize your sanctions compliance program.