Aligning Your Business with Global Sanctions Lists - Don't Get Caught Short
Aligning Your Business with Global Sanctions Lists - Don't Get Caught Short
With global financial markets being interconnected, businesses in UAE engage with a diverse range of customers and partners from around the world. The Anti-Money Laundering (AML) and Targeted Financial Sanctions (TFS) regulations in UAE mandate businesses to implement effective sanctions-screening processes.
This involves designing, aligning, and implementing sanctions compliance programs with sanctions screening processes that cover national as well as global sanctions lists.
However, many businesses tend to fall short with the interlinking of these global sanctions lists within their AML/TFS compliance framework, which poses significant risks to businesses.
Here’s a list of factors that businesses need to be aware of to evade falling short of, while aligning global sanctions lists with their AML/TFS program:
Reputation Risk
Businesses must be mindful of not falling short in implementing global sanctions lists, as this can negatively impact their reputation. Associating with sanctioned individuals or entities, whether knowingly or unknowingly, can expose businesses to probable ML/FT and PF risks, which upon materialising can lead to negative publicity, loss of trust in the eyes of customers as well as regulatory authorities and damage the overall brand image.
Regulatory Risk
Regulated entities with their exposure to international clients must not ignore implementing global sanctions lists, as it would expose businesses to regulatory noncompliance consequences such as potential license cancellation, liquidation, or asset seizure. These risks arise from violations of regulatory requirements enforced by the regulatory authorities in the UAE. Further, it also leads to the imposition of administrative consequences and regulatory penalties such as fines, which significantly increase financial burdens and disrupt operations.
Criminal Charges
The inability to screen customers and partners against UNSC sanction lists and other relevant and applicable global sanctions can lead to criminal charges upon the business itself and its employees, such as the imposition of fines and penalties and the probability of imprisonment on the directors, senior management or compliance officers of the business. Both intentional and unintentional conduct resulting in the lack of adequate application of measures under TFS regulations may also trigger criminal liability for businesses.
Increased Supervision
TFS non-compliance results in increased regulatory scrutiny and supervision. Regulated entities must take into consideration the relevant sanctions lists in accordance with the legal requirements and the risk-based approach adopted by them.
Missed Red Flags
An entity having a global business must adhere to the legal obligations of the jurisdictions it does business with. Failure to take into consideration the relevant sanctions lists may lead leads to the onboarding of sanctioned individuals and entities likely to engage in illicit activities, including money laundering and financing terrorism.
Overlooking screening individuals and entities against global sanction lists would enable perpetrators to slip through weak sanctions screening programs, as no alert would be generated to stop them in their tracks. This would increase the likelihood of businesses missing out on red flags indicating involvement in illicit activities.
Financial Crime Risk
Any business’s failure to align with the relevant and applicable global lists opens the business to the chance of unknowingly facilitating financial crimes. Regulated entities dealing with foreign customers and suppliers must consider the sanctions lists of the respective countries to comply with TFS requirements.
Supply Chain Risk
Not identifying sanctioned individuals and entities in a timely manner across relevant and applicable global lists leads to supply chain vulnerabilities. Businesses face the risk of engaging with sanctioned suppliers, exposing themselves to regulatory penalties. This oversight compromises supply chain integrity by affecting production and distribution due to the potential involvement of criminals in misusing the supply chain of the business for their illicit purposes.
Export Control Violations
Entities engaged in import and export business must screen their customers, suppliers, and third-parties against the relevant sanctions lists. A failure to do so may result in selling or purchasing restricted products or dual-use goods to sanctioned entities or individuals, which can result in export control violations. Further, entities must have relevant license to deal in dual-use items.
Funding Risks
When a business is unable to meet sanctions compliance adequately, it may affect access to funding and financial services. Once a business gets penalised or flagged for non-compliance with AML/CFT and TFS laws, it becomes difficult for them to obtain funding from banks and financial institutions as they are viewed as high risk by these banks and financial institutions. This may lead to higher interest rates or difficulty in acquiring funding, disrupting cash flow and growth opportunities, and hindering smooth operations.
Business Continuity Risk
Businesses must adhere to TFS requirements as non-compliance consequences such as criminal charges and penalties would lead to uncertainty and instability in business operations. It increases legal challenges and regulatory scrutiny and damages reputation, which undermines long-term growth, making it difficult to manage business operations and safeguard the business to continue its operations smoothly.
Global Expansion Risk
Businesses must strive to evade global expansion risk by having in place an adequate global sanctions compliance program as authorities, prior to granting permission to operate in their country, perform due diligence on businesses, and any finding of noncompliance with global sanctions flags businesses and restricts their expansion plans as countries do want to let businesses with weak compliance operate within their jurisdictions.
Conclusion
For effective compliance with AML/TFS laws, businesses must align both domestic and international sanctions lists to ensure that they screen their customers, partners, and suppliers against the relevant sanction lists. Sanctions screening software can help automate this process and streamline compliance operations.