Taking a Deep Dive on Denied Party Screening

Any organization that ships products internationally has had to deal with third-party screening requirements for decades. Now, however, the process is both getting easier and more complex.

“Screening has become de facto process for electronics companies, since they may be selling dual use products with both commercial and military uses especially,” said Ken Harris, head of Denied Party Screening at Descartes.  “It is very complicated because there's no centralized repository for all the lists.”

By ensuring that components or products aren't sold to anyone on the restricted list created by just about every government and country in the world, companies are able to avoid fines and ensure that they are in compliance with embargoes and other sanctions that have been levied against other countries or organizations. The rules require that shippers screen every export destination and the lists change constantly. 

Organizations on the black list are usually thought to be involved in a variety of illicit activities, from stockpiling weapons, or repurposing technology to put it into the wrong hands.

Interested parties monitor exports in various ways. Governments, for example, may check filings through an automated export system. Further, whistleblowers may raise a red flag when an organization fails to comply. Companies, meanwhile, have to make a real effort to keep up the ever-changing black list. The U.S., for example, updates its Consolidated Screening List (CSL) daily and offers a search tool and a downloadable list.

The penalties for not complying with third-party screening requirements can be harsh. “First, fines and penalties, that include both criminal charges that carry up to 20 years imprisonment and fines of up to one million dollars per violation,” said Harris. Worse, corporate leadership can even be jailed.

Further, organizations that are found to be shipping to places or people on the denied party list can lose export privileges. “That can be a death sentence for an organization,” said Harris. “You are also in danger of losing good will and an untarnished company name. No one wants to see their name on the front page for an export violation.”

And it does happen. Earlier this summer, for example, the Treasury Department's Office of Foreign Assets Control (OFAC) fined PayPal  $7.7 million for 486 sanctions totaling $43,934 over several years.

Even organizations trying to do the right thing, though, can run into challenges. For example, the denied party list may contain names that are similar to or the same as the name of a particular customer, and then the organization needs to figure out if that particular customer has been sanctioned or not.

In the end, organizations need to show that they have done “due diligence,” said Harris. “Our customers want to do the right thing,” he added. “And, at the end of the day, no one has ever been prosecuted for doing screenings.”

Fortunately, big data technology is starting to create new and better ways to screen for denied parties. Descartes, for example, has developed a screening service that also gives its customers an audit trail (critical to proving due diligence). Other players in the market include Amber Road and Livingston. 

Of course, every organization has limited resources and may feel overwhelmed at the idea of putting a screening process in place. Harris offered a few places to start:

  1. Take a snapshot in time, and screen existing customers, vendors and suppliers. This effort provides an idea of whether or not the organization may have challenges in this area.
  2. Measure your risk. It's easier to get on a denied party list today than every before, said Harris. Consider the countries that you do business with and what types of products you ship.
  3. Choose an appropriate frequency for screening. Some organizations with a low level of risk screen quarterly, while others might do a screening every night.
  4. Choose an approach. While some organizations may want or need to screen all transactions, some may be satisfied with screening based on the product being shipped or the country to which it is exported.

The infographic below, from Descartes, offers a deeper dive into denied party screening. Take a look and let us know how your organization handles the challenge in the comments section below.

— Hailey Lynne McKeefry, Editor in Chief, EBN Circle me on Google+ Follow me on Twitter Visit my LinkedIn page Friend me on Facebook

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