- Country
- European Union
- Publication type
- Article
- Thematic area
- Sanctions compliance & due diligence
Introduction
Sanctions can be daunting. Understanding and complying with them can seem overwhelming, especially since they carry penalties for non-compliance. However, there are ample resources available to not only understand your situation, but also to go a long way in handling compliance due diligence yourself. Follow along as we get into what due diligence is and what resources are available, which will help you tackle the situation with peace of mind.
Sanctions due diligence is the process of identifying, preventing, and managing potential sanctions risks in your business. As part of a sanctions compliance programme, sanctions due diligence helps a business assess and reduce its potential sanctions risk exposure. As a result, the business is better informed about whether or not a proposed transaction or activity is prohibited under EU law.
Why you should undertake sanctions due diligence
There are many reasons why it is important for you, your staff and your business to undertake sanctions due diligence:
- It helps to ensure that you do not break the law. Violation of EU restrictive measures can be investigated and prosecuted in all EU member states.
- It protects you in the event of inadvertent breaches. If you do breach sanctions inadvertently but have completed appropriate, risk-based due diligence, then you may have a legal defence.
- It reassures your business counterparties and financial institutions that you are serious about managing sanctions risks – and other risks facing your business.
- It supports the policy objectives of the EU’s sanctions. EU restrictive measures are imposed to:
- Safeguard the EU's values, fundamental interests and security;
- Support democracy, the rule of law, human rights and international law; and
- Preserve peace, prevent conflicts and strengthen international security.
Put simply, complying with EU sanctions helps maintain international law and order.
What does sanctions due diligence involve?
There is no one-size-fits-all approach to due diligence. Organisations differ and each business transaction is fact-specific, so the level and nature of potential sanctions risk differs accordingly.
Sanctions due diligence involves:
- Collecting information about the activity you are considering and identifying any potential red flags that indicate potential sanctions risk to you or your business;
- Verifying information where you encounter red flags, to ensure that the information you have is legitimate;
- Asking questions of the relevant customer, supplier or other stakeholders to address any unresolved concerns or red flags.
If you have undertaken a sanctions risk assessment, you will know the most likely point of vulnerability to sanctions risk in your business.
What factors should I consider?
- Who: Suppliers, customers, agents, distributors and representatives
- Are they subject to an asset freeze or other EU restrictive measure?
- Are they owned or controlled by someone subject to any EU restrictive measure?
- Do they trade with or have other connections with individuals or entities in countries subject to EU restrictive measures?
- What: Physical goods, supply of services, services ancillary to transfer of goods (insurance, brokerage, servicing, warranties, etc.)
- Are they Military or Dual-Use items or services?
- Is their use prohibited under a sanctions regime?
- Additionally:
- Are they on the economically critical goods list?
- Are they included on the List of Common High Priority Items?
- Where: Origin of goods, destination of goods and jurisdictions through which they will transit
- Will the goods or services be delivered to, from or transit through a country subject to EU restrictive measures?
- Is the payment routing consistent with what you expect for the transaction and its geographical footprint?
- Will the goods be delivered to (or transit) a country adjacent to a country subject to EU restrictive measures, or in a customs-union with such a country (e.g. the Eurasian Economic Union, which includes Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia)?
- Why: Intended end-use or end-user of the goods or services
- Is the end-user of the product or service subject to EU restrictive measures or other export controls?
- Is the purpose (i.e. the end use) of the product or service subject to EU restrictive measures or other export controls?
The purpose of making these enquiries is to satisfy yourself that you are not engaging in prohibited activity. During the course of your enquiries, you may come across information that makes you suspect something is not right. These red flags are indicators of activity that is potentially problematic and may be unlawful.
How much sanctions due diligence is enough?
Each transaction will have unique elements and each business or market sector will have its own potential sanctions risks. The amount of due diligence you should do is risk-based – that is, the greater the sanctions risk, the more due diligence you should undertake.
If you have unanswered questions or encounter red flags that you are not able to address by undertaking more detailed enquiries, your transaction may possibly involve an attempt at circumventing sanctions. You should not undertake the transaction until you have sought advice (see below).
Remember, sanctions due diligence is not about feeling comfortable with a transaction – it is about satisfying yourself that the transaction is lawful. If you cannot satisfy yourself about this, then you should consider either seeking professional advice or declining the transaction.
How the EU Sanctions Helpdesk can help you
The EU Sanctions Helpdesk is an initiative funded by the EU to help SMEs and other organisations comply with EU restrictive measures. We can:
- Answer your questions on the applicability of EU restrictive measures
- Offer you guidance on performing sanctions due diligence
- Undertake sanctions due diligence for you, free of charge, if you encounter red flags or you simply need the support
If you have a question on a transaction, find out how to get support.
Where else can I find help?
If you need further support, guidance or advice you should contact a professional or organisation who specialises in sanctions. You should also consider:
- Reaching out to your National Competent Authority
- Consulting other helpful resources
- Attending one of our awareness raising events