The Importance of Removing Sanction-Related Information from a Transaction
Financial transactions have become more complex in today’s globalized economy, with the rise of e-commerce and cross-border trade. Along with these opportunities come risks, primarily from financial crimes such as money laundering, terrorism financing, and economic sanctions violations. Sanctions-related violations can occur if a transaction includes information related to an individual or entity that is prohibited under the country’s sanctions program, even if the transaction itself is legal.
In this article, we aim to explore the importance of removing sanction-related information from a transaction to avoid unintended consequences.
Risks Associated with Sanction-Related Information in Transactions
Financial institutions and businesses must be vigilant regarding the risks associated with sanction-related information in transactions. The U.S. Office of Foreign Asset Control (OFAC) can impose stiff fines and penalties for violating sanctions laws, regardless of whether the violation was intentional or not.
The inclusion of sanction-related information in transactions can significantly increase the likelihood of sanctions violations. These violations can result in significant financial loss, reputational damage, and harm to the broader economy.
Efforts to Combat Sanctions Violation Risks
To mitigate the risks of sanctions violations, financial institutions and businesses must screen their transactions against multiple sanctions lists. Failure to screen transactions can lead to inadvertent sanctions violations, and financial penalties.
Moreover, financial institutions must develop comprehensive policies and procedures to identify and remove sanction-related information from their transactions. Sanction filtering technology is essential in this regard as it can automatically identify sanction-related data in the transaction.
Examples of Sanction-Related Violations
There are numerous examples of sanction-related violations, both intentional and unintentional, resulting from the inclusion of sanction-related information in transactions.
For example, in October 2018, Societe Generale agreed to pay $1.34 billion in fine and forfeiture to resolve criminal charges for violating US sanctions against Cuba, Sudan, and Iran.
In another example, Lloyds Bank paid a $217 million fine to OFAC in 2019, reflecting OFAC’s determination that Lloyds Bank processed transactions that contained information related to OFAC-sanctioned parties.
Conclusion
In conclusion, sanctions-related violations can occur even if the transaction itself is valid. It is therefore critical that businesses and financial institutions identify and remove sanction-related information from their transactions. This is necessary to avoid financial penalties, reputational damage, and harm to the broader economy.
The best way to reduce the risk of sanctions violations is to implement strict policies and procedures to identify and remove sanction-related information from transactions. Additionally, financial institutions must ensure they conduct sufficient screening against sanctions lists to identify prohibited parties and prevent violations from occurring in the first place.
