For export, trade and financial (OFAC) compliance professionals, Restricted Party Screening—also known as Denied Party Screening, SDN screening, and sanctions screening, among others—is second nature.
However, unless you breathe, eat and sleep export compliance, there is often confusion about even the most basic fundamentals of Restricted Party Screening—including “why do we screen,” who do we screen,” and “what’s our screening process.”
Introduction to Restricted Party Screening 101, a two-part series, we’ll discuss some of the essentials of Restricted Party Screening for those just getting started, and throw in some short tales from our own experiences in serving the good people involved in this mandatory area of export, trade and financial compliance.
Introduction to Restricted Party Screening
We begin at the beginning: why must an organization screen for restricted parties?
To put it simply, there are people out there that the US and international governments do not want you doing business with, for a variety of reasons. If you do business with these people, there’s a genuine likelihood that the government will come knocking on your door. If found to be non-compliant, an organization may be subject to fines, penalties, denial of export privileges, even negative media coverage.
Denied Party Screening, Restricted Party Screening, or Sanctioned Party Lists: what is the correct term?
The honest answer is, “All of the above.” Some of these terms are context specific. When you see the word “Screening” you are reading about the processes. The word “lists,” refers to the various sources of the data that fuels the screening process, and subsequent screening results.
The interchangeability of these terms has sometimes led to the fallacy that these are, in fact, different things. The truth is that these terms are subjective, and often depend on the preference of the speaker or organization.
The term “debarred party” is also common, and is often used interchangeably when speaking about a restricted, denied, or sanctioned party. This refers to an individual or organization that appears on a list.
What are the sources of these lists?
The primary list for US businesses are: The Bureau of Industry and Security, or BIS (pronounced Be Eye Ess, not, “biss”), the Office of Foreign Assets Control, or OFAC (you can pronounce this one as “Oh-Fak”), and the Department of State/Directorate of Defense Trade Controls (DDTC). Others common lists screened include (but are certainly not limited to) the General Services Administration (GSA, found on the System for Awards Management site; SAM.GOV), various Federal Law Enforcement lists (FBI, DEA, etc.), and the United Nations or European Union. There are more available lists than one could possibly name, but that is a topic for another day.
Who should be screened?
In short—everyone, and whenever a transaction—be it an exchange of tangible goods and services, or finances, takes place. Generally, screening should be performed on any party to which a product or information is distributed, the final end user, and the chain of individuals and businesses in-between. Screening can also be used for contacts, visitors, and employees—though the lists screened may vary for each of these purposes. For example, the General Services Administration list may not be applicable for organizations that do not engage in business with the US government.
Who should be doing the screening?
This really depends on the organization. Some have centralized trade compliance persons who review all information entered, such as at the order-entry level by Customer Service Reps, Sales, or Procurement persons. Some companies leverage existing business systems, and have chosen to integrate screening at one or more points in their workflow.
One thing our experience has shown us is that companies with the most effective trade compliance programs emphasize the basic rules and regulations of compliance at all levels of the business. This sets a business standard and enforces best practices across the organization.
When should screening take place?
Again, this is subjective to the organization. Businesses may choose to screen potential customers or vendors at first contact. Some screen again when orders or finances change hands, and repeat this process with each order. Other organizations will have automated rescreening take place instead of rescreening manually. Visitors may be screened when they sign up for a tour, or on the spot when they arrive. What is really important about when screening takes place is that it should fit the regulatory goals of the organization—ensuring that goods, technology, information, or finances are not transferred in violation of export regulations.
A cautionary tale: when screening comes too little, too late
While attending a conference on Export Control a few years back, the discussion—which included a representative from the Department of Homeland Security, and experienced trade compliance professionals from a Fortune 500 company and several smaller organizations—turned to an extreme case of export compliance negligence.
The attendees were told a tale of an organization that unwittingly committed violations in the mid-2000s. This organization had an automated screening system in place, including one that facilitated IP location searching. Despite having these measures in place, no one had bothered to research the basics about which lists they needed to screen against. As such, they opted to only use a small set of US-based watch lists.
This organization found itself in deep water, discovering only after having shipped its product that the company to which it shipped was on a restricted party watch list. How did this happen?
In an attempt at efficiency, individuals at the company chose to screen for restricted parties at the point of shipment, i.e., when the warehouse personnel logged the daily shipments. At the time, management dismissed the idea that the timing would be too late. They then made a second critical error, which likely impacted the earlier decision to screen late in the shipping process: they assumed that their freight forwarder would screen and stop an order themselves if it violated any export laws. It’s worth noting that the freight forwarder also lacked a robust export compliance program, though the responsibility ultimately lay with the shipper.
In the end, the violations were pled down to relatively minor fines, with the promise to improve the Trade Compliance program within the organization. The whole ordeal cost time and money—and the inconvenience of an Immigration and Customs Enforcement (ICE) raid on their offices.
Trade Compliance 101: a conclusion to Restricted Party Screening, Part 1
We hope you found the above information helpful in learning more about what Restricted Party Screening is, the various terms it can go by, how screening watch lists fit into the equation—and an example of some of the consequences of not being compliant.
The next article in this series, Trade Compliance 101: An Introduction to Restricted Party Screening, Part 2, which discusses some real-world scenarios that drive home the importance of screening for denied and sanctioned parties—and doing further due diligence above and beyond just screening—is now available.
A Glossary of Ideas in this article:
Restricted / Denied / Sanctioned Party Screening: The process of reviewing customers, vendors, visitors, and any other business partners and related parties through a search engine designed to match those entities against restricted or denied parties. These are often referred to as; RPS, DPS, DPL, SPL and SDN Screening.
Restricted / Denied / Sanctioned Party List: The sources of the entity lists that screening will match against. There are often referred to as RPL, DPL, SDN or SPL.
Restricted / Denied / Sanctioned/Debarred Party: These terms describe the individuals or organizations that appears on the restricted party lists.
Bureau of Industry and Security: A branch of the U.S. Department of Commerce, responsible for ensuring export control and compliance.
Office of Foreign Assets Control: A branch of the Department of the Treasury that administrates and polices financial and trade regulations.
Directorate of Defense Trade Control: An organization with the U.S. Department of State responsible for enforcing International Traffic and Arms Regulations.