Trade Compliance 101

Why are we screening against restricted and denied parties lists?

Recently, there has been much ado about the responsibilities of non-US businesses to perform restricted and denied parties screening against their non-US customers.

Likewise, what about the responsibilities of US businesses to screen other US businesses? While these questions are seemingly unrelated, they both stem from one major question: Do I really need to perform restricted party screening?

My business is not located within the US and does not ship within the US—why should we screen companies in my own country?
There are several reasons why companies should screen all of their business connections, even when not located within US. While limited scenarios may exist in which screening may not be require (see the caveat below), businesses are often more connected to the US business than they realize.

Are the goods being shipping of US origin?
In many cases, the answer is obvious, by remember that if a foreign-produced item contains a percentage of US origin commodities or technical data it may be subject to controls even when shipped domestically in a country other than the US. This percentage varies depending on the country group in which the recipient resides.

What about finances?
Many large shipments are facilitated in US Dollars, and processed through US Banks. These banks may freeze funds from being transferred to restricted parties or face penalties themselves. To avoid this possibility, screening is recommended, especially against OFAC’s Specially Designated Nationals (SDN) watch list.

Even if US restrictions do not apply, what are the local regulations?
The United States is not the only country to provide restricted, denied, or sanctioned party lists. Many foreign countries have their own laws which require the vetting of entities.

The major caveat noted above is that some jurisdictions may limit or restrict the action of screening or recording of information related to one or more parties on a domestic transaction due to data privacy rules or other regulations.

What about domestic business within the US?
Again, if your business is not specifically exempt from screening your customers for each transaction (such as how most retail businesses would be), there are several reasons why restricted party screening will apply.

For example, is your customer really a “US person?” This is where some Orwellian logic may begin to apply. Your customer would, if they were shipping within the US, be subject to the same restrictions as a US person, regardless of their status. When shipping to that customer, that business is not considered a US person (regardless of location) if not incorporated or organized under US law, or is a branch, agency, division, or subdivision of a foreign government.

Moreover, what is the final destination of the businesses’ goods? Agents aren’t likely to be forgiving if screening was deemed to be domestic and a product shipped, only for that product to find itself in Cuba, Syria, or Iran.

Depending on the nature of your organization, assume for a moment that it is not a manufacturer or distributor, but instead a Government contractor, research facility or other organization, you may have other requirements that can be partially resolve with restricted party screening. The Office of the Inspector General list of medical professionals, the General Services Administration lists, or Federal Law enforcement lists may still be a required part of your screening.

Do I really need to perform restricted party screening?
While there are a number of circumstances where a business may not require US-based restricted party screening on their customers, vendors, etc., there are far more examples of businesses that are not strictly beholden to US regulations that screen for other purposes. Non-US regulations, origin of goods, restricted party lists with specific applicability, and financial transactions are all examples of where restricted party screening is a best practice.

In most cases, the only time there is no doubt is when screening is required by law. For those organizations in doubt, screening is always recommended.


A Glossary of ideas in this article:

US Person: A US person is defined as any citizen or permanent resident of the United States or any corporation (business, partnership, etc.) organized under US law.

Goods of US Origin: Goods originating from the United States or goods that contain a certain percentage of US goods are considered goods of US origin for export purposes. The percentage varies depending on the destination of the goods in question. For example, goods containing 10% US commodities or technology would be restricted to the most controlled regions, like Cuba, North Korea, or Syria, among others.

Office of Foreign Assets Control (OFAC) and Specially Designated Nationals (SDN): Though these have been covered on this blog previously, it is worth restating the critical nature of these lists when it comes to large payments facilitated in US Dollars. When any restricted country or an individual on any OFAC list (SDN, Sanctioned and Embargoed Countries, Sectorial Sanctions, or others) are involved in a transaction, this could spell trouble for all parties involved. See the recent case of fines levied due to US Bank involvement in a transaction that involved only the Governments of Iran and Venezuela, for an example.[i]

Office of the Inspector General (OIG): The primary list cited with the OIG is the list of individuals excluded from federal health and Medicare programs, which may be of concern to organizations in related industries.

General Services Administration: The GSA, which utilizes its own Government site—SAM.GOV.—contains several lists commonly used in restricted party screening. These have to do with exclusions from participation in federal procurement, non-procurement, and reciprocal programs.


[i] Iranian National Arrested for Scheme to Evade U.S. Economic Sanctions by Illicitly Sending More Than $115 Million From Venezuela Through the U.S. Financial System. News release. Department of Justice. March 30, 2018. https://www.justice.gov/opa/pr/iranian-national-arrested-scheme-evade-us-economic-sanctions-illicitly-sending-more-115. Accessed April 16.


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