Restricted party screening is more than just about screening for names of individuals and companies that appear on denied parties watch lists maintained by governments and other official organizations.
When looked at in its entirety, the screening process represents a mosaic of sanctions, debarments, and embargoes in addition to denied persons. The reasons for these debarments can be for any variety of reasons based on the regulations that apply. These include not only export violations, but also financial, criminal, regulatory, or healthcare violations.
As discussed in previous Trade Compliance 101 articles, looking for a name or company is critically important in the due diligence process, and everyone in the organization should be on the lookout to prevent violations. However, there should be another step in the process: Address screening, or address search.
“But wait,” you say, “you cannot debar a street, many businesses could operate there!”
True, but address screening isn’t the same as a name or company, where you are looking to match specifically against that entity. Address screening is about verification; it is about preventing or further mitigating the chance of doing business with a debarred party.
So I have the address, now what?
The best way to mitigate risk is to have an effective compliance solution, and use a reliable source for addresses of the businesses and persons you are screening.
Matching an address for a restricted party, particularly when you do not have a match against the company you entered, could have implications in your overall ability to do business with that company. Is it a coincidence that the address is the same, or appears the same? Are they a subsidiary of the debarred party? What, if any, sanctions or embargoes apply?
It is always possible that the location contains multiple unrelated businesses, and that further review of the addresses and analysis will reveal that there is no connection between your potential customer and the one listed as debarred at that location. You are going to want to be able to prove that though, and have the details showing that you were fully aware of the situation.
So is the main concern that debarred companies with change their names?
That is one concern, as highlighted in this case, which details Chinese company, ZTE Corporation’s, efforts to deceive US suppliers using subsidiaries to facilitate shipments to Iran. Even after publicly admitting to the scheme and claiming to cease operations in Iran, ZTE had simply renamed its Iranian subsidiary, according to the findings.
It appears to have taken several years before the US government authorities caught wind of the practice, but the new subsidiary name was ultimately added to the BIS Entity List.
Are there other concerns?
There have also been cases where exports or shipping has occurred due to inaccuracy, or possible fraud, related to addresses. Often, it is difficult to determine where the failure actually occurred—was the address incorrect intentionally? Was it a long address that did not follow a conventional format that was difficult to search?
Take a look at North Korea’s efforts to avoid the sanctions against that country. Fake addresses are at the core of this entire process. After all, you may be able to debar a named company, even if it is fake, or a real address where the fake company was located. But what about a fake address? If the address is truly forged, and exists in no physical location, that information should be easy enough to unearth. But what if a fake businesses claims to be operating at a real address that doesn’t belong to them. Should the location of a neighborhood corner grocer be debarred by the authorities because some phony bank claims the location is theirs?
So what do we do?
The best course of action is simply due diligence, using a denied party screening tool that includes an address-only search function. You could also do it manually—using search engines, maps, and news articles—but this type of page-by-page verification tends to be time-consuming and a waste of precious work resources.
And, of course, document what you’re doing and the review you’ve performed. Unlike the unwitting companies in 2006, who could claim ignorance in order to mitigate the issue, government authorities have long since moved past allowing ignorance as a defense.
Regardless of the overall method, or methods, used, creating a standardized process to verify the location of your business parties will usually lead you down the right path.
A Glossary of Ideas in this article:
Address screening or checking: Address screening usually refers to the actual process of screening an address (without an individual or organization) against the various restricted party lists. Address checking can either be done through an automated tool, or via a manual process of viewing the location of the party being screened.
Verification: Verification, when used in the context of Restricted Party Screening, refers to the overall process of ensuring that the data is correct, that details about the party to be screened are true. Verification can take on different forms, from conducting a general web search to ensure that the business name given matches the official one, to checking that addresses are real and accurate.