What Do Organizations in my Industry Need to be Mindful of When it Comes to Denied Party Screening and Export Compliance?

Aerospace & Defense

As a significant portion of their products have military applications, organizations in the Aerospace & Defense field face intense scrutiny when it comes to export compliance. These organizations need to ensure that, not only are they not doing business with denied parties or in sanctioned and embargoed regions, they also need to ensure they’re properly identifying how their items are classified by the Directorate of Defense Trade Controls (DDTC) and the United States Munitions List (USML), as defined in International Traffic in Arms Regulations (ITAR).

As such, it’s imperative that no potential business partners slip through the cracks and don’t get screened. Because of this, many businesses in these fields opt for automated screening integrated with multiple business systems to help ensure that anyone they’re considering doing business with gets screened frequently throughout the sales and fulfillment process.

Businesses in this space need to ensure they are screening all their customers and rescreening on a regular basis, as the last thing any Aerospace & Defense organizations wants is their products falling into the hands of terrorists or other bad actors, as it can lead to unwanted attention, bad publicity, and government intervention. Additionally, software that helps simplify the classification process is also an invaluable tool in helping to ensure these items stay out of the hands of those who intend to use them for nefarious purposes.

Automotive

Today’s auto manufacturers possess global networks of suppliers, vendors, manufacturing plants, and sales distributors. Compliance risks are highest in areas relating to international sales, channel marketing, and vendor and supplier contracts.

In instances where certain technologies cannot be manufactured locally and it’s necessary to bring these from elsewhere, problems can arise when having to deal with the host countries protectionist tariffs. Traditionally, manufacturers would hire agents who specialized in dealing with customs officials and the regulations governing imports. However, this practice is coming under increased scrutiny because of the inherent risk of bribery to speed up the importation process.

As underscored by historical enforcement actions, in addition to regulations related to denied and restricted parties, organizations in the automotive industry need to take great care to maintain compliance with the Foreign Corrupt Practices Act.

As with many industries that deal with multiple geographies and a large number of customers, automating denied party screening with your existing business systems can help maintain compliance without sacrificing efficiency. Businesses in the automotive industry should also invest in classification software, as many parts used in building automotive vehicles – and the vehicles themselves – can be found on both the ITAR and EAR.

Construction & Real Estate

While construction may not seem like an industry that would be highly at risk of trade compliance violations, once you consider how the tools, machinery, and supplies used in the field might also have military applications, it becomes clear why construction companies need to pay close attention to compliance. Even though these items may not be sold by the organization themselves, any time they’re transported internationally is considered to be an export, and therefore, subject to export controls. Ensuring that the proper licenses and paperwork are in place is absolutely essential.

Additionally, the construction and real estate industries are at high risk of being targeted by organizations looking for ways to launder money. With the increasingly international financial partnerships involved in large scale projects, it is vital that all business partners get screened to ensure they are not facing sanctions or identified as being linked to funding terrorism or other criminal activities. A strong OFAC compliance program is a must for these organizations.

Companies in these industries should look for strong denied party screening software with automated screening, while solutions that help ease the classification process, streamline the process of applying for and tracking against export licenses, and simplify preparing export documentation are highly recommended for organizations in the construction industry.

Financial & Insurance

OFAC compliance for financial institutions requires monitoring all transactions to identify those that involve any entity subject to OFAC sanctions. According to the requirements of federal statutes and specific sanctions, in most cases, deposits and funds should be accepted then ‘blocked’ or ‘frozen’ to ensure funds cannot be withdrawn. In some instances, transactions must instead be rejected.

When the USA Patriot Act was introduced, amongst other provisions it amended the Bank Secrecy Act to strengthen U.S. measures to prevent, detect, and prosecute international money laundering, requiring financial service companies to screen against OFAC’s Specially Designated Nationals (SDN) list and to ensure compliance with OFAC country-based sanctions. This, in addition to lists against which most financial services firms screen as part of their corporate anti-money laundering (AML) and know your customer (KYC) programs: Patriot Act Section 311, FinCEN 314a, Politically Exposed Persons (PEP), FBI, OSFI, UK Consolidated, EU Consolidated and FATF.

Regulations also require screening of customers against the frequently updated OFAC list for potential matches to terrorists, drug traffickers, and other sanctioned entities. Considering the large number of people financial institutions do business with, automating screening via integration with daily rescreening can go a long way towards protecting their bottom line and their reputation.

Healthcare

To mitigate the risk of costly monetary fines and reputational damage associated with non-compliance, health and pharmaceutical companies need to screen for sanctioned parties and prevent working with these banned entities. It is important to note that sanctioned parties can be from either foreign regions or domestic areas, and organizations need to consider local screening as well.

Particular to the healthcare industry, the U.S. Office of the Inspector General (OIG) requires compliance with rules related to Medicare and Medicaid exclusions. They also can face extra scrutiny for government agencies, such as the General Services Administration (GSA), United States Food and Drug Administration (FDA), Medicaid, and the Office of Foreign Assets Control (OFAC).

To help ensure the success of your denied party screening program, using a centralized software platform can help your business ensure comprehensive and accurate export compliance checks. These services can identify entities present in relevant federal or state programs.

Proven technology solutions combined with automated screening also helps to address compliance requirements proactively and in a cost-effective manner, allowing you to focus more time on core business objectives.

IT & High Tech

The IT and High Tech markets continue to grow globally, fueled by the growth in personal and enterprise computing and the proliferation of mobile communications devices. In this competitive and highly concentrated industry, companies face intense price competition and growing demands by shareholders to fulfill expectations around earnings. In turn, pressures drive strategies for faster time to market, supply chain optimization, and merger opportunities.

For most companies, new levels of accountability from both regulatory requirements and stakeholder demands have elevated concerns that effective, robust, and reliable trade compliance controls and compliance processes are in place and being utilized. This is of particular importance to companies with goods subject to ITAR or EAR regulatory requirements.

As with any business dealing with sensitive technologies or items with potential military applications, a robust screening and classification program is a must. Integrating screening with your business systems so that it takes place automatically helps to ensure that your organization is doing its due diligence in meeting their compliance obligations, while daily rescreening helps to keep the status of your customers, vendors, and suppliers up to date.

Manufacturing

For many manufacturers, improving manufacturing operation performance is often top of mind. Fresh thinking considering the changing economic and governance climate can play a vital role in ensuring sustainable success. While supply chain issues can be disruptive to production, compliance violations can have a devastating impact on the bottom line.

As with any industry, trade compliance should be an important factor in the day-to-day processes of any organization in the manufacturing industry, as they are subject to regulations from multiple government departments and agencies. Those working for customers with goods under ITAR jurisdiction must ensure they in compliance with regulations enforced by the Department of State’s Directorate of Defense Trade Controls (DDTC)—even if the contract manufacturer does not physically export the controlled items. For those goods under EAR jurisdiction, there are similar end-use, end-user, and license requirements enforced by the Department of Commerce’s Bureau of Industry and Security (BIS).

It is no longer enough to consider manufacturing operations in isolation. Strategies that engage with the wider business—sales and marketing, back-office functions, procurement, logistics, and HR—across domestic and international locations are necessary to achieve competitive advantages and ensure compliance in changing marketplaces characterized by economic volatility, heightened regulatory scrutiny, and competition from emerging entrants. Automating denied party screening can help ensure compliance without adding additional time to fulfillment or sacrificing efficiency.

NGOs & Charities

Whether you are a charity, non-profit, or non-governmental body, the burden is on you to avoid violating sanctions and mitigate the risks of being exploited by unscrupulous actors. While most of us laud the fact that that charities, non-profits, and other NGOs provide assistance to people in need, the unfortunate reality is that they are open to infiltration from denied parties, especially those operating in sanctioned regions. The Office of Foreign Assets Control (OFAC) strongly recommends that organizations in this field have stringent compliance screening mechanisms to ensure (and document) that business relationships and transactions comply with the regulations.

It’s vital that charities and NGOs have robust solutions in place to help ensure they are not doing business with individuals and organizations who face a wide range of financial trade restrictions. Web-based software that integrates screening into everyday processes can help organizations like yours to avoid doing business with those involved with terrorism, narcotics trafficking, money laundering, and the proliferation of weapons of mass destruction.

NGOs and Charities need to be sure they are verifying the identity of individuals they work with, the organizations they partner with, and the sanction status of geographies they work in, as well as assessing whether an export license is required for an aid they’re exporting. A robust export compliance system that includes denied party screening is a must for any organization in this field, while detailed classification software is of high importance to any NGO or charity that works internationally.

Retail & Distribution

With the expansion of online retail allowing companies to do business internationally on a larger scale than previously possible has been accompanied by an increase in the risk of export violations and other compliance concerns. As such, a strong, efficient screening program that provide rapid results has become a key business process for any retailer—especially those in the eCommerce space.

As customers can now be virtually anywhere in the world, retailers have to pay special attention to sanction and embargo programs to help ensure they’re not shipping dual-use or military-use goods to areas they’re not supposed to go. Additionally, OFAC regulations require that organizations do not accept payment from organizations on watch lists maintained by the Department of the Treasury.

Because of the breakneck pace of business in this industry, automated denied party screening integrated with your point-of-sales and other business systems is absolutely essential to help organizations avoid potentially crippling fines and other penalties. Online retailers should also consider implementing IP Address Geolocation to help confirm the accuracy of the location information provided by the purchaser. On top of screening, a strong classification solution is also of high importance to help prevent items from unlawfully entering into the hands of those on watch lists maintained by multiple government agencies and to help identify any necessary export licenses required to fulfill an order.

Transportation & Logistics

Many companies have expanded well beyond simple delivery services and are now managing all aspects of the supply chain. These trends have changed the face of an industry which has become increasingly focused on serving customers in all parts of the world.

Deregulation, consolidation, and privatization are opening new opportunities while simultaneously raising the bar for operational performance and profitability. This has placed companies under increased pressure to reduce costs but continue to grow and maintain a competitive advantage through increased productivity and efficiency. Therefore, transportation providers are now tasked with transitioning their risk management and governance practices into world class standards.

When looking at the operation of support services (IT, procurement, compliance) many companies have opted to move these activities into a shared services organization. Others have outsourced. Many have done both. In many cases these moves go hand in hand—and go alongside IT rationalization. As part of this process, automating denied party screening through integration can help strengthen an organization’s compliance program.

Travel & Hospitality

Dealing with multiple jurisdictions means that companies in the travel and hospitality field require multi-faceted efforts to maintain compliance. From having to screen multi-national guests and employees, to working with local partners across the globe, making sure that you are in constant compliance with OFAC and other regulatory requirements can be a complex and time-consuming task.

The Financial Crimes Enforcement Network (FinCEN) includes organizations in the travel and hospitality sector in its financial services definition largely because of a susceptibility to being targeted by money-launderers, and risk of doing business with specially designated nationals and sanctioned countries. This means that there is an increased emphasis on maintaining compliance with stringent requirements faced by more traditional financial institutions.

The key solutions required for companies in this field to maintain compliance are restricted party screening, along with tools that aid in the process of vetting matches discovered in the screening process.

Universities & Research Institutions

The connection between export compliance and research is not obvious—unless one understands that export controls are by no means restricted to the shipment of goods from one country to another.

Export control laws and regulations apply not only to goods, and not only to their physical export, they apply equally to technologies, the definition of which includes direct or indirect transfer of knowledge.

For this reason, research often invokes the “deemed export” rule: activities that are deemed to be exports, and therefore subject to the export regulatory requirements of various government departments.

As part of an export compliance program, universities and research facilities need sophisticated tools that are easy to use and Internet-enabled for access wherever researchers are located, workflows that both educate and capture the necessary content, and centralized full-featured automated oversight and audit functions and processes.