Most businesses feel confident in their sanctions compliance. After all, they screen names against official lists, and if there is nothing, they feel safe.
However, the following question needs to be asked: Are you really sanctions-proof, or are there unseen gaps in your due diligence process that could place your organisation at serious risk?
Why Sanctions Compliance Matters More Than Ever
Sanctions are no longer a distant issue that only affects large multinationals. Today, even small and medium-sized businesses face increasingly tight regulations and harsh penalties for non-compliance.
Governments and regulators are continually adding names to sanctions lists. They’re not just going after individuals but also businesses, industries, and even nations engaged in specific activities. And the penalty for failure can be severe: enormous fines, damage to reputation, and even the loss of the ability to do business in certain markets.
If your business engages with suppliers, agents, or customers on a cross-border basis, sanctions risk cannot be ignored.
The Hidden Gaps in Traditional Due Diligence
Most companies start with a baseline step: checking names against sanctions lists like OFAC, EU, or UN lists. This is important but not enough. There are several blind spots that can expose your business:
- Outdated Screening Methods
The majority of companies perform one screening at onboarding and never look in the rearview mirror again. The problem? Sanctions lists are continuously evolving. A business partner who was “clean” last month may be blacklisted next week.
To fix this, set up a regular re-screening schedule – monthly or quarterly, depending on risk level. Take advantage of tools that continuously screen updated watchlists and alert you to changes. Make sure your system is based on trusted sources and includes global, regional, and sector-specific sanctions. Also, document your re-screening process so that it’s clear who’s responsible and how often checks are run.
- Complex Ownership Structures
Sanctions are not just about checking names on a list. They also apply to companies owned or controlled by sanctioned individuals or companies.
For example, under OFAC’s 50% Rule, if a sanctioned party or parties together hold in excess of 50% directly or indirectly of a company, the company itself becomes sanctioned. This is not a matter of finding one single owner with over 50%. Even smaller shares can build up as risk where there are multiple sanctioned parties.
To catch this kind of exposure, you need to go behind full ownership structures, not just the surface. That means identifying all direct owners and indirect owners.
Separately, under EU anti-money laundering rules (AMLD), you would also need to identify any individual with a 25% or greater ownership interest in an entity. That’s not a sanctions rule, but it’s another good reason to screen for ownership.
In short, if you’re screening merely names and not ownership and control, you could quite easily miss hidden risks.
To do this, leverage tools that map ownership structures and flag links to sanctioned individuals or entities. These tools typically pull data from corporate registries, offshore leaks, and other public records. You may also hire vendors who specialise in UBO tracing and offer visual dashboards to help you visualise hidden ownership layers. If budget is a concern, start by prioritising higher-risk jurisdictions and manually examining ownership disclosures for suppliers or partners in those areas. Even a simple spreadsheet listing known shareholders and their affiliations can allow you to detect red flags sooner.
- Indirect Relationships
What about third-party agents, distributors, or subcontractors? They can be a backdoor for sanctioned entities or individuals to be involved in your business activity or supply chain.
To manage this, carry out your due diligence to third parties. Ask direct partners to disclose their key third parties, especially those involved in logistics, finance, or sourcing. Insert terms in contracts that require subcontractors to be transparent and compliant. Execute questionnaires or risk-based screening to assess these extended networks. Where possible, map out your supply chain to identify concealed links to high-risk regions or entities.
- False Negatives and Name Variations
Sanctioned individuals and entities often use multiple spellings, translations, or aliases to avoid detection. Basic systems may not catch these variations.
To reduce this risk, use screening tools that support fuzzy matching, phonetic searching, and transliteration logic. These features enable you to pick up names that have alternative spellings or in another language. Also, make sure your system has updated watchlists with known aliases and spelling variations. If you are performing manual searches, try to search for parts of the name or probable variations, especially for names from non-Latin alphabet countries. It also helps to cross-check names against media reports or court records, which at times reveal hidden identities not found in official databases.
- Overreliance on One Data Source
If you only utilise a single provider or manual research, you might overlook new data from additional jurisdictions or regional sanctions lists.
To avoid this, use multiple sources of data that cover global, regional, and industry-specific sanctions. Mix commercial databases with government lists and open-source intelligence. Make sure your screening tool can bring these sources together and update them regularly. Also, review your provider’s coverage map to make sure there are no blind spots. Some will miss emerging markets or local enforcement actions.
How to Be Truly Sanctions-Proof
Implement a few measures to improve your sanctions compliance:
- Go Beyond Name Screening
Include beneficial owner, subsidiary, and affiliate screening. Know who is really behind the company with whom you are conducting business.
Use ownership mapping and corporate linkage analysis tools. Request ownership structures at onboarding and verify against reliable databases. Filter all related entities, especially those of controlling influence or interest. For high-risk cases, use enhanced due diligence with media search and legal filings. Keep records of how ownership was verified and update them when they change.
- Continuous Monitoring
Sanctions are dynamic. Real-time alerts and ongoing monitoring ensure you stay in front of emerging developments.
Choose a screening system with automatic updating and real-time notification alerts. Employ risk-based level to alert your staff so that they can prioritise responses. Designate an individual to scan alerts on a regular basis and follow up on any matches. Additionally, include monitoring within your overall compliance programme so it is not an ad-hoc activity but part of normal operations.
- Adopt a Risk-Based Approach
Not all third parties represent the same level of risk. High-risk jurisdictions, industries, and politically exposed individuals (PEPs) need more attention.
Begin by classifying third parties geographically, by sector, and by ownership profile. Apply risk scoring to determine how much due diligence is needed – simple checks for low risk, more detailed screening for high risk. For PEPs and sanctioned areas, add media searches, litigation records, and further ownership tracing. Record your risk criteria and ensure it is used consistently across groups.
- Integrate Sanctions Screening into Your Compliance Programme
Do not treat sanctions separately. Integrate it with anti-money laundering (AML), ESG, and supply chain risk management.
Build shared workflows and data pipes such that teams get to see the same screening results. Align your risk indications across programmes. For example, implement common flags for high-risk locations or suspicious ownership structures. Incorporate sanctions screening into ESG assessments and business partner onboarding processes. Additionally, train cross-functional teams on how sanctions cut across other kinds of risks, so they could identify things ahead of time.
- Ensure an Audit Trail
Document your checks and findings. Regulators want to see evidence that you have taken reasonable steps to stay compliant.
Document all screening activities, including dates, sources, and decisions made as a result, on a centralised system. Keep copies of match reports, investigation notes, and resolution outcomes. Make the records easily available for audit or review purposes. Assign responsibility for record-keeping and specify retention periods in line with regulatory requirements.
A Hypothetical Example: The Missed Connection
The following is a hypothetical example:
You engage in business with a supplier after having rushed through sanctions screening of their company name. All seems fine, so you go ahead.
Six months later, you receive an alert from a regulator. The supplier is linked to 7 individuals, of which two sanctioned individual who owns 60% of its shares directly and through a lengthy chain of companies. You had no idea because you never screened beneficial ownership or monitored changes. Red flags were there from the start – but went unseen.
Your business now faces enormous fines and a damaged reputation – all because of a single gap in your due diligence that went undetected. Had you screened beneficial ownership or set up continuous monitoring, the link could have been flagged early. This example shows how one overlooked detail can turn into a major compliance failure.
Key Takeaways
Sanctions compliance is not a one-and-done box you tick and forget about. It’s an ongoing process that requires more enhanced checks and monitoring. Basic name screening creates blind spots that can lead to costly mistakes. The good news? With the right approach, inclusive of ownership checks, continuous monitoring, and a risk-based strategy, you can close these gaps and protect your business.
How Can Trustnet.Trade Help
Trustnet.Trade helps you close critical sanctions compliance gaps by going far beyond basic name screening. With instant KYB and UBO checks, real-time monitoring, and global sanctions screening including AMS and PEP, Trustnet.Trade helps you identify indirect ownership risks. Its automated alerts, visual ownership mapping, and compliance widgets give you continuous monitoring and transparency. Combined with risk-based questionnaires, and whistleblower modules, it keeps companies of any size up to date with evolving regulations, preventing reputational and financial risks from escalating into significant problems.