What are Sanctions? 

“Sanction” is a broad term that refers to penalties imposed upon an individual, entity or country as punishment. Typically, sanctions will be imposed for reasons such as the violation of internationally acclaimed standards, the abuse of human rights, or the infringement of the laws to protect the legal financial system. However, sanctions may also be imposed for a wide variety of political, social and economic reasons. 

Sanctions are a punishment because they impose legal restrictions on what the implicated individual/entity can or cannot do. Sanctions also govern and restrict how other parties may interact with the sanctioned individual/entity. 

The violation of sanctions is associated with strict financial and legal penalties, both for the sanctioned individual/entity and those who breach sanctions by interacting with the sanctioned individual/entity in prohibited ways. It is therefore essential to ensure that an individual/entity is not under sanction before doing business with them. 

Sanction Lists 

When it comes to sanctions screening and ensuring regulatory compliance, financial sanctions are typically the most common. Financial sanctions are typically lists that are published by international bodies such as the United Nations, European Union, and financial regulatory authorities. 

Some of the best-known sanctions are those published by the United Nations (UN) and the USA’s Office of Foreign Assets Control (OFAC). The UN sanctions list is sanctions that are upheld by UN member nations and organizations. 

There are many sanction lists across the world in addition to those upheld by the UN and OFAC, which is why a comprehensive sanction screening is important in order to ensure that an individual or entity is not under any form of sanction. 

Types of Sanctions 

Although sanctions can take a variety of forms, they can often be grouped into one of four general categories: economic, diplomatic, travel and sports sanctions. 

• Economic: Restrictions or complete bans on engaging in economic activity with an individual, entity or country.
• Diplomatic: Partial or termination of political cooperation that will typically entail the breaking of diplomatic bonds such as embassies, councils, and shared cultural institutions. Diplomatic sanctions will often place legal restrictions on the formation of any new forms of diplomatic cooperation by governments, organizations or businesses. 
• Travel: Restrictions or bans on movement that may be placed upon an individual, a specific group of individuals, or restrictions on movement to and from a specific location/region.
• Sport: Restrictions or bans placed on the participation of an individual or groups of individuals from participating in shared cultural events such as sporting tournaments. 

Why are Sanction Checks Important? 

If a business does not complete sanction checks, that business puts itself in danger of actively breaching sanctions law. This has the potential to be devastating for several reasons. 

Firstly, a business that is in breach of sanctions may be subjected to harsh legal penalties and fines. The exact legal penalties and fines will vary depending on the nature of the sanction and the severity of the breach of the said sanction, but the act of breaching sanctions will always have severe repercussions and may even lead the offender to be placed under sanction themselves. 

Secondly, breaching sanctions risks exposing a business to serious public scrutiny, controversy, scandals and boycotts. In such an event, the reputation of the business will likely suffer greatly, which can translate into a loss of market capitalization from which the business may never recover. 

Thirdly, conducting business with a sanctioned individual/entity may openly expose the business to risk. A sanctioned individual/entity has been sanctioned for a reason and therefore poses a high risk of being a malicious actor who does harm to a business. 

Conducting comprehensive sanction screening on individuals and businesses before conducting business with them is essential to avoid being in breach of sanctions and being subjected to the harsh associated penalties. 

Sanctions and Politically Exposed Persons (PEPs)

Broadly, the concept of a Politically Exposed Person (PEP) refers to individuals who currently hold or have held political power. Due to the interwoven nature of politics and private capital, governments and financial institutions worldwide agree that PEPs represent an increased money-laundering risk. This is because individuals who hold political power can abuse this power to engage in money laundering and related financial crimes including, corruption, bribery and the financing of terrorism. 

Although an individual being politically exposed does not implicate them in any wrongdoing, it does drastically raise the associated risk level and demand that an array of additional due diligence checks be carried out. To fully understand the importance of politically exposed person checks, click here to read more.

Ongoing Monitoring for Sanctions 

Oftentimes, a higher-risk individual or entity will be required to be kept under ongoing monitoring to ensure that their sanction status does not change, and if it does change, that the change is dealt with accordingly and the necessary regulatory and risk mitigation procedures are put in place. 

Who Needs to Check for Sanctions? 

In South Africa, sanctions screening is legally required by the Financial Intelligence Centre Amendment Act (FICA). FICA requires businesses that are designated as Accountable Institutions (AIs) to comply with a wide range of regulatory requirements that cover due diligence, record-keeping, reporting of information to the Financial Intelligence Centre, and internal compliance governance. This wide range of regulatory requirements includes sanction screening. 

It should be noted that South Africa deploys a Risk-Based Approach (RBA) for its Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) legislation. 

Sanction Checks for South Africa 

As South Africa’s leading provider of world-class identity verification, data validation and due diligence solutions, ThisIsMe is proud to be at the forefront of a trust-based and privacy-compliant digital world. To experience our full suite of solutions and experience how we can help your business meet its regulatory compliance obligations, book a demonstration by contacting our team here.