Sanctions Risk

Exposure comes through the people and places a firm deals with. Customers, their owners, products, delivery routes, payment channels and third parties such as agents and suppliers can each carry it. Risk is higher where a firm has links to targeted countries, operates in sectors under restriction, uses US dollars, or deals through intermediaries it cannot see behind. The harm is not only the penalty. A bank found in breach may lose correspondent banks that no longer want to process its payments, and any firm may see a share price fall or contracts lost. Staff may also face personal liability. Firms measure the risk in a sanctions risk assessment, reduce it with screening and controls, and judge what remains against their risk appetite. Even one prohibited payment can be a breach, whatever its size. In many countries the rule is strict, so a firm can breach without intending to. One breach can cost far more than the business that caused it earned.

A freight company ships goods through a port city that acts as a transit hub for a sanctioned country. It has no direct dealings with that country. Its sanctions team notes that one agent in the port has links to listed firms, rates the route as high risk, and requires enhanced checks on every consignment before it is released.