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Procurement companies are using third-party lifecycle management tools to navigate relationships amid Russian sanctions

Russian sanctions driven by the ongoing Ukraine invasion continue rapidly to evolve across a wide array of countries. These punitive sanctions intend to stifle Russian aggression and will only be as effective as their impact allows; it is reasonable to expect governments to hold businesses accountable in their application of these sanctions to ensure international policy delivers true on its intent.

These sanctions also put procurement companies in a tricky position. The consequences of working with sanctioned companies can be dire, but the structure and ownership of companies that make up a supply chain are not always clear, especially further down the line.

Procurement teams need to be able to show their clients that their spend isn’t being sent to a company or owner that will bring fines and penalties to the purchasing party — or to the procurer itself. Some companies are even going above and beyond complying with sanctions, and actually ceasing or curtailing their operations in Russia. 

In addition to monetary damages that can result from working with sanctioned companies, organizations across the board want to avoid the reputational damage and loss of employee trust that often go hand-in-hand with fines.

OFAC (Office of Foreign Asset Control) screening is a helpful first step when it comes to identifying problematic companies that are sanctioned (or have an owner that is sanctioned), but that screening can overlook certain company configurations. Additionally, OFAC screening doesn’t help procurement companies address sanctioned elements once they’re identified.

Doing nothing is not an option anymore. Large fines, sometimes upwards of $1 billion, can be levied when companies are considered wilfully negligent by the Department of Justice.

Fortunately, there are technologies that make third-party sanctions compliance easy.

Third-party lifecycle management platforms like Certa’s can help companies navigate the choppy waters of a rapidly evolving sanctions environment. Certa can automate 80% of risk management with 100% visibility at all stages; that means addressing data security and privacy concerns, as well as staying compliant with regulations and sanctions.

This automation supports OFAC’s 50% adherence standards; companies that are designated “blocked” through this rule can easily be missed from a manual search, as indirect or aggregate ownership structures aren’t as visible. Luckily, Certa’s automation can pick up beneficial owners and their percentage of ownership.

Certa allows companies to manage their sanctions compliance with a number of tools and capabilities:

  • Users can screen all third parties — not just through the OFAC list, but other global lists — during onboarding. With firms becoming increasingly global, other equivalent lists that are published by countries worldwide are often required to get a full picture of all sanctioned parties across the globe. Certa integrates with 10 screening data providers that clients can choose from. 
  • Ongoing monitoring — is necessary to maintain an accurate picture of a company’s vendors, partners and beyond. Sanctions lists evolve, and companies can be acquired or have ownership changes as a part of the natural course of business. So if any of those changes result in a previously acceptable company now running afoul of sanctions rules, checking solely during onboarding will miss that. With sanctioned companies rapidly redistributing their assets in order to try and circumvent sanctions, a system that checks for ownership changes is one of the few ways to achieve preventable enforcement actions. Luckily, an automated process makes constant monitoring easy rather than the cumbersome exercise it would be otherwise. Certa continuously monitors and scrubs both public and shadow lists to ensure nothing falls through the cracks.
  • Screen ultimate beneficial owners (UBOs) — Certa’s software is built to lift the ownership curtain around third parties by identifying “beneficial owners,” direct and indirect ownership, and related entities that are “blocked” by current sanctions. This too is done automatically via Dun & Bradstreet, Bureau van Dijk, Sayari, and other data collection and analysis partners. Also, Certa can consolidate and de-duplicate UBO lists provided by third parties with lists provided by trusted sources like BvD and D&B — it also allows for the screening of net names which might otherwise obfuscate a company or owner’s identity.
  • Certa can also automate payment blocking through integrated finance systems when a sanctioned entity or individual is identified in a company’s vendor or supplier list. Taking steps to remove those entities from a company’s paid vendor list quickly will help prevent further potential fines, and there’s no faster way than a system automatically identifying and blocking payments that would otherwise be on their way to a sanctioned company.
  • Removing false positives is an important step in ensuring the accuracy of these automated actions. Certa can help automate adjudication and escalation flows to efficiently deal with this.

The world changed with the invasion of Ukraine; doing nothing is not an option anymore. The economic war, while fought on a different battlefield, can be as important as the military war. The procurement community has a leading role in this fight.