Compliance: sanctions and watchlist checks for employers (+case study)

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Jordie Black
June 28, 2023
Updated on:

As an employer, conducting sanctions and watchlist checks is important to verify the individuals you are considering for hire. These checks serve as a tool to monitor and confirm whether potential employees have engaged in activities that violate international laws or ethical guidelines, such as terrorism, money laundering, drug trafficking, or severe human rights abuses.

In this post, we’ll cover:

  1. Definitions and distinctions between sanctions and watchlists
  2. Who needs to perform these checks, and why
  3. Coverage of sanctions and watchlist checks
  4. Importance of BS7858 standard in the security industry
  5. Key global regulations requiring sanctions and watchlist checks
  6. Specific requirements for UK employers in the hiring process
  7. A real-world case study to illustrate the consequences of non-compliance

The difference between sanctions and watchlist checks

Sanctions are measures taken by countries or organisations like the UN or EU to influence the conduct of particular individuals, governments, or organisations. These measures can include trade restrictions, travel bans, and asset freezes.

Watchlists are used to identify individuals suspected of participating in illegal activities. Individual countries or international groups create these lists.

To conduct sanctions and watchlist screenings, your company compares candidates' names and relevant details to databases containing information about sanctions and watchlists. These databases are usually managed by organisations such as the UN, EU, US Office of Foreign Assets Control (OFAC), and other national or international bodies.

It's important to remember these checks are not one-time events. Businesses should conduct these checks regularly to ensure ongoing compliance because sanctions and watchlists are regularly updated.

Who needs to perform sanctions and watchlist checks?

Sanctions and watchlist checks are necessary across various industries and job roles, but they are particularly crucial in the following areas:

Banking and finance: Banks, credit card companies, and other financial institutions are required by law in many countries to perform these checks to prevent money laundering and terrorist financing.

Export/import businesses: Companies that export or import goods, mainly to or from countries under sanctions, must ensure their staff are not inadvertently violating them.

Travel and hospitality: Airlines, travel agencies, and hotels often perform these checks to avoid facilitating travel for individuals under sanctions or on watchlists.

Technology: Tech companies that provide software or services internationally must ensure that sanctioned individuals are not using their products.

Non-profit organisations: International NGOs must perform these checks to ensure their funds are not diverted to sanctioned individuals.

Sanctions and watchlist checks form parts of regulatory standards

BS7858: is a British Standard that outlines the best practice for security screening of individuals employed in an environment where the security and safety of people, goods or property is required. This could include security guards, CCTV operators, and others in the security industry.

One of the requirements of BS7858 is individuals must be checked against sanctions and watchlists. This ensures they are not banned from working in the security industry due to involvement in illegal activities.

This check is part of a broader screening process, including verifying the individual's identity, employment history, criminal record, and financial stability.

Fourth Anti-Money Laundering Directive (European Union): This directive requires EU member states to implement laws requiring their financial institutions to perform sanctions and watchlist checks. 

Proceeds of Crime Act (United Kingdom): This act requires businesses in the UK to report any dealings with individuals on sanctions lists. Companies must perform sanctions and watchlist checks to comply with this act.

USA Patriot Act (United States): This act, passed after the September 11 attacks, requires financial institutions in the United States to implement anti-money laundering (AML) programs. As part of these programs, organisations must check their candidates against various sanctions and watchlists to ensure they are not facilitating money laundering or terrorist financing.

Anti-Money Laundering and Counter-Terrorism Financing Act (Australia): This act requires businesses in Australia to implement AML programs, which include sanctions and watchlist checks.

Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Hong Kong): This ordinance requires businesses in Hong Kong to perform due diligence on their customers, which includes checking them against sanctions and watchlists.

Requirements for UK Employers 

As an employer in the United Kingdom, it is crucial to prioritise legal compliance and maintain a positive public image. To achieve this, conducting a thorough hiring process is necessary, which includes performing sanction checks on potential employees. The Office of Financial Sanctions Implementation (OFSI) provides a comprehensive list of individuals and entities subject to financial sanctions in the country. By cross-referencing the OFSI list during the hiring process, you can identify any potential red flags that may indicate a candidate's involvement in illegal activities or associations with sanctioned parties. 

Keeping a record of all sanction checks and properly educating your HR team on identifying red flags is essential to ensuring compliance with relevant laws and regulations. Failure to comply with these regulations could result in legal issues, fines, and a damaged reputation. Therefore, it is vital to take proactive steps to prevent potential breaches and maintain a positive and respected image within the UK business community.

Employing an individual on a sanctions list leads to severe consequences. It is a criminal offence in the UK to provide financial services to any individual on a sanctions list, including employment. Doing so could make you liable for penalties, including up to 7 years in prison or significant fines. 

Ensuring your hiring process includes thorough sanctions checks help protect your organisation from legal and reputational risk.

Case study: Tracerco and RBS’ breach of financial sanctions

In a recent case, the UK Office of Financial Sanctions Implementation (OFSI) imposed a £15,000 penalty on Tracerco Limited, a UK company providing measuring products and services to the oil and gas industry, for breaching financial sanctions. Tracerco was found to have made funds available for the benefit of a designated person in breach of economic sanctions on Syria. 

The Financial Services Authority (FSA), the UK's financial regulator, fined members of the Royal Bank of Scotland Group (RBSG) £5.6 million for failing to have adequate systems and controls to prevent breaches of UK financial sanctions. 

Due diligence through automation

Zinc offers businesses a vital solution to streamline candidate verification with access to over 1200 sanctions and watchlists. Attempting to manually check against such a vast number of lists is overwhelming and nearly impossible, leading to errors and oversights that jeopardise compliance. These lists undergo frequent updates and expansion, making it an arduous task to stay up-to-date.

Zinc's automated system offers more than just quick and precise pr-screening. It also provides a methodical screening process that can handle any checks. This helps businesses protect themselves and operate by employment law internationally.

Global sanctions and watchlist checks

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