Sanctions Screening Obligations for Lawyers, Accountants, Real Estate Agents, and Trust and Company Service Providers

Introduction

Sanctions screening is a critical component of anti-money laundering (AML) and counter-terrorism financing (CTF) frameworks, designed to prevent financial and professional services from being used to support criminal activities, terrorism, or breaches of international law. Lawyers, accountants, real estate agents, and trust and company service providers (TCSPs) play vital gatekeeping roles, facilitating transactions and structuring assets for clients. These roles make them uniquely positioned to prevent sanctioned entities and individuals from accessing the financial and legal systems. This article explores the importance of sanctions screening, examines the obligations of gatekeepers, and provides practical insights into implementing effective screening processes.

The Importance of Sanctions Screening

Sanctions are legal and regulatory measures imposed by governments and international organisations, such as the United Nations (UN), European Union (EU), and United States Office of Foreign Assets Control (OFAC). They target individuals, entities, and countries involved in activities such as terrorism, proliferation of weapons of mass destruction, human rights violations, and large-scale corruption.

Failing to conduct proper sanctions screening exposes gatekeepers to several risks:

1. Legal and Financial Penalties: Non-compliance with sanctions laws can result in hefty fines, criminal charges, and reputational damage.
2. Operational Risks: Unscreened clients involved in sanctioned activities can disrupt business operations through frozen transactions or blocked accounts.
3. Reputational Damage: Engaging with sanctioned clients can tarnish professional integrity and erode public trust.

Sanctions Screening Obligations by Profession

1. Lawyers

Lawyers often assist in corporate structuring, asset management, and dispute resolution, making sanctions screening integral to their practice.

• Client Due Diligence (CDD): Lawyers must verify the identities of clients and ensure they are not listed on sanctions databases.
• Transactional Due Diligence: In multi-jurisdictional cases, lawyers must assess whether transactions involve sanctioned entities, countries, or individuals.
• Litigation Risks: Representation of sanctioned individuals or entities in court may breach sanctions regulations, even when providing legal advice.

2. Accountants

Accountants handle sensitive financial data and often identify red flags in client transactions and financial reports.

• Screening for Tax Compliance: Ensuring that clients are not evading taxes or using offshore structures to bypass sanctions.
• Audit and Assurance Services: Screening during audits to identify financial flows linked to sanctioned parties.
• Advisory Services: Monitoring the source of funds and assets involved in financial transactions.

3. Real Estate Agents

The real estate sector is highly vulnerable to money laundering, with sanctions evasion often occurring through high-value property purchases.

• Property Transactions: Screening buyers and sellers to verify that no sanctioned individuals or entities are involved.
• Cross-Border Deals: Enhanced due diligence for clients and transactions involving high-risk jurisdictions.
• Source of Funds Verification: Ensuring that funds used in property purchases do not originate from sanctioned sources.

4. Trust and Company Service Providers (TCSPs)

TCSPs are instrumental in creating and managing corporate entities, trusts, and other structures. This role exposes them to heightened sanctions risks.

• Beneficial Ownership Screening: Verifying the ultimate beneficial owners (UBOs) of entities to ensure compliance with sanctions regulations.
• Corporate Structuring: Avoiding the creation of entities or trusts intended to facilitate sanctioned activities.
• Ongoing Monitoring: Regularly updating client information to identify new sanctions risks.

Implementing Effective Sanctions Screening Processes

To comply with sanctions obligations and mitigate risks, gatekeepers must implement robust screening processes. Key steps include:

1. Use of Sanctions Databases

• Screen clients and transactions against authoritative sanctions lists, such as:
  • OFAC’s Specially Designated Nationals (SDN) List.
  • The EU Consolidated List of Sanctions.
  • The UN Security Council Sanctions List.
• Leverage real-time database updates to ensure ongoing compliance.

2. Risk-Based Approach

• Client Risk Assessment: Categorise clients based on their risk profiles, with enhanced due diligence (EDD) for high-risk clients.
• Transaction Risk Assessment: Focus additional scrutiny on transactions involving high-value assets, complex structures, or high-risk jurisdictions.

3. Automated Screening Tools

• Utilise technology to enhance the efficiency and accuracy of sanctions screening:
  • AI-powered screening tools for real-time client checks.
  • Machine learning algorithms to detect anomalies in financial and transactional data.
• Implement systems that flag matches with sanctions lists for further investigation.

4. Training and Awareness

• Regularly train employees to recognise sanctions risks and understand screening protocols.
• Incorporate case studies and real-world examples to reinforce learning.
• Stay informed about changes to sanctions regulations and global enforcement trends.

5. Ongoing Monitoring and Reporting

• Continuously monitor clients and transactions to identify new sanctions risks or updates.
• Report matches with sanctions lists to the relevant regulatory authorities promptly and accurately.

Challenges in Sanctions Screening

Despite its importance, sanctions screening poses several challenges for gatekeepers:

1. False Positives: Common names and inaccurate data entries can result in false matches, requiring additional resources for manual reviews.
2. Data Privacy Concerns: Conflicts between sanctions compliance and data protection laws, such as GDPR, complicate information sharing.
3. Evolving Sanctions Regimes: Rapidly changing sanctions frameworks require constant updates and adaptability.
4. Resource Constraints: Smaller firms may lack the resources to implement advanced screening systems or maintain dedicated compliance teams.

Case Studies Highlighting Sanctions Screening Failures

1. Standard Chartered Bank Fines: The bank was fined over $1 billion for processing transactions for clients in sanctioned countries. This case underscores the importance of robust screening tools and processes.
2. Real Estate Scandals in Canada: Multiple properties were purchased using funds tied to sanctioned individuals, highlighting lapses in due diligence by real estate agents.
3. Panama Papers and TCSPs: Trust providers were implicated in creating entities for sanctioned individuals, demonstrating the need for UBO verification and ongoing monitoring.

Conclusion

Sanctions screening is a critical obligation for lawyers, accountants, real estate agents, and TCSPs. By implementing robust processes, leveraging technology, and staying informed about regulatory changes, gatekeepers can mitigate risks and uphold their responsibilities in combating financial crime. Compliance not only protects firms from legal and reputational damage but also strengthens the integrity of the global financial and legal systems.