By Kristine Kelleher
what is ofac trade compliance export solutions inc

What Is The Importance Of Denied Party Screening?

Denied party screening is like a safety net for businesses, helping you dodge legal hassles that can cost lots of money and a lost reputation.

In essence, it’s a way to make sure a business isn’t unwittingly dealing with a party that’s on the government’s naughty list – that is, people or groups that have had their shipping privileges revoked due to involvement in not-so-above-board activities like drug smuggling, money laundering, or terrorism.  Others can be found on these lists for national security reasons, to protect the United States’ economic advantage or to comply with other unilateral and multilateral controls.

The screening process takes the names of the people and groups a business is working with and checks them against the names on the various denied party lists.

Who Should Be Screened?

The United States government requires that your business comply with all trade regulations. This is to maintain U.S. interests around the world, so you need to run a Denied Party Screening process on a wide range of entities your business works with, including:

  • Your customers: Conducting denied party screening on customers is critical because selling to a denied or sanctioned party can lead to severe penalties. Ensuring customers are not on a denied party list helps maintain compliance with trade regulations and avoid potential fines or legal action.
  • Business partners: Business partners can include a variety of entities such as distributors, resellers, and joint venture partners. It’s important to screen them to ensure that your business is not indirectly doing business with a denied party.
  • Suppliers: Suppliers provide the goods that your company needs to operate. Screening suppliers helps ensure the legality and ethicality of the supply chain.
  • Vendors: Vendors, like suppliers, play a crucial role in your company’s operations. If a vendor is a denied party, your company could unintentionally become part of a trade violation. Screening vendors can prevent this risk and uphold trade compliance.
  • Visitors: While it may seem less obvious, visitors to a company can also pose a risk. This is especially true if the visitor has access to controlled technology or information. A company can prevent unauthorized access to sensitive information or technology by screening visitors.
  • Employees: Lastly, employees should be screened to ensure they are not on a denied party list. An employee who is a denied party could expose the company to compliance risks, especially if their role involves access to sensitive or controlled information or technology. Regularly screening employees helps maintain a compliant and trustworthy workforce.

When Should Screening Occur?

Screenings for Denied Party Lists should occur at multiple stages of the business process. This includes conducting screenings prior to establishing business relationships, before entering into any trade transactions, and on an ongoing basis to keep up with any updates or changes in the denied party lists.

Regular screenings ensure that businesses stay proactive and promptly identify and address potential compliance risks throughout their trade activities.

What Are Denied Party Lists?

Denied party lists, or restricted party lists, consist of individuals, organizations, and entities maintained by governments and international bodies worldwide. These lists identify parties with whom conducting business, either wholly or partially, is prohibited.

Denied Party Screening, sometimes referred to as restricted party screening, involves verifying potential business partners or customers against these lists to ensure compliance with export control regulations.

Denied Party Screening involves comparing the names of customers, business partners, visitors, and other relevant parties against these lists. By conducting thorough screening, organizations can enhance their export compliance processes and ensure maximum coverage.

If a party you are engaged with appears on the denied entity list, in most cases, you will be prohibited from engaging with them.  Let’s take a look at the types of lists used and when your business should conduct Denied Party Screening to adhere to trade compliance requirements.

Lists Checked In A Denied Party Screening

The United States government expects your company to comply with all international export regulations. Before engaging with them, you can use several lists to check whether individuals or entities are on any denied party lists.

Here are the main lists that you should check to see if individuals, groups, and entities are subject to economic or trade sanctions.

  1. Consolidated Screening List (CSL): The Consolidated Screening List is a comprehensive list maintained by the U.S. government that consolidates multiple export control and sanctions lists. It includes entities and individuals that are subject to restrictions or prohibitions on engaging in certain trade activities. The CSL is overseen by various U.S. agencies, including the Department of Commerce, Department of State, and Office of Foreign Assets Control (OFAC).
  2. Denied Persons List (DPL): The Denied Persons List is maintained by the Bureau of Industry and Security (BIS), which is part of the U.S. Department of Commerce. This list identifies individuals, companies, and organizations that have been denied export privileges due to past violations or posing a risk to national security. Entities listed on the DPL are prohibited from participating in export activities involving U.S. goods, software, or technology.
  3. Entity List and Unverified List: The Bureau of Industry and Security (BIS) maintains various lists, including the Entity List and Unverified List. These lists oversee export controls and licensing requirements to prevent the unauthorized transfer of sensitive technologies or goods that could be detrimental to U.S. national security or foreign policy objectives. Compliance with these lists is crucial for businesses engaged in controlled items export activities.
  4. Department of State Designated Terrorist Organizations: The Department of State maintains a list of Designated Terrorist Organizations. This list identifies groups and entities engaged in terrorist activities or providing support to terrorist organizations. Transactions with individuals or organizations on this list are strictly prohibited, and compliance with these designations is crucial to prevent the financing or facilitation of terrorism.
  5. Department of State Arms Export Control Act Debarred Parties (DDTC): The Department of State maintains the Arms Export Control Act Debarred Parties List, overseen by the Directorate of Defense Trade Controls (DDTC). This list identifies individuals and entities that are debarred from participating in the export of defense articles or services. Engaging in transactions with parties listed on the DDTC list is prohibited and can lead to severe penalties.

It can be a tedious and difficult task to check all of these lists, but this is an important step to prevent your company from the steep fines and penalties that come with international trade compliance violations.

What Are The Penalties For Non-Compliance With Denied Party Screening?

Non-compliance with Denied Party Screening can have severe consequences for business owners. Penalties for violating trade regulations can include hefty fines, loss of export privileges, reputational damage, and even criminal charges.

  • For administrative cases, penalties can equate to either $250,000 or double the transaction’s value, whichever is greater.
  • The Bureau of Industry and Security (BIS) states that criminal fines for export infringements can escalate to a maximum of $1 million for each offense.
  • Those guilty of criminal offenses can face a jail term of up to 20 years, while administrative punishments may extend to the suspension of export rights.

Ignoring the importance of Denied Party Screening puts businesses at risk of unknowingly engaging with prohibited parties, potentially leading to illegal transactions or supporting illicit activities.

If you want to avoid the fines and penalties resulting from violations, you and your team need to implement a robust Denied Party Screening process to help you stay compliant, safeguard your reputation, and avoid costly penalties that can harm your operations and long-term success.

What Are The Common Challenges Faced With Denied Party Screening?

Complying with export trade regulations takes time and effort. Not only are the regulations constantly changing, but it can be overwhelming for a small team to oversee the vast number of lists and check each name before conducting business with an individual, group, or other entity.

Another challenge is the potential for false positives, where legitimate parties are incorrectly flagged as denied parties. The only way to address this issue is to look at each name individually and cross-check various resources to ensure accurate results. This can be time-consuming, but ensuring your business operations are not disrupted is essential.

Additionally, it can be difficult for in-house trade compliance teams to stay updated with the latest denied party lists and regularly reviewing and improving screening procedures can help ensure ongoing compliance and mitigate risks associated with Denied Party Screening.

Instead of handling Denied Party Screenings in-house, many companies choose to work with trade compliance experts to handle the heavy lifting. Working with a third-party company like Export Solutions can help you save time, money, and resources compared to finding, hiring, and retaining an in-house team of trade specialists.

Restricted Party Screening Vs. Denied Party Screening

Essentially, these two terms can be used interchangeably.  Restricted Party Screening (RPS) and Denied Party Screening (DPS) basically mean the same thing when it comes to export compliance.

  • Denied Parties: Entities designated as denied parties typically have lost their export privileges. While there may be circumstances where business transactions with these parties are possible, they could potentially lead to export violations if these entities export or re-export purchased items. The use of End User Statements, affirming the buyer’s commitment not to export or re-export goods, can help manage risks associated with denied parties.
  • Restricted Parties refer to individuals or entities subject to full or partial restrictions. They may be barred from receiving certain items under the International Traffic in Arms Regulations (ITAR), Export Administration Regulations (EAR) or other U.S. governmental laws and regulations.  Restricted parties can also be known as blocked parties or entities.

By conducting screenings, businesses can ensure comprehensive compliance with trade regulations and minimize the risk of engaging with prohibited parties or restricted entities.

5 Tips For Denied Party & Restricted Party Screenings

1. Screen All Parties To The Transaction

It’s crucial to screen all parties involved in a transaction comprehensively. Don’t limit this check to the party’s name only; ensure you also screen their address.

Remember, restricted parties may frequently change their location or even their names to evade detection. By checking both name and address, you provide additional protection against unauthorized exports.

2. Have A Plan

Make sure your procedures incorporate a hold process. This allows the Export Compliance Officer, or another designated person, to pause any transactions until any potential matches, or “hits”, are thoroughly investigated.

This strategy is vital to maintaining compliance and avoiding penalties associated with violations.

3. Resolve Any “Hits”

If screening results in a potential match on the restricted party lists, don’t rush to cancel the transaction. Instead, follow a resolution process included in your procedures. Each hit requires careful examination to determine if it’s a false positive or an actual match.

If it’s a true hit, make sure to document the findings properly and then proceed to cancel the transaction. This cautious approach is key to ensuring the integrity of your compliance process.

4. Keep Records

Be diligent about keeping detailed records on restricted party screenings. If you have resolved any potential false positives, be sure to document your decision and keep that information with your export documentation for that transaction.

5. Don’t Ignore Red Flags

If you’ve determined that your hit is a false positive, but other red flags still exist, then cancel the transaction.

Do not self-blind or ignore red flags. It’s easy to develop “tunnel vision” here and think that the only criterion is a restricted party screen, which could cause you to miss other important warning signs about the transaction.

How Can Export Solutions Help You With Denied Party Screening?

Denied Party Screening plays a vital role in trade compliance by safeguarding businesses against engaging with prohibited entities and violating export regulations.

By conducting thorough screenings against official watch lists, businesses can mitigate risks, protect their reputation, and ensure ethical and lawful trade practices. However, the challenges of screening many names and managing false positives can be daunting.

If you need assistance with Denied Party Screening and ensuring compliance with your trade activities, don’t hesitate to contact Export Solutions.

Our experts can provide tailored solutions to streamline the screening process, minimize risks, and keep you compliant with your trade compliance needs.

Reach out to us today and focus on growing your business while staying on the right side of the law.

Kristine Kelleher is a Trade Compliance Consultant for Export Solutions -- a full-service consulting firm specializing in U.S. import and export regulations.