Why Vendor Sanction Screening is a Critical Part of Vendor Onboarding
And why it's never "done"
by Ashley Poynter
Content Manager
PaymentWorksWhy Vendor Sanction Screening is a Critical Part of Vendor Onboarding
Trustworthy, reliable vendors are the lifeblood of any business. Unfortunately, making sure those vendors are compliant and not on any sanctions lists is often the bane of the vendor desk’s existence.
But it’s not optional. It allows your organization to meet operational, ethical, and compliance standards and keeps it safe from financial, regulatory, and reputational risks. As you well know, running afoul of regulatory bodies is no fun, nor is dealing with legal penalties and other fallout from doing business with compromised entities.
Proactive vendor sanction screening is a core piece of any comprehensive risk management strategy. Rigorous checks help you prevent costly consequences while partnering with ethical partners that align with your organization’s ethos.
Without further ado, let’s delve into the reasons why sanction screening is an indispensable part of the vendor onboarding process – and ongoing vendor management.
Table of Contents
What is Vendor Sanction Screening?
Why Vendor Sanction Screening Happens at Onboarding
Integrating Vendor Sanction Screening into Onboarding
Reminder: Vendor Sanction Screening Is Never “Done”
Best Practices for Maintaining Vendor Compliance
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What is Vendor Sanction Screening?
Vendor sanction screening represents a critical checkpoint in the vendor onboarding and management process. While it is yet another box to check as part of the onboarding process, don’t overlook this key step.
Vendor sanction screening ensures that the people you’re doing business with don’t appear on any “bad actor” lists. This includes the vendor organizations or other entities that are part of the vendor. These lists represent entities caught doing things not allowed by the sanctioning body. Yes, that can include terrorism, drug trafficking, and other criminal activities.
How do the lists work?
Sanctions lists are dynamic databases updated regularly. Many, like OFAC (Office of Foreign Assets Control), are maintained across countries, including the US, the UN, and the EU.
Regularly updated lists reflect the latest security (and political) concerns. Unfortunately, the dynamic nature of these lists can also mean organizations have a hard time keeping tabs on who is on them. A robust, systematic approach to screening is best. But not every organization has that.
What are the consequences of doing business with someone on the list?
While compliance may be legally obligated, other consequences exist for not doing vendor sanction screening. Your organization could suffer reputational damage for doing business with a member of one of the sanctions lists.
What’s more, non-compliance often results in hefty fines and other legal repercussions. Financial consequences plus a tarnished brand image can leave a mark on your brand and industry standing for quite a while. Worse yet, if one of your vendors ends up being on a sanctions list, it could disrupt your supply chain. Entities on this list often end up with frozen assets, leaving you and your organization’s operations in a pickle.
What does vendor sanction screening look like?
Most organizations cross-reference potential vendors against known sanctions and debarred lists before inking any agreement. It’s important to have a documented and thorough process. What many don’t realize is that the interpretation of the sanctions list is a bit of an art. There are aliases, multiple spellings, and other complexities to sanction list entries. These nuances, plus the need for continuous monitoring, make it a critical job that often falls squarely on a vendor manager’s shoulders.
In short, vendor sanction screening is part compliance and part due diligence on behalf of your organization. No one wants to do business with bad people (or deal with the consequences of doing so).
Why Vendor Sanction Screening Happens at Onboarding
Vendor sanction screening should be part of your vendor onboarding process. It’s an important guardrail that protects your organization in several ways.
#1. Regulatory compliance
Yes, regulatory compliance is at the heart of vendor sanction screening. Your organization must comply with a complex web of international and domestic regulations. These regulations prevent businesses from inadvertently supporting activities that run afoul of local, state, national, or international law. Countries that span various jurisdictions need to pay close attention here.
One of the “big ones” – the Anti-Money Laundering (AML) laws, require organizations to conduct rigorous checks. This ensures that no financial transactions support illegal activities. Not complying with these sometimes results in severe consequences. In some cases, it amounts to a large fine. In other cases, it could result in criminal charges. It nearly always results in some sort of operational disruption. A thorough vendor sanction screening process helps you avoid these unnecessary consequences.
#2. Risk mitigation
Ok, so you know you don’t want to run afoul of national or international laws and regulations. But what about risk? Vendor sanction screening is key to your broader risk management strategies. For example, doing business with a vendor on a sanctions list exposes your organization to a number of risks. You could face financial loss, operational disruptions, and legal complications.
Then, there’s the reputational risk. For example, say one of your vendors is involved in money laundering. They suddenly become the target of an investigation, so guess who else is implicated? You guessed it! Doesn’t make for great headlines, does it?
Vendor sanction screenings help you identify and avoid high-risk vendors before you get locked into a contract with them. This proactive approach keeps your supply chain, financial transactions, business operations, and reputation safe from association with bad actors. Hear some of our customers talk about the ease of automating this part in the video below:
#3. Reputational protection
Most people hone in on the financial losses that can happen from lackluster vendor sanction screening. We’re here to tell you that reputational damage can be just as bad. In fact, it can contribute to those financial losses.
Your reputation is a valuable asset. But it can also be a liability if you’re not careful. In today’s digital age, news of a business relationship with a sanctioned or unethical entity spreads fast. The result? Irreparable damage to your brand’s credibility and customer trust. In other words, the stakes are high.
Vendor sanction screening ensures that every vendor is in good standing. It also highlights your company’s ethical standards and commitment to lawful conduct. Do the right thing and avoid the fallout that comes with doing business with bad partners. Your customers count on you to do this.
#4. Operational integrity
This is a big one. What happens when a vendor you’re associated with feels the full force of their own consequences? How is your business implicated and affected by their activity? Does it mess up your supply chain? Would your operations grind to a halt? Would your ability to continue doing business be inhibited?
These are important questions. The integrity of your operations depends on doing business with reputable, compliant vendors. It’s the only way to ensure your business continues to run smoothly and efficiently. Additionally, it showcases that your company supports ethical practices in its supply chain, aligning with broader corporate social responsibility goals.
To be sure, vendor sanction screening is ground zero for building a network of trusted, ethical partners who can deliver quality services and products.
Integrating Vendor Sanction Screening into Onboarding
So far, we’ve covered two very important points: 1) you need vendor sanction screening, and 2) it should be a part of your vendor onboarding process.
So how do you fit this into the beginning of your vendor relationships? Let’s talk through a few ways to weave vendor sanction screening into your vendor onboarding process.
Streamline onboarding workflows
First, you need to know what your vendor onboarding workflows look like (don’t have them documented? Use this template). Typically, you’ll have to gather information, review documents, verify information, validate information, and route for final approvals. So, where’s the best place for sanction screening to ensure that you catch any red flags early?
Ideally, you can leverage a vendor onboarding platform that automates much of this – including vendor sanction screening. These platforms can automatically cross-reference potential vendors against global sanctions lists and provide real-time alerts on any matches. By automating these checks, your organization can significantly reduce manual workload, minimize human error, and expedite the onboarding process. And you can do it while maintaining rigorous compliance standards. That takes a lot off your plate.
But even if you don’t have automated processes, it serves you to note in your onboarding process where and how vendor sanction screening occurs. Remember to include databases to check and create a list of other departments to notify if a contact is flagged.
Document vendor sanction screening procedures
In case you missed it in the paragraph above, grab this Write It Down template to get started. Then grab this compliance checklist for good measure.
You need clear guidelines that outline what happens when a potential match is found during the screening process. Basically, they should specify the investigation process, criteria for vendor approval or rejection, and how to handle false positives.
Don’t forget to train folks on these policies and procedures! Policy on paper can look different than policy in action. Make sure everyone involved in vendor onboarding understands their role in sanction screening and compliance. Also, make sure your policies are regularly updated to reflect current regulations and best practices.
Automate vendor sanction screening
Shameless self-plug ahead: modern, automated vendor management solutions like PaymentWorks offer robust features that go beyond simple sanction screening. Our platform provides comprehensive tools for vendor risk assessment, documentation management, and ongoing monitoring (the operative word being ongoing).
PaymentWorks also integrates with your ERP, which in turn feeds you other business systems, helping you create a centralized repository for all vendor-related information. This makes it easier to manage and review vendor compliance over time.
Customizable workflows allow you to tailor the onboarding process to your specific needs and risk appetite. Additionally, advanced reporting capabilities enable companies to track the efficiency of their onboarding processes, monitor compliance levels, and identify areas for improvement.
So, instead of juggling a million different documents, third-party databases and systems, and email threads, your vendor desk can focus on creating value for your organization. In fact, it’s a foundational step to making vendor management more strategic, as Tom Rogers points out:
Reminder: Vendor Sanction Screening Is Never “Done”
Ok, so we’ve established that vendor sanction screening is critical and that it should happen at the point of onboarding. Done, right?
Wrong.
Vendor sanction screening requires ongoing vigilance. Maintain continuous at regular intervals to keep up with the changing landscape of global sanctions. Also, an entity’s status could change while you are already engaged with them. You need continuous monitoring to make sure you remain compliant throughout the entire vendor relationship.
Sanction lists are dynamic. Accordingly, entities are added or removed based on geopolitical developments and enforcement actions. It’s fluid, which means that a vendor cleared during the onboarding process might later become sanctioned. If you fail to identify this change, your organization faces increased risk.
Continuously re-screening existing vendors against updated sanctions lists helps you catch any changes before they become a problem. Unfortunately, manual re-screening is a real headache and time-suck.
Automating your vendor sanction screening process simplifies the entire onboarding process (and relieve those tension headaches from scanning list after list). Automated solutions enable real-time alerts when a vendor’s status changes and trigger new approval workflows. As a result, you nip potential issues in the bud. In effect, alerts enables you to reassess and possibly terminate relationships with vendors who no longer meet compliance standards.
Best Practices for Maintaining Vendor Compliance
We’ve covered a lot. To simplify things, we put together a short list of best practices to help you optimize your vendor sanction screening process:
Regular Review Cycles: Set a schedule for regular reviews that matches the risk level of the vendor and the region in which they operate. High-risk vendors or those in volatile regions should be re-screened more frequently.
Documentation and Record-Keeping: Maintain thorough records of all screenings and actions taken as a result. This will come in handy in the event of a regulatory audit. Just ask Chris Arehart:
Clear Communication with Vendors: Establish clear communication channels with your vendors about your compliance requirements, including the necessity for ongoing sanction screening. This transparency ensures that vendors understand their obligations and the potential consequences of non-compliance.
Training and Awareness: Keep your team informed about the latest developments in sanctions regulations and the importance of ongoing vendor management. Regular training sessions keep staff vigilant and knowledgeable about compliance requirements.
Automation: Automate the screening process and activate scheduled checks and real-time alerts to keep your vendor management team informed of any changes. This allows you to document and manage the entire lifecycle of vendor relationships, from onboarding through ongoing management and compliance checks.
In sum, vendor sanction screening underpins successful business partnerships. Do your due diligence. Stay vigilant. Know (and document) your process. And remember that compliance is never “set-it-and-forget-it.”
Get Ready For Vendor Management Appreciation 2024
The party continues all year long! We’re still celebrating Vendor Management Appreciation Day (VMAD), and we highly encourage you to join us!
Why? Because there’s no expiration date on honoring one of the most important, under-recognized roles across industries: vendor management.
Join us in observing Vendor Management Appreciation Day (VMAD)! We’re gearing up for the 2024 celebration, and we want you to be a part of it!
VMAD is a unique holiday geared toward unifying vendor management professionals and celebrating innovation in the field.
We’ve released gifts each month to help you supercharge your vendor management efforts. Additionally, we’re planning some awesome events so everyone can connect and celebrate the important, strategic role of vendor management.
Learn more here, and grab some free vendor management goodies.
Want Help Aligning Teams On Vendor Sanction Screening?
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The Missing Link When Building a Vendor Risk Management Framework
Risky Business with PaymentWorks: E5–Third Party Risk Management and Risk
5 Ways Your Supplier Master Data is Costing You Money- Compliance Edition
Vendor Verification: How NOT to Do it and What to Do Instead
Interested in Regular Tips On Vendor Sanction Screening?
Want Personalized Guidance On Vendor Sanction Screening?
