Tax & Accounting Blog

Screening: Working with the Right Partners

Blog June 24, 2016

The exchange of goods and services beyond our borders is not only confined to best cost and benefits of the relationships, but also the obligation of companies to be careful with other factors that can adversely affect the company in different ways.

Financial Crimes, Money Laundering and Drug Trafficking

The action of incoming funds, or assets, derived from unlawful or unjustifiable events to the legal financial system are related to immemorial times.  Although the first legislation in this area dates back many years, the regulations grew up largely in the early 20th century and continue to refine as new events and actions are exposed.

International trade, money laundering and other crimes related to a financial nature are not new, however the volume and complexity related to these areas has grown worldwide.  Targeting where corrupted funds linked to drug trafficking, tax evasion, and other crimes is difficult to track.

This is why many companies involved in the import and/or export of products and services are required to have safeguards against money laundering.  To mandate companies to adhere to these requirements, government regulators have implemented enforcement actions with companies in the form of oversight and fines and/or penalties by the authorities.

Politically Exposed Persons (PEPs)[1]

Consideration of those who fall into this group of subjects depends largely on the legislation of each country, but in general we can say that it is those who are performing prominent public functions in a country, or have done so in the immediate past.

Usually included in this category are Heads of State or Government, senior politicians, senior government officials, judicial or military officials, senior executives of state enterprises, as well as their spouses, relatives up to second degree of kinship, and individuals with which they have entered into a pact for joint action, by which they possess enough power to influence a vote in companies incorporated in the country in question.

International Sanctions

From the point of view of international law, sanctions are economic, military or diplomatic actions that a State unilaterally imposes to pressure another in a negotiation or compliance with international obligations.

Penalties can also be issued by supranational organizations such as the European Union or the United Nations.

Calling a recent example, the World Trade Organization (WTO) ruled against Argentina and forced Argentina to adapt their existing system for automatic licensing (DJAI), to the principles of GATT[2]. This adaptation was mandated to take place before the end of 2015, because Argentina could be exposed to risk of receiving further sanctions or economic blockades. The DJAI[3] was finally replaced by another procedure called SIMI before the end of 2015.  “Sistema Integral de Monitoreo de Importaciones,” (“SIMI” – Integral System of Import Monitoring), has taken the DJAI’s place as Argentina’s new import verification mechanism.

Commercial or Reputation risks

When choosing a business partner, this activity may be affected by some form of regulatory requirement, or be under the control and supervision of various activities (trade, government procurement, disqualification of directors, etc.) and measures.

These conditions may potentially expose a company to reputational risk if the transactions with such persons or entities is not prohibited or expressly limited as part of the process. Possessing this information and inserting a review as part of the engagement process is extremely useful when qualifying a potential business partner.

Decision Making

The origin of the information to determine whether a subject is involved in any of these considerations is very diverse and depends largely on the laws of each country.

When engaging in international trade, common practice is for oversight and controlling agencies in each country providing lists (SL – Screening Lists) detailing those persons or entities with which trade is prohibited. But as decision making is not only focused on the permission to proceed, or not to engage in trade, there are additional data elements, such as public information or media reports that must be considered for correct decision making.


In this context, the importance of making the right decision at the right time is vital to the wellbeing of the company. The investment of time, money and resources for a commercial operation, which ultimately is impacted to the point transactions cannot be performed, can easily be circumvented if the company receives the required information at the right time. The same can be said when a company engages in negotiations with a partner.  Ultimately the process should be implemented to abide by the regulations and protect the image of the company.

This focus is why large databases of information are often a very necessary tool for those corporations where its core business is based on international trade.  Picking a tool that features risk management, and employs different algorithms for gathering information in the global public domain can offer a company the most coverage on trade and financial activities.

To learn more about ONESOURCE Global Trade and global trade trends, visit our website


[1] In financial regulations, “politically exposed person” (PEP) is a term describing someone who has been entrusted with a prominent public function. A PEP generally presents a higher risk for potential involvement in bribery and corruption by virtue of their position and the influence that they may hold.

[2] The General Agreement on Tariffs and Trade (GATT) is the predecessor to the World Trade Organization (WTO). GATT provides for fair trade rules and the gradual reduction of tariffs, duties and other trade barriers, for goods, services and intellectual property.

[3] A Sworn Affidavit of Intent to Import, commonly known as the “DJAI.”