Sanctions screening for commodity traders and energy companies

• Ownership behind the trading name: trading entities are created and retired quickly, and a designation follows the owner, who is rarely named on the confirmation.
• Measures on goods and sectors: some sanctions target particular commodities, origins, sectors or services, not only named parties, so a clean counterparty does not make a cargo clean.
• Price-cap style measures: some regimes allow services for certain cargoes only under conditions such as a price limit, and expect service providers to obtain attestations and keep records.
• Many parties per cargo: the seller, buyer, broker, shipowner, operator, charterer, insurer and bank can each be in a different jurisdiction, and each can be designated.
• Trade-based money laundering: mis-invoicing, misdescribed goods and shipments that do not match their paperwork are used to move value through trade.
• State-linked counterparties: energy and mining often involve state-owned companies and officials, which brings politically exposed persons into the chain.
• Contracts that outlast lists: a term contract can run for a long time, and a designation can land at any point during it.

1. 1

   Identify the counterparties

   Buyers, sellers, brokers, agents, the companies that own, operate and charter the vessel, and the banks financing and settling the trade.

2. 2

   Screen the parties and their owners

   Sanctions and PEP screening of each counterparty, and ownership screening of the companies behind trading names and special purpose entities.

3. 3

   Check before the confirmation

   Screen before a deal is confirmed or a cargo is loaded, at the speed the desk trades.

4. 4

   Review the trade itself

   Separate checks on goods, origin, routing, pricing and documents, where goods-based and price-cap style measures apply and where trade-based money laundering red flags show up.

5. 5

   Monitor and record

   Re-screen the counterparty base when lists change, and keep the evidence of every check and decision for banks, auditors and regulators.

Commodity traders are generally not obliged entities under anti-money laundering law. Dealers in precious metals and stones are a separate case: they are designated non-financial businesses under the FATF Recommendations and have AML duties in many countries. For trading in energy, metals and agricultural goods more broadly, the binding obligations come from sanctions law, which applies to everyone, and from the due diligence that banks and trade financiers require of their clients.

Sanctions are applied through UN Security Council measures, the EU's restrictive measures, the US programmes administered by OFAC and the UK's financial sanctions administered by OFSI. Beyond listing names, several regimes restrict whole sectors, the import, purchase or transport of particular goods, or the services that may be provided for a cargo. Ownership rules differ between regimes: under the OFAC 50 Percent Rule the holdings of blocked persons are added together, while UK and EU measures treat entities owned or controlled by a designated person as subject to the same restrictions.

The FATF has published guidance on trade-based money laundering, in which trade transactions, mis-invoicing and misdescribed goods are used to move value. Banks that finance trade are expected to watch for those red flags, and they in turn expect their trading clients to know who they are dealing with.

• Ownership screening: it should look through trading houses and special purpose entities and apply ownership rules such as the OFAC 50 Percent Rule.
• Fuzzy matching: counterparty names arrive in many spellings, transliterations and trading names, and the matcher has to handle them.
• Real-time API: screening that fits the time between a trade being agreed and confirmed.
• Batch re-screening: the whole counterparty base re-checked when lists change, with alerts only on changes.
• PEP and adverse media: state-linked counterparties, officials and intermediaries reviewed for exposure beyond the sanctions lists.
• Clear scope: know what the tool does not do. Vessel tracking, cargo origin and price checks need their own processes.
• Evidence: every check and decision recorded in a form a bank or auditor can follow.