The pharmaceuticals sector is governed by strict regulations. Compliance throughout global supply chains is vital to ensure that products reach markets and patients across the globe quickly and safely. Business leaders in pharma take their responsibilities very seriously – after all, no reputable company can afford the slightest violation, or the associated penalties and wider repercussions for their brand.
Of course, compliance not only refers to health and safety rules, but also to global trade regulations. This involves considering country embargoes, restrictions for critical goods and critical end-use, and importantly: sanctions and restricted parties. But controlling a constantly moving target is difficult: ever more stringent security measures, technological trends, trade wars, and market shifts create a highly volatile global trade landscape.
In this dynamic environment, new individuals and organisations are constantly added, removed, or updated in the hundreds of official, global sanctions lists, such as the EU’s Common Foreign and Security Policy (CFSP), Switzerland’s State Secretariat for Economic Affairs (SECO), or the various US blacklists.
The EU’s country-specific embargo regulations include trade restrictions on certain goods as well as bans on provisions to certain persons and organisations. Bans on provisions are also found in the embargoes against individuals (“anti-terror regulations”), not just in the EU’s embargoes against countries.
For some time now, automated screening of business partners against such lists has formed a basic component in pharma businesses’ compliance programmes. Experts agree that in today’s trade environment, efficient screening is virtually impossible without IT support – the sheer number of lists and the frequency of changes render it unfeasible to efficiently manage this task manually.
Additional hidden risks pose very real threats to companies
But having a screening solution in place should not instil a false sense of security. Today’s increasingly volatile global trade landscape requires much more than just screening immediate business partners against official sanctions lists to maintain the integrity of a company’s supply chain, protect its business, and stay compliant.
Take sanctioned ownership relations, for example – an increasingly complex and murky area of trade compliance. A company may well be screening its business partners against government lists, but what about the parties that control them – i.e. what about providing indirect provisions? If the controlling party of a business partner is sanctioned, so is the business partner itself.
The EU Council has issued Council document 5993/13 to help businesses comply with bans on such indirect provisions. It defines “control” as an ownership share of more than 50 percent and states that the basic assumption for indirect provisions should be set aside if a risk assessment of the specific case demonstrates that the resources will not be used by or benefit the listed person.
But even with the help of this Council document, compliance with such bans on indirect provisions is very challenging and very difficult to achieve in practice. Especially as the EU does not offer any tools to automatically screen for bans on indirect provisions.
Today, ownership structures of businesses across the globe can be quite complex – and they’re not necessarily transparent right away either. It is quite clear that identifying a business’s ownership structures requires serious – and repeated – research. Especially considering that ownership structures are not set in stone and can develop quite dynamically.
Extended screening: what companies need to do to mitigate risks
This means that even if companies screen all their business transactions against all relevant sanctions lists, they might still not be safe. Mitigating compliance risks requires an understanding of the ownership structures of all business partners from the very top in the chain of parent companies to all involved natural entities (shareholders).
And once the ownership structure is known and the 50 percent rule applies, then the involved companies and shareholders need to be screened against applicable sanctions lists, too. Only this additional step will ensure that the business transaction with the original trading partner is safe and in compliance with applicable laws.
It's crucial to remember that once a business partner is non-compliant, so is any company trading with it. That is not a risk any business can afford. What’s needed is a more comprehensive screening approach – and with the world of global trade spinning faster and faster, it’s needed fast. Forward-looking businesses should be implementing solutions that drive forward their digitisation agenda while mitigating global trade risks. Smart automation allows companies to accelerate the comprehensive screening process and save valuable resources – both for standard screening and extended due diligence – while ensuring compliance and survival in today’s fast-changing and competitive environments.
Hannah Beckett, is business solutions consultant at AEB (International)