Does your business use SAP as its operational backbone? Does your company trade using US dollars? If the answer is yes to both - read on. This VOQUZ Labs guide reveals why smart, forward-thinking organizations are integrating sanctions screening into their SAP ERM and S/4HANA systems globally.
But before we dive into the benefits, let's first remind ourselves what sanctions screening is and why it's required.
Sanctions screening is a regulatory compliance process that prevents organizations from performing transactions with sanctioned entities due to their involvement in illegal or prohibited activities.
Regulation technology (RegTech) has made giant leaps. In 2023, organizations, from bootstrapped startups to multinational companies with thousands of employees, use sanctions screening service partners.
Why? Because the technology they offer allows their business systems to connect to global sanctions databases using APIs and plugins.
And it works like this: On the basic side, a small business could upload a .csv file and immediately see if any of their customers and other business partners are sanctioned individuals or entities. On a much larger scale, say a global business that uses SAP as its ERM platform, sanctions screening can be automated.
More about that in a moment. But first, remember this: If your business trades in US dollars and other popular international currencies (that will be almost all of your reading), then you must ensure you comply with the major global sanctions lists:
Failure to comply with sanctions laws results in severe penalties and reputational damage.
In 2023 alone, multinational firms, including Microsoft, British American Tobacco (BAT), and Deutsche Bank, have been slapped with multi-million dollar penalties for apparent sanctions violations.
Sanctions screening within SAP, also known industry-wide as SAP business partner screening, is the process of automating sanctions screening within SAP. And as mentioned in the previous section, RegTech solutions are at the heart of enabling this fast-growing, streamlined process.
We can't delve too much into the groundbreaking technology in this article. However, we can reveal that with advancements in APIs and SAP ABAP (Advanced Business Application Programming), it's now possible to perform automated sanctions screening processes within SAP.
In a nutshell, developers use ABAP to create applications within the SAP ecosystem, including customizing and extending software products.
And what does that mean?
It means all your company's business partner data (customers, suppliers, employees, potential clients, and all other stakeholders) is automatically screened against global sanctions databases without the data ever leaving SAP.
The benefits of this level of automation are tremendous to organizations embracing the technology - which is what we will discuss next.
Our White Paper explains how using robust controls and automation, organizations can better manage fraud risks, comply with regulations, improve operational efficiency, and save substantial costs.
We previously alluded to how governmental bodies, such as the US Treasury, have already dished out multi-million dollar fines to well-known multinational companies in 2023.
And the penalties can be astronomical. This year, British American Tobacco's (BAT) fine was a whopping $635M for North Korea sanctions violations.
But the risk of sanctions non-compliance is more than the financial penalty itself.
Here is a famous saying: Reputations take years to build but can vanish in a day. And when a company is punished for sanctions violations (and the news splashed all over the media), the reputational and subsequent financial fallout can be devastating.
So wouldn't it be wise for a company to do everything it can to avoid these damaging scenarios? Absolutely. And utilizing SAP business partner screening is a smart move to mitigate the risk. But how so? To answer this, we must look at data quality's importance in sanctions screening.
In sanction screening processes, high-quality data is crucial. After all, if it's full of errors, it could mean a company trading with sanctioned individuals and entities - as the sanction check won't flag them as a match.
And the valuable benefit of performing sanctions screening within SAP is that data, such as customer and master data, doesn't need to be downloaded and transferred to an external program (where errors can easily occur, reducing data quality).
The result? The global sanctions database receives higher-quality data that greatly mitigates the risk of sanctions non-compliance for your organization.
Organizations are increasingly exposed to compliance requirements. Adopting innovative ways to assess and manage risk and enhance performance is critical. That’s where data analytics and continuous monitoring are helping to simplify and improve the internal control system, increase operational efficiencies, reduce costs, and detect fraud and errors earlier. Internal controls become a way for organizations to create value.
The next immediate benefit that companies who use SAP as their ERM system will put a smile on the CFO's face: cost savings.
Think about it: Well-paid employees working in a company's finance or compliance department are often tied up performing manual processes. And these manual tasks, such as transferring data to external systems for sanctions screening, are time-consuming (and prone to errors, as mentioned earlier).
As the saying goes: Time is money.
And it's money that adds up fast, especially considering the team's cumulative effort over time.
But here is where automated magic can happen. Integrating sanctioned party list screening directly into SAP turns time into a valuable resource. How? Because the efficiency gains from automated screening processes in SAP can significantly reduce labor costs.
To finish this section, we can create a scenario combining the two benefits we have examined: Reduced risk of sanctions non-compliance (through higher-quality data) and increased cost savings.
In sanctions screening, manually dealing with false positives - individuals and entities incorrectly flagged as being on a sanctions list - costs the organization time and money (plus disruption for the customer or business partner).
But by performing business partner screening within SAP, the global sanctions database will likely be fed higher-quality data.
And the outcome is this: A reduced risk of hefty financial penalties and reputational damage for non-compliance and a decrease in the cost of manually dealing with false positives because there are now fewer.
With sanctions bodies, such as OFAC, increasingly punishing organizations for breaches, companies must have a robust sanctions screening process. And if your organization uses SAP (and is interested in avoiding hefty fines and wants to save money), then integrating sanctions screening into your SAP ERP or S/4HANA environment is a shrewd move.
You can learn how to set this up and read further information in this VOQUZ Labs White Paper, which walks you through the process.
Download it here.
VOQUZ Labs remQ Business Inspector software operates as an SAP add-on with a library of 100+ pre-built shipped controls ready to run. You can click here to learn more about how remQ can assist your business with its goals to cut audit errors, reduce fraud, and stay compliant.
Paul is a RegTech content writer & strategist with extensive experience in digital marketing and journalism. His work has appeared in the Guardian newspaper. He also holds a degree in International Relations, where he studied global sanctions compliance and cross-border finance.
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