_sanctions compliance begins with risk assessment — but one size does not fit all
In an increasingly fractured geopolitical landscape, the risk of violating sanctions regulations has become one of the most pressing compliance challenges for international businesses. At the core of every effective sanctions compliance programme lies a deceptively simple yet foundational question: Where are our risks?
Risk assessment is not just the first step — it is the compass that sets the direction for the entire sanctions compliance programme. However, a one-size-fits-all approach to risk assessment is not only ineffective, it can be dangerous. Each company, depending on its sector, size, customers, markets, and operations, faces a unique risk profile. As such, each company requires a tailored risk assessment methodology that addresses its particular vulnerabilities and compliance obligations.
Why Risk Assessment is Essential in Sanctions Compliance
Sanctions regimes — whether administered by the United States (OFAC), the European Union, the United Kingdom (OFSI), or other jurisdictions — are diverse and constantly evolving. Companies that fail to anticipate how their business activities interact with these frameworks risk severe penalties, reputational harm, and operational disruption.
Regulators in general explicitly advocate a “risk-based approach” to compliance. This means designing a programme informed by a deep and ongoing understanding of how the company may come into contact with sanctioned parties, regions, sectors, or activities.
Without a properly scoped risk assessment, compliance programmes may end up applying generic policies to situations that demand nuance — leading to both overcompliance (which can hinder commercial activity) and undercompliance (which can result in violations).
Risk Assessment Is Not a Box-Ticking Exercise
A modern sanctions risk assessment is not a static document. Rather, it is a structured, evolving process that requires:
- A top-to-bottom review of the organisation’s activities and global touchpoints.
- Identification of high-risk transactions, business partners, jurisdictions, and supply chains.
- Engagement with legal, compliance, and business units to collect real-world insights into commercial processes.
- Integration with export control, anti-money laundering, and corruption risk assessments where relevant.
Crucially, the methodology must be bespoke. Below, we demonstrate this by comparing two illustrative cases.
Case Study 1: Automotive Spare Parts Exporter in the Middle East
Business Model:
A family-owned enterprise located in a Gulf state, exporting automotive spare parts to customers in North Africa, Central Asia, and parts of Europe. They frequently deal with intermediaries, use third-party logistics providers, and rarely have end-user visibility.
Key Sanctions Risk Factors:
- Exposure to sanctioned jurisdictions (e.g. Syria, Iran, Russia) through resellers.
- Limited visibility over end-use and ultimate beneficial owners.
- Use of U.S.-origin parts, triggering U.S. secondary sanctions risk.
Tailored Risk Assessment Approach:
- Conduct a transaction-level risk review, focusing on re-export risks and end-user screening.
- Map out the supply and distribution chains, identifying where control is lost.
- Prioritise a dual-use goods analysis — even though they sell civilian automotive parts, certain items may qualify as dual-use under export control laws.
- Establish a risk matrix that weighs jurisdiction, customer type (e.g. government vs. private), and product sensitivity.
Outcome:
The assessment resulted in the introduction of an enhanced customer due diligence process, restricted sales to higher-risk geographies, and flagged red-flag behaviors for internal escalation.
Case Study 2: Global Cloud Services Provider Based in Europe
Business Model:
An EU-based IT company offering cloud storage, AI analytics, and SaaS tools to multinational corporations. It operates data centers in Europe, Asia, and North America and relies on automated onboarding systems.
Key Sanctions Risk Factors:
- Potential provision of services to designated persons or entities (especially through automated sign-ups).
- Exposure to U.S. and EU regulations through physical and digital infrastructure.
- SaaS functionality that can be accessed globally — including from sanctioned territories.
Tailored Risk Assessment Approach:
- Conduct a technical infrastructure audit to identify geographic routing of services and access vulnerabilities.
- Review IP geolocation and geo-blocking systems to prevent access from sanctioned jurisdictions.
- Implement automated screening protocols at the point of onboarding and throughout the lifecycle of the customer.
- Include licensing risk analysis, particularly where U.S.-origin software or encryption is involved.
Outcome:
The company implemented a layered control system combining automated flagging with legal escalation for edge cases. It also launched jurisdiction-specific training for its sales and product teams.
Final Thoughts: Tailor or Fail
Risk assessments that are not rooted in a company’s operational and commercial reality may provide a false sense of security. Worse still, they may be ignored. As such, designing a sanctions risk assessment requires not only regulatory expertise but a deep understanding of business models and industry-specific dynamics.
At Clayston, we support clients across sectors in building and refining their sanctions compliance frameworks — starting with fit-for-purpose risk assessments. Whether you're a fast-scaling tech company or an established exporter, we help you ensure your risk identification process is proactive, proportionate, and regulator-ready.
Contact us to learn how we can help you tailor your sanctions risk strategy.
Contact:
Koray Dagdeviren, Lawyer (TR), Of Counsel