As geopolitical tensions rise, Indian businesses have felt the impact on their balance sheets, with sanctions violations becoming a growing risk. In 2025, a major private equity firm paid over$11 million in penalties for violating Ukraine-Russia related sanctions by investing in entities linked to a sanctioned individual. In this context, sanctions due diligence is crucial for companies to avoid penalties, reputation damage, and business disruptions. Robust sanctions due diligence allows businesses to proactively manage risk while continuing cross-border operations with confidence.
What are Sanctions
Sanctions are restrictive measures imposed by governments or international bodies to achieve political, security, or economic objectives. They may involve limiting trade with certain countries or freezing the assets of specific individuals or entities. Sanctions are not uniform; different measures are applied depending on the behaviour being addressed and the intended outcome.
Common forms include travel bans, arms embargoes, restrictions on financial transactions, and controls on technology transfers. Sanctions are typically imposed to safeguard national security, counter terrorism, enforce human rights standards, and prevent proliferation, and maintain global peace and stability.
Why Sanctions Due Diligence Matters
Sanctions due diligence refers to the process of identifying and evaluating the risks associated with forming business relationships with individuals, entities, or countries that are subject to international or national sanctions. This assessment is crucial for ensuring that a company does not inadvertently engage in prohibited transactions or violate any regulatory frameworks.
It is critical for businesses of all sizes and industries, as it helps protect against potential financial, legal, and reputation risk. With the global nature of trade and the complexity of international sanctions, businesses must stay informed about which entities, individuals, or countries are subject to sanctions and understand the restrictions that apply to them.
Common Pitfalls
- Data quality and record keeping: Sanctions lists are regularly updated, making it challenging to keep screening databases up to date. Businesses risk using outdated data if records are not maintained, leading to missed compliance risks.
- High volume of false positive: Many individuals on sanctions lists have common names, resulting in false positives. This requires time-consuming manual reviews to determine if a match is legitimate or not, which can delay operations.
- Lack of resources and expertise: Organizations often lack dedicated teams with the necessary expertise for sanctions screening. This can lead to gaps in knowledge and missed risks, especially as sanctions regulations evolve.
- Inconsistent screening frequency: Screening is often seen as a one-time task during onboarding, not an ongoing requirement. Failure to continuously monitor relationships means businesses might unknowingly continue working with individuals or entities added to sanctions lists later.
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Core Compliance Principles for Sanctions Due Diligence
Effective sanctions due diligence relies on a few core principles. Businesses must ensure strong management commitment to compliance. They should also conduct regular risk assessment to identify potential sanctions risks and implement internal controls, such as automated screening, to detect violations early. Regular testing and audits of the compliance system help identify any weaknesses. Fostering a culture of compliance across the organization ensures that everyone understands their role in maintaining sanctions compliance.
Best practices for Sanctions Due Diligence in India
- Build a sanctions compliance program: Create a comprehensive sanctions due diligence program with clear policies for identifying, assessing and managing such risks.
- Screen and monitor partners and transactions: Regularly screen business partners, customers, and transactions against sanctions lists. Ensure continuous monitoring to stay compliant.
- Evaluate sanctions risks: Assess the sanctions risks of each business relationship and transaction to determine potential exposure to penalties.
- Coordinate with regulatory bodies: Engage with government and regulatory bodies to stay updated on evolving sanctions and ensure full compliance.
Conclusion
Effective sanctions due diligence is critical for businesses in India to ensure compliance with global and local regulations while mitigating risks. By integrating it into your processes, you protect your business from penalties, reputation damage and legal challenges. Taking proactive steps today will help ensure long term success and build trust among stakeholders.
To ensure continuous compliance and manage sanctions risks effectively. Connect with us to discuss how our Integrity Due Diligence service can help.