Entity data and the problem of companies being sanctioned by extension

Today sees the release of the third edition of the Entity Data Management Handbook, published by Data Management Review from the A-Team.

Here we reproduce the foreword I was asked to write, along with the suggestion that you download the handbook in full – a lot has happened in the related fields of data management and compliance in the past year.

Foreword

Accurate, well-connected entity data is at the heart of what Bureau van Dijk does, so I'm thrilled to be writing this foreword for a second year running.

Last year, we touched on the perennial entity identification challenge faced by many of our clients working in Know Your Customer (KYC) and client onboarding. With internationally standardised information on more than 220 million private companies from all countries across the world on our databases, we can help.

But this is only the starting point. Increasingly, the journey involves complex navigation of complicated corporate ownership structures to see whether companies are "sanctioned by extension" according to the US Office of Foreign Assets Control (OFAC) and European Union (EU) "50% rule", which determines control.

As a reminder, a company is sanctioned by extension – but not explicitly included on any official sanctions list – if each of the ownership links in an unbroken chain between it and an explicitly sanctioned person or entity is 50% or more. The number of layers from the explicitly sanctioned entity and whether "integrated ownership" dips below 50% determine whether ownership is direct, indirect or through the "cascade-down effect". With regard to aggregation, if a company is partially owned by two otherwise unrelated but sanctioned persons or entities, neither individually owning 50% but with aggregate ownership that exceeds this threshold, both entities are sanctioned by extension.

While this rule has been around for years, the situation intensified with the Crimea crisis of 2014. Russia's intervention has seen the OFAC Specially Designated Nationals and Sectoral Sanctions Identification lists grow and become more targeted. And the EU equivalent list of "persons, groups and entities subject to EU financial sanctions" has followed suit.

With the globalised nature of trade being what it is, ownership links and percentages across the world on a constant churn, and these lists being updated and released with increasing frequency, keeping on top of these moving targets has become almost impossible.

It's hard enough just identifying companies that are sanctioned by extension, let alone monitoring those slipping in and out of the parameters for inclusion.

But we've released a dynamic new screening tool that does just this. Tapping into our vast repository of structured corporate ownership information, we can generate snapshot lists of companies that at that point in time are sanctioned by extension.

At their chosen frequency, subscribers can then access these spreadsheets via File Transfer Protocol (FTP) and automatically compare them with entities in their own client and third-party portfolio. This delivers a welcome switch from pro-active to partially reactive and automated initial sanctions screening – all based on accurate, well-connected entity data.

Welcome to the business of certainty.

Download the third edition of the Entity Data Management Handbook

This updated edition is free to download. The handbook examines the role entity data plays in the smooth running of financial institutions and capital markets, the challenges of attaining high quality data, and various aspects, approaches and technologies involved in managing entity data.

Topics include:

• Challenges and opportunities of Entity Data
• A review of Legal Entity Identifiers (LEIs)
• A review of the key regulations impacting entity data
• Facets of entity data
• Entity data management
• Entity data applications