“Know Your Customers” Due Diligence Rules
A new regulation is slated to go into effect January 1, 2019, that will require all new businesses incorporated in Delaware to perform a sanctions screening.
According to the new regulation, registered agents will need to more closely adhere to federal requirements on entities who appear on denied and restricted party lists curated by the U.S. Treasury Office of Foreign Assets Control (OFAC). Agents will be required to verify the identity of any potential customer seeking to incorporate in Delaware either through a corporation or Limited Liability Company (LLC), then screen that identity against denied and sanctioned party lists.
Additionally, these registered agents will be required to periodically check their lists of existing clients and contacts against the OFAC lists. These checks must be performed on a quarterly basis or whenever client information is transferred to another agent, or updated client information is made available
These rules also affect entities not represented by a registered agent. Businesses formed by Delaware residents will have the “Know Your Customers” checks performed by the Division of Corporations.
Denied & Restricted Party Screening
Denied Party Screening is a general term for the due diligence review of a business’s internal lists to ensure that transactions are not being conducted with entities included on a sanctioned list, watch list, concern list and more as well as countries that are either embargoed or sanctioned. It is now necessary to maintain accurate audits of a company’s denied party screening process and records of their export compliance efforts.
Falling under the demonstration of reasonable care, Denied Party Screening and Restricted Party Screening is undertaken to comply with the safety standards of the governments and agencies worldwide. The Denied Party Screening process consists of comparing the Restricted Party Screening Lists to an organization’s internal list of customers, vendors, suppliers, employees, transactions, etc.
Office of Foreign Asset Control
The Office of Foreign Asset Control is an enforcement agency of the U.S. Treasury Department. Deriving its authority from U.S. federal law, OFAC administers and enforces economic and trade sanctions including developing, maintaining and publishing a list of Specially Designated Nationals which are prohibited from conduction business with the United States or its citizens and permanent residents.
Delaware’s Enhanced Screening Requirements FAQ
Q: Who is affected by OFAC regulations?
A: Generally, all U.S. persons and entities, regardless of location and including any foreign branches, must adhere to sanctions and regulations. OFAC does have the authority to grant exemptions; however, these exemptions are primarily granted on transactions and are not relevant to Delaware’s “Know Your Customers” rules.
Q: What do the new rules mean for Registered Agents?
A: In order to act as a registered agent for an entity formed in Delaware, agents are required to screen their clients against OFAC’s sanctions lists.
The regulations only require information obtained from the client to be screened against these lists, so there is no need to acquire more information. The rules require the screening of the names of “client contacts, members, managers [and] owners” as well as business addresses.
Should a registered agent discover that a client is on OFAC’s sanctions lists, they are required to decline representing the entity or withdraw as registered agent and the entity would need to designate a replacement registered agent. Further, there is a requirement to report the entity both to the Division of Corporations as well as a federal requirement to report it to OFAC.
Q: How large are OFAC’s lists?
A: The Specially Designated Nationals list currently has more than 15,000 entries from 155 countries with the majority of these being designated individuals and organizations.
OFAC does create separate entries in this list for each alias of a designated individual, so the number of entries is inflated beyond the actual number of designees.
Q: Do businesses incorporated in Delaware have additional screening requirements?
A: The “Know Your Customers” regulations are primarily concerned with registered agents. Screening of businesses formed by Delaware residents will have the sanctioned party screening performed by the Division of Corporations.
Entities incorporated in Delaware have no additional screening requirements beyond the due diligence review of a company’s internal list of customers, vendors, suppliers, employees, transactions, and contacts mandated by federal law.
Descartes Solutions for Denied & Restricted Party Screening
Proper screening is a difficult process to manually undertake. Continually staying updated on changing DPS data, an increasing number of global lists and entries, the broad requirements to screen commodities, services, and financial interactions, required logging and audit trails, as well as the heavy penalties, levied for non-compliance, presents substantial challenges to U.S. companies and individuals.
Descartes MK Denied Party Screening™ offers a web-based solution for companies looking to simplify their screening processes and for registered agents seeking to comply with the new regulations.
Our comprehensive global database provides options to review denied or sanctions party lists including the lists maintained by the Office of Foreign Asset Control to help fulfill compliance with Delaware’s Enhanced Screening Requirements and more.