Passthrough sanctions refer to the risk of indirect exposure to sanctioned individuals, organizations or countries through your business relationships, even if your immediate counterparty is not listed on any official sanctions list. Under passthrough sanctions, a company can be held responsible if its vendor, supplier, customer or counterparty engages in transactions with a sanctioned party.

Within Know Your Customer’s Customer (KYCC) practices, companies assess the likelihood of passthrough sanctions by investigating the downstream and upstream relationships of their counterparties. A breach of passthrough sanctions regulations can result in significant fines, legal penalties and reputational damage, even if the primary counterparty appeared compliant.

Properly managing the risk of passthrough sanctions requires Enhanced Due Diligence (EDD), continuous monitoring and thorough understanding of the counterparty’s business practices, ownership structures and transaction activities.