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WHAT.3 EU Sanctions DD

EU Sanctions DD WHAT.3: Transaction Pricing Analysis

What This Control Requires

Are any transactions priced significantly above or below market rates?

In Plain Language

Significant pricing anomalies can indicate sanctions evasion or value transfer to sanctioned parties. Overpayment may represent disguised payments to designated persons. Underpayment or unusual payment terms - like cash for expensive items or advance payment without guarantees - are red flags for money laundering through sanctioned networks.

This is not about minor price variations or normal commercial negotiations. The focus is on transactions where the economics do not make sense: paying 3x market rate for a commodity, accepting cash for a high-value industrial transaction, or agreeing to advance payments without performance guarantees from an unknown counterparty.

How to Implement

Compare transaction prices with market benchmarks for similar goods, services, or technologies. Flag any transaction where the price deviates significantly (more than 20-30%) from the market rate without clear justification.

Legitimate justifications include: volume discounts, long-term contract pricing, special specifications or customisation, urgency premiums, or market scarcity.

Suspicious indicators: - Price significantly above market with no justification (potential value transfer) - Willingness to pay cash for expensive items when financing or letters of credit would be normal - Advance payments without performance guarantees from new or unknown counterparties - Payments from unrelated third parties (someone other than the buyer pays) - Multiple small transactions just below reporting thresholds - Unusual payment currencies or routing through multiple banks

Any unjustified price deviation should trigger enhanced due diligence and escalation to the compliance function. Document the analysis: what benchmark was used, what the deviation was, and whether the explanation was satisfactory.

Evidence Your Auditor Will Request

  • Transaction pricing comparison against market benchmarks or industry standards
  • Documentation of justification for any significant price deviations
  • Escalation records for transactions with unexplained pricing anomalies
  • Payment terms review showing assessment of unusual payment structures
  • Third-party payment analysis identifying cases where payer differs from buyer

Common Mistakes

  • No systematic comparison of transaction prices against market benchmarks
  • Accepting above-market pricing without questioning the commercial rationale
  • Not investigating unusual payment terms or payment from unrelated third parties
  • Treating price deviations as purely a commercial matter without sanctions consideration
  • No documentation of pricing analysis for transactions with high-risk counterparties

Related Controls Across Frameworks

Framework Control ID Relationship
EU Sanctions DD EU Sanctions DD WHAT.2 (related mapping) Related
EU Sanctions DD EU Sanctions DD WHY.4 (related mapping) Related
EU Sanctions DD EU Sanctions DD GEO.3 (related mapping) Related

Frequently Asked Questions

What constitutes a significant price deviation?
There is no fixed threshold in EU regulations, but as a practical guide: any deviation of more than 20-30% from market rate warrants investigation. For commodities with transparent pricing (metals, energy, chemicals), even smaller deviations may be significant. The key question is whether the price makes commercial sense given the product, quantity, delivery terms, and market conditions. If it does not, dig deeper.
What if we operate in a market with volatile pricing?
In volatile markets, use contemporaneous benchmarks (spot prices on the transaction date, not historical averages) and consider normal market volatility in your assessment. Document the benchmark used and why it is appropriate. The goal is not to flag every price fluctuation but to identify transactions where the economics are clearly inconsistent with legitimate commerce.
Why would a sanctioned party overpay for goods?
Overpayment can serve multiple purposes in sanctions evasion: it transfers value from a sanctioned entity to a clean entity (the excess payment is effectively a covert capital transfer), it creates an incentive for the seller to cooperate with the circumvention scheme, and it compensates the seller for the additional risk. Think of the premium as the 'sanctions evasion fee' built into the transaction.

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