Sanctions screening checks individuals, businesses, and organizations against sanctions lists and watchlists to prevent fraud and illicit activity. All businesses comply with sanction list screening. Sanctioned list check transactions and customers for sanctions compliance. Sanctions checklist screening detects fraud and restricts financial exchange with sanctioned individuals. Various national and international bodies issue lists of sanctioned individuals and entities. These sanctions lists and watchlists change constantly; businesses need an automated sanctions compliance system to stay updated.
“Sanction screening was recently highlighted in February 202 when Russia invaded Ukraine. At that moment, the US and many other countries imposed sanctions on Russia and froze the assets of Russian banks and individuals.”
Sanction Screening
“Sanction screening is a tool for businesses to adhere to Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations against financial crimes.”
Global sanctions list issued by regulatory bodies compiles individuals, organizations, and entities violating national and international regulations. Businesses integrate sanction screening and AML as a shield against sanctions violations and fraud.
Sanction Screening Data Requirements
Sanctions screening mainly engages with entity transactions that operate in territories with complex sanctions regimes. Sanction list screening is conducted immediately after onboarding a new third-party or customer risk assessment. Businesses perform regular sanction screening throughout the business relationship. Companies or agencies collect the following data to perform sanction screening.
- Customer Full name
- Alternative Names
- Birth Date
- Company Registration number
- Country
- Trading partners
Sanctioning Bodies
Governments and international bodies maintain and update sanctions lists. Some key sanctioning bodies are:
Office of Foreign Assets Control
OFAC sanctions lists apply to all U.S. citizens and entities conducting business within the U.S. or trading in U.S. currency. A specially designated Nationals List is an example of an OFAC list.
United Nations (UN)
The United Nations sanctions apply to all states. The United Nations sanctions individuals, organizations, and countries for violating international law or posing a threat to global peace and security.
European Union External Action Service
The EU EEAS sanctions lists apply to all EU citizens and corporate entities. These EU sanctions list is based on human rights violations or threats to EU foreign security policy.
HM Treasury
The UK government maintains a sanctions list applicable within the UK’s territory.
Sanctions Lists
Sanctions lists restrict economic transactions with entities to maintain national security or international peace. Major sanction lists that govern globally are:
- Office of Foreign Assets Control Sanction List
- United Nations Sanction List
- European Union Sanction List
- United Kingdom Sanction List
- Australian Sanction List (Autonomous sanctions list)
- Swiss Sanction List
Traditional Sanction Screening Challenges
Financial Institutions face persistent challenges in maintaining sanctions lists to ensure compliance. Traditional sanctions screening needs to address these challenges.
- Excessive False Positives
Traditional screening results in high false positive matches to sanctioned entities or individuals. An automated sanction list screening solution can prevent this.
- Lagging Real-time Updates
Legacy databases differ from new sanctions designations, delayed processing, and heightened risk in dealing with new sanctioned parties.
- Complex Entity Matching
Accurately matching entities across different languages poses a significant challenge to traditional systems. Incorrect identification of names or entities can have serious consequences.
- Ineffective Risk Assessment
Traditional screening must accurately assess the risk associated with flagged transactions. This results in “over-blocking” or “under-blocking,” where high-risk transactions slip through or low-risk transactions are delayed.
- Scalability Limitations
The traditional system struggles with growing workload efficiently leading to process delays and compliance risks.
Sanction Screening Process
- Prepare Customer Data
Financial crime compliance emphasizes operational efficiency using AML/KYC practices. Streamline data acquisition processes and develop a centralized data lake. Accurate customer information collection reduces delays and inconsistencies in KYC/AML procedures.
- Adopt technology
Adopt reliable and advanced sanctions screening solutions to efficiently process multiple sanctions lists and batch screening to align with organization profile and compliance policies.
- Utilize high-quality sanctions data
Sanctions screening relies on extensively researched and updated global risk information. Use the latest PEP and sanctions lists from around the world. High-quality and comprehensive sanctions data ensures screening process compliance.
Conclusion
Sanction list screening is used for financial compliance. Companies effectively manage sanctions risks and AML compliance strategies and maintain a global financial reputation. Businesses remain informed about the sanctions lists to avoid legal and financial repercussions. Financial institutions are now adopting advanced sanctions screening solutions to ease the process.