How to Maintain Effective Sanctions Screening?

What is Sanctions Screening in Banking and Why is it Required?

Sanctions Screening in banking: Sanctions Screening plays a big role in the fight against financial crime globally. Financial crime includes several groups, entities, and people, all of whom are involved in illicit activities. The financial institutions are required to implement certain sanctions issued by government institutions, such as the United Nations, the Office of Foreign Assets Control (OFAC), and the European Union. The firm is required to detect any suspicious/potential violation committed by its client. This is achieved by searching for the firm’s databases and transactions.

Sanctions Screening in banking: Maintaining compliance of AML, as well as Sanctions compliance, is necessary for all Financial Institutions (FIs). Indeed, they could possibly be at high risk if the firms fail to ensure accurate sanctions screening procedures. For example, it would increase risk of reputation for the firm and chances of a large fine amount. Last year, the Standard Chartered Bank provided loans of approximately USD $119.1 million to a Russian Bank in Ukraine. As a consequence, it had to pay a penalty of USD $24.9 million for breaching sanctions. If a financial institute engaged with any individual, company, or jurisdiction that is part of a sanctioned list, it would cause them severe reputational damages. Fenergo’s 2020 findings show that FIs had to pay global penalties worth USD $36 billion for non-compliance with AML, KYC, and Sanctions regulations.

Sanctions Screening in banking: In order to prevent non-compliance, financial institutes must ensure that they establish and maintain effective sanctions screening procedures. It’s part of the screening process to verify the customer’s name as well as their aliases given in the sanctions list. To monitor the transactions via analyzing large amounts of data, it is recommended that the organizations use sanctions screening software. After all, this will carry out the process more efficiently and ensure compliance with increasing complexity.

How to Maintain Sanctions Screening Compliance?

How to maintain sanctions screening compliance? The FIs must process, establish and implement a compliance sanctions screening program that is according to the firm’s regulatory requirements. The sanctions screening compliance program needs to be established depending on the nature of the business provided by the organization, the jurisdictions that the FI covers, and which currencies they use. The scope and appropriateness of the compliance screening will determine the effectiveness of the sanctions program.

How to maintain sanctions screening compliance? Financial institutes cover two different types of screening operations: customer screening and transaction screening. Both of these operations are based on matching engines that compare data between the internal and external sources, to detect any similarities and find any potential matches, upon which the system is alerted. The potential matches will then be assessed by the compliance officer, to check if the match is a ‘true match’ or not, based on sufficient information. If it is a match, the financial institution will apply the necessary measures to block the person’s transactions and report them to law enforcement immediately.

The advantage of maintaining sanctions screening compliance is that it helps the firm in the detection, prevention, and disruption of financial crime, in addition to mitigating the risk of sanctions. The client’s records, data, and financial transactions are compared against the sanctioned countries, list of names, and entities that detect any potential matches. The sanctioned lists can be obtained from financial authorities around the globe. These include:

1. The United Nations Security Council Sanctions List
2. The US Treasury Department - Consolidated Sanctions List
3. The OFAC  SDN Sanctions List
4. The European Union Sanctions List
5. The Fugitives/Wanted Persons List - Interpol
6. The CIA World Leaders List (PEP)

These lists are available publicly and are updated by their external sources, which is something that should also be carried out by the internal controls. The firms must combine the external resources with the sanctioned lists, suspected persons, names, and terms that have been detected through internal operations, research, or intelligence. The process of detection allows the organization to not only be alerted, but evaluate further whether the comparison or potential matches reveal a true sanctions match. The process of investigating further to find a true match in the list can be complex, as the other variables in comparison to the match can be endless - various languages, spellings, acronyms, etc. This is why the organization should ensure that its sanction program is maintained well enough to be in compliance at all times.

What are the Sanctions Screening Procedures and Requirements?

What are the sanctions screening procedures and requirements? In order for the financial institutions to be equipped with an effective and efficient sanctions screening process, the firms should keep their data for regulatory requirements updated with the changing and upcoming regulations. The firms should maintain compliance with the new set of laws and obligations. The FIs must build a robust sanctions screening program that can help to collect, maintain, and use the data from various regulatory bodies with an approach that is both safe and efficient. The advantage of using data is to comply with the policies and regulations in order to help the financial institute have strong decision-making skills and strategize in a way that will bring maximum benefits to the organization. Following the data will ensure further increase in the effectiveness of the business operations and standards which will help the financial institute to grow.

Most firms establish two primary sanctions screening processes - customer screening and transaction screening. As the term would suggest, customer/name screening stands for the fact that the firm will verify the selected individual or parties during their onboarding process with the increase in growth of the customer’s relationship to the organization. Secondly, transaction screening means the process of identifying the customer’s transactions which may involve any sanctioned/targeted individuals or groups. Both of these processes are set to form robust operations for verifying the individuals or companies against sanctioned lists. For sanctions screening, the firm needs to look into the following aspects:

1. In which country the firm is based and how close it is located to the sanctioned country
2. If the firm’s customers are based within the country or outside it (if so, in which foreign country), as well as their line of business
3. The number of transactions made by the customer and their distribution channels
4. The firm’s products and services, including if the firm presents a high sanctions risk, such as a foreign transaction, correspondent account, or a payable-through account

As discussed above, the sanctions screening procedures and requirements are a combination of policies, processes, and services that ensure that the firm does not engage with a sanctioned party, even by default. The sanctions requirements are a part of other compliance regulations. They have been devised to enhance, assess, and optimize the firm’s operations, which enable it to be compliant with the measures imposed by the regulatory bodies.

What are the Sanctions Screening Services? 

What are the Sanctions Screening services? The financial institutes are required to detect, manage, and prevent AML compliance risk by implementing sanctions screening processes. Taking advantage of sanctions screening services enables firms to identify those individuals, entities, and groups that are part of the sanctioned list and to further detect any other illegal activity that the firm could potentially be exposed to. The sanctions screening service is a time-saver for the team members: it tackles large volumes of data to detect potential concerns and helps the FIs establish compliant risk decisions. The screening process for larger corporations is more complex and it requires the application of an appropriate service that has the core functions and operations to ensure effective governance over the sanctions screening procedures.

Use of sanctions screening services: Using appropriate sanctions service for screening will help the firm to achieve the required analysis that falls under compliance regulations. This will also increase the firm’s efficiency by saving their employees’ time, allowing them to easily search volumes of data, and will further raise the industry standards and the due diligence processes. The technology adopted by the FI will help them to detect updated sanctioned lists and screen worldwide sanctioned persons, companies, and countries.