Background

Sanctions impact organizations, nations, people, and other parties engaged in illicit actions. They are a primary worldwide concern. Sanctions against organizations, countries, or people accused of engaging in such acts have been imposed by governments and organizations such as the United Nations, the Office of Foreign Assets Control, and the European Union. Multinational corporations must stay informed about these developments and periodically examine their financial information and business associates to identify and avert such infractions. Using sanctions screening, organizations can reduce risk, adhere to legal requirements, and find unwelcome business partners. 

Specific tools like AML Watcher can screen data regularly and automatically.

Keep on reading this blog to develop an understanding of sanctions and the process of sanction screening.

What is Sanction Screening, and How Does it Work?

Data about sanctioned parties, including states, individuals, organizations, nations, and legal entities, is compiled in sanctions lists. Organizations and governments such as the United Nations, European Union, OFAC, and HM Treasury release these lists to lower risk exposure and financial crime by identifying individuals who are either suspected of or have engaged in illegal activity. Organizations can identify undesirable business partners and avoid doing business by cross-referencing reference or transactional data with sanction lists screening software.

Sanctions screening flags any indications of overlap with sanctioned parties by comparing an organization’s reference or transactional data with the data of sanctions lists. Company documents are identified and labeled for additional examination when they resemble lists of penalties and fines. Specific tools can screen data regularly and automatically.

Step-by-Step Process of Sanction Screening

Sanctions screening is crucial to enhance AML/CTF procedures since it compares an entity’s relationships, financial activity, and clients with international sanctions databases. The advantages of sanctions screening differ based on the company’s size; smaller businesses with lower revenue or partners may feel free of the need for sanctions screening. More giant international corporations may find it advantageous to comply with regulations and weed out undesired business activity, while smaller businesses with minimal payments or partners may not perceive the need for sanctions screening.

The procedure consists of six primary stages: 

• Research
• Information Collecting
• Verification
• Cross-referencing
• Investigate Recording
• Ongoing Monitoring

Sanctions screening uses transactional and reference data to detect and stop illicit activity. Reference data screening is the process of cross-referencing sanction lists with information about third-party service providers, workers, and business partners. Transactional screening checks the transfer of money, products, or assets between recipients, banks, and trade finance records, among other businesses or bank accounts. For organizations to adhere to rules, lower financial risks, identify fraudulent activity, fulfill Anti-Money Laundering (AML) requirements, and prevent funding terrorists, sanctions screening is essential. Companies must abide by more stringent regulations and specialized penalty lists in their countries.

Reliable Data Used Against Sanction Screening 

Sanctions screening lists differ according to the nation and entity. Sanctions screening is enforced in the US by the OFAC, with harsh penalties for noncompliance. The Office of Financial Sanctions Implementation in the UK enforces guidelines for several businesses. The UN Security Council Consolidated list, the EU Consolidated list, the OFAC Sanctions list, and the HM Treasury sanctions list are examples of standard sanction lists. Businesses frequently use their private lists—either blacklists or whitelists—to filter transactions.

Businesses can ensure that sanctions screening is accurate and efficient by checking regulations, conducting routine screening, performing transactional and reference data screening, ensuring that data formats match lists, using dependable tools for data screening, analyzing flagged screening results, combining data and screening processes, and using automation tools for routine screening. These procedures aid in reducing dangers and guaranteeing a dependable and efficient screening procedure.

What are the Best Practices of the Sanction Review Process?

The sanction review process is essential to the effectiveness and safety of international trade.  Automated sanction list solutions ensure:

• Real-time processing
• Less manual labor
• Scalability
• Regulatory compliance
• Cost savings 

Financial institutions must use Suspicious Activity Reports (SARs) to report any suspicions of criminal activity or financing of terrorism. Failure to abide by the FATF’s Sanction Screening Rules may compromise the framework for combating terrorism financing, hinder international cooperation, expose oneself to unscrupulous financial activities, have detrimental economic effects, cause problems with the law and regulations, increase due diligence, and possibly violate UNSCRs. Checking rules, conducting routine screening, comparing transactional and data screening, evaluating flagged screening results, combining data and screening procedures, and utilizing automation tools are some of the best practices for effective and precise sanctions screening.

Wrapping Up

Automated solutions like AML Watcher help detect suspicious activities through the proper due diligence of the customers. Businesses and Financial Institutions (FIs) must use robust and efficient solutions to fight against illicit crimes like money laundering, so people must abide by sanction lists imposed by different regulatory bodies to prevent fines, sanction breaches, and penalties. 

Contact and stay in touch with AML Watcher to learn more about the features of sanction screening.