Learn what sanction screening is, why financial institutions and other accountable companies need to perform it regularly, the challenges screening can present, and how to solve them.
In March 2023, the US Federal Reserve and Treasury fined Wells Fargo bank $97.8 million for violating US sanctions regulations. Two months later, crypto firm Poloniex agreed to pay $7.6 million as a settlement with OFAC for violation of 66K sanctions.
With penalties for sanctions violations well into the millions, sanction screening is essential for any company seeking to ensure compliance. The process aims to detect, prevent, and manage risks related to financial crimes by checking individuals and/or entities against national and international sanctions lists. Sanctions screening is also a key component of AML/CFT compliance regulation.
However, surveys including the 2022 Thomson Reuters Anti-Money Laundering Insights show that sanctions screening is a great challenge for many businesses.
Let’s explore what sanction lists are, the types of sanctions out there, who needs to conduct regular screening, and also how to do it effectively.
Sanction lists are created by governments or international organizations. They can include persons, entities, or groups which violate international law or conduct illegal activity like drug and human trafficking, or are suspected in terrorist activity—including financing, proliferation of weapons of mass destruction, and more.
Businesses need to follow sanctions regimes, and are therefore required to screen customers (individuals and legal entities), beneficiaries, and other related persons in cases specified by law. Here’s when:
Conducting business with a sanctioned person or organization may result in serious consequences for a business, such as:
Other actions, depending on the jurisdiction, e.g. in the UAE it may be banning the violator from working in the sector related to the violation for the period determined by the Supervisory Authority, or license revocation.
The subject of sanctions can vary depending on various factors. Some sanctions are aimed at entire jurisdictions (UN sanctions against North Korea), while others are more targeted (EU sanctions against Hurras al-Din, a Syria-based al-Qaeda affiliated group). There are also sanctions against specific individuals and entities, such as those on the US Treasury Office of Foreign Assets Control (OFAC) Specially Designated Nationals and Blocked Persons List.
Sanctions also differ by sector. For example, EU restrictive measures in view of Russia’s invasion of Ukraine impose restrictions on the following sectors:
Sanctions can also be categorized based on the authority that imposed them:
Here are some country examples of targeted sanctions :
Here are some examples of international sanctions:
More information about the EU sanctions regime can be found on this map.
In general, all businesses in all sectors should pay close attention to sanctions regimes and have adequate controls in place. Historically, finance has been the primary industry under regulatory scrutiny for sanctions compliance, but now other industries are also under the radar.
As a rule, the following types of businesses should conduct regular sanctions screening against targeted sanctions (including as a part of AML/CFT compliance):
To comply with a targeted sanction regime, businesses should usually conduct the following procedures:
If a potential match is identified during sanctions screening, the institution should conduct further due diligence measures to verify if the match is accurate. If there’s a true positive match, the institution should determine which action needs to be taken. Here are some actions that can be taken:
Sanctions screening is a challenging process for many businesses. The main problems companies face are:
Sanctions lists can change frequently, even on a daily basis. And regulators are paying extra attention to how accountable institutions comply with sanctions regimes. They are also increasing their expectations around how quickly institutions can implement sanctions changes into their operations.
Sanctions lists are lists of individuals and entities subject to restrictive measures under international and/or domestic sanctions regimes.
Sanction list screening is the process of checking customers and other related persons against sanction lists to ensure that they are not listed under domestic or international sanctions.
Financial and Designated Non-Financial Businesses and Professions (DNFBPs) need to screen the following entities and persons against sanction lists:
The following countries are currently under the UNSC sanctions: