Sanction screenings have become an integral part of anti-money laundering (AML), know your customer (KYC) and counter-terrorist financing (CTF). They are designed to protect businesses from high-risk customers, helping to ensure the integrity of the global financial system.
Keeping on top of sanctions lists isn’t easy however, as new individuals are added and removed on a daily basis. Multiple issuing bodies exist, each with their own independent list. Additionally, the definition of what constitutes a sanction is in constant flux and is more open to interpretation than ever.
In this article, we outline best practices on sanctions screenings and provide advice on how you can overcome the biggest challenges.
What is a sanction?
A sanction is a punitive measure levied by a regulatory body in order to change behaviour or impede high-risk entities. These are usually either political or economic in nature, targeting fugitives that pose a risk to society.
More generally, sanctions aim to impede:
Human rights violators
What is a sanctions list?
A sanctions list is a collection of individuals, groups and entities which are the subject of a sanction. As mentioned above, many issuing bodies exist and the nature of the lists can vary.
Interestingly, the complexity of these lists is high because they detail not just the name of the individual but also recent locations, aliases and other ancillary data. In fact, the quantity of data involved is so vast that it becomes impossible to manually track on your own. Instead, specialised compliance solutions are needed which automate the sanction screening process.
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Protecting your business from high-risk individuals has never been tougher. Why is that?
Sanctions lists change every day — Sanctions are increasingly used by governing bodies to impede the actions of high-risk individuals. As a result, sanctions list evolve constantly, with people being added and removed on a daily basis.
Sanctions are becoming more complex — Historically, sanctions were levied against states or organizations, whereas now they are often imposed on individuals and even target specific sectors.
Sanctioning bodies are increasing — The number of bodies issuing sanction lists is steadily increasing. As a result, keeping your finger on the pulse has become impossible without the use of a sophisticated compliance solution.
Why are sanction screenings important?
Sanction screenings play a vital role in protecting your business from high-risk individuals. They are the first line of defence, allowing you to identify criminal fugitives before doing business with them. Those who have been found guilty of criminal activity are constantly on the lookout for platform
Failing to identify such customers preemptively can have devastating consequences. If you’re business was to unwittingly aid the work of terrorists or money launderers it would likely spell the end.
How does a sanction screening work?
Primarily, the term “sanctions screening” describes the process of checking whether a customer is named on a sanctions list. That being said, sanctions screenings increasingly need to be more sophisticated, even checking if customers are affiliated with those who are listed.
The check itself can be done manually, by entering a name into an online search tool. These are known to be unreliable however, and this approach is not feasible for businesses with a significant number of customers.
Instead, most platforms go with a specialized compliance solution which automatically screens prospective customers and flags high-risk individuals preemptively.
Programmatic sanction screenings
For growing businesses, manual sanction screenings are not a feasible solution. Instead, a programmatic approach is required, which manages to identify high-risk individuals among the growing number of trustworthy customers.
Of course this requires sophisticated compliance software, capable of applying a risk-based scoring mechanism and then producing actionable results. Here are a few of the most important features:
Access to all notable sanction issuing bodies: it’s not enough to simply check one or a hand-full of lists. Instead a sophisticated compliance solution needs to know all important regulatory bodies and screen all issued lists.
Fuzzy matching: Matches are seldom perfect, meaning that programmatic sanction screening tools allow for minimum thresholds, depending on how exact or “fuzzy” a match happens to be. Slight alterations to the name, location, birthdays or aliases should not necessarily prevent a compliance solution from identifying a high-risk individual.
Auditability — Manual sanction screenings are often hard to understand retroactively. Using programmatic sanction screenings, it is now possible to create a time-stamped record of the screening and decision-making process. For regulated services this is an absolutely crucial feature.
Could your platform benefit from sophisticated AML sanction screenings? Then get in touch.
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