Sanctions Screening

What is sanctions screening?

Sanctions screening occurs as part of the name and transaction screening process. It enables financial institutions to guard against working with any individual or organization that appears on any global sanctions list.

This allows the institution to ensure compliance with international regulations and guards against fines, reputational damage, financial loss or doing business with entities that are too high risk for their risk profile.

What is name screening? 

Name screening is part of the KYC/CDD process, which is vital for preventing money laundering, payment fraud, terrorist financing and other financial crimes. It is often mentioned alongside transaction screening under the umbrella term of sanctions screening. 

 It refers to taking a given individual or organization’s name and comparing it against names that occur on various watchlists (sanctions lists, PEP lists, etc.) Conducting good watchlist management is vital to ensure that a bank is comfortable with the risk that they may be taking on when agreeing to work with a client. 

 The result of the search can influence the action that the financial institution takes going forward, depending on their risk level. 

 For more information, see name screening. 

What is transaction screening? 

Transaction screening occurs as part of anti-money laundering and counter financing of terrorism (AML/CFT) procedures. It refers to a financial institution being able to analyze individual transactions before they are approved. 

 If the transaction appears excessively risky or perhaps as a result of illegal behavior, it may be stopped from occurring. 

 Screening transactions is necessary for financial institutions to ensure they are adhering to regulations. 

 For more information, see transaction screening.  

What is a sanctions list?

A sanctions list is a list that is released and maintained by either a government, central bank, law enforcement agency, or regulator that features individuals, organizations, entities, and even countries that have violated international law, conducted human rights abuses or which carry a security threat.

When part of a sanctions list, those involved may be subject to asset freezes, travel bans or trade restrictions. Their behavior won’t always have been criminal with inclusion on a list sometimes encouraging a change of approach or to meet demands (e.g., the US President may appear on numerous lists of countries that disagree with US policy).

Even so, if wishing to do business in the country that has issued a sanctions list, a financial institution must abide by it or risk falling foul of the regulations.

Are there any examples of sanctions lists?

There are many sanctions lists.

Some of the most well-known include the UN Sanctions List, EU Sanctions List, and the US’s SDN and OFAC lists. Alongside these, there are also many other lists released by governments worldwide (UK Sanctions List, Consolidated Canadian Autonomous Sanctions List, France’s Registre National Des Gels, etc.) and lists released by agencies like the Financial Action Task Force (FATF).

These lists are most often maintained by sanctions and regulatory bodies such as HM Treasury (UK), UN Security Council, and the Office of Foreign Assets Control (OFAC).

The following are so 

• The United Nations Security Council (UNSC) – Consolidated Sanctions List 
• US – Consolidated Sanctions List 
• US – Office of Foreign Assets Control (OFAC) Specially Designated Nationals 
• Canada – Consolidated Canadian Autonomous Sanctions List 
• US – Bureau of Industry and Security Sanctions List 
• US – Department of State, AECA Debarred List 
• US – Department of State, Non-proliferation Sanctions List (US) 
• European Union (EU) Financial Sanctions List 
• UK Sanctions List 
• Australia – Consolidated Sanctions List 
• France – Registre National Des Gels List   
• Switzerland Consolidated Sanctions / Embargos List 
• What are the benefits of sanctions screening?

Types of Sanctions 

Entities may be named on a sanctions list explicitly, implicitly, or as part of sectoral sanctions. 

 Implicit Sanctions 

Implicit sanctions make up 95% of sanctioned entities. These entities may be subject to sanctions if they fit within the broad statement (the narrative summary), which accompanies each sanctions list. As such, their sanctioning is implied. 

This means that a person not named in a sanctions list might be sanctioned through association with a sanctioned entity (e.g., a family member or somebody working with a terrorist organization). This is known as ‘sanctioned by association’.   

Explicit Sanctions 

Explicit sanctions make up just 5% of sanctioned entities and are when a person or business is explicitly named in sanctions lists.  

Sectoral Sanctions 

Sectoral sanctions are where sanctions apply to countries for instances of war or international violence. For example, many Russian oligarchs and government officials are subject to sanctions despite not necessarily being subject to explicit sanctions.  

It’s also important to note that a sanctioned individual in one country may not be sanctioned in another. However, doing business with a sanctioned entity outside of the US will still cause a financial institution to breach the OFAC’s 50 percent rule. 

What is the 50 percent rule? 

The OFAC 50 percent rule – also known as ‘Entities Owned by Blocked Persons’ – is a rule that banks must focus on when doing business within the US (under the jurisdiction of the Office of Foreign Assets Control [OFAC], hence its name). The UK and the EU both have their own versions of the rule, with sanctions screening software required for institutions to stay compliant. 

The US Treasury’s OFAC 50 percent rule imposes sanctions on companies where sanctioned entities own 50% or more of the organization. In effect, they are blocked from doing business with the US. It is a straightforward rule based around ownership. For example, although a company itself may not appear on sanctions lists, it is treated as a sanctioned business because of its sanctioned owner. 

Although 50% is the threshold, it shouldn’t be seen as a hard line; OFAC recommends caution if a sanctioned entity holds a large stake in a company. As such, the 50 percent rule may still apply if a company is 47% owned by a company or organization on a sanctions list. It’s best to flag a transaction just in case. 

This safeguards against an institution becoming culpable should the scope of the rule change, or in cases where CDD appears to have been neglected. 

It’s important to note that 50% is a cumulative number – should two sanctioned entities own 25% of a company, it would still trigger the OFAC 50 percent rule. 

Additionally, indirect ownership also results in an organization being sanctioned. If entity A, which is subject to sanctions, owns 50% of company B, and company B owns 50% of company C then company C will still be sanctioned by association.  

The EU and the UK both operate a similar rule, but it is slightly different in its wording. Prior to Brexit, the UK followed the guidelines of the EU 50 percent rule. They are still broadly similar with both differing from the US in one key aspect – the UK and EU 50 percent rule applies where there is either ownership or control. 

What are the benefits of sanctions screening? 

Sanctions screening is a critical component of compliance programs for financial organizations. Some of the key benefits of sanctions screening include: 

• Regulatory Compliance: Ensures that organizations comply with international, federal, and local sanctions laws and regulations, thereby avoiding legal penalties and fines. 
• Risk Management: Helps in mitigating the risk of conducting business with sanctioned entities or individuals who may be involved in illegal activities such as terrorism, money laundering, or narcotics trafficking. 
• Reputation Protection: Protects the organization’s reputation by demonstrating a commitment to ethical standards and legal requirements, which can be crucial for maintaining customer trust and business relationships. 
• Financial Security: Prevents the organization from engaging in transactions that could result in frozen assets or other financial losses due to sanctions violations. 
• Operational Efficiency: Automated screening tools can streamline the process, making it faster and more accurate, thereby reducing the administrative burden on compliance departments. 
• Global Business Enablement: Facilitates safe expansion into new markets by ensuring that potential partners and clients are not on any sanctions lists, thereby reducing the risk of inadvertent violations. 
• Enhanced Due Diligence: Provides a deeper understanding of potential clients, partners, and third parties, ensuring that the organization only engages with entities that meet its compliance criteria. 
• Preventing Legal Consequences: Avoids potential litigation and other legal consequences that can arise from doing business with sanctioned entities. 
• Supporting International Policy: Helps in upholding international policies and contributing to global efforts to address issues like terrorism, human rights violations, and other threats to international security. 
• Transparency and Accountability: Enhances the overall transparency and accountability within the organization, promoting a culture of compliance and ethical business practices. 

By implementing an effective sanctions screening process, organizations can safeguard themselves against a range of financial, legal, and reputational risks while contributing positively to global security and ethical standards. 

What are the challenges of sanctions screening? 

Effective sanctions screening is of paramount importance to a financial institution. Some of the challenges include: 

• Data Quality and Maintenance: Keeping sanctions lists accurate and up to date. 
• Complex Regulatory Environment: Navigating diverse and conflicting international regulations. 
• False Positives and False Negatives: Managing high volumes of screening errors. 
• Operational Efficiency: Ensuring the screening process is time and resource-efficient. 
• Evolving Threats and Techniques: Adapting to sophisticated methods of sanctions evasion. 
• Addressing these challenges requires a combination of advanced anti-financial crime software, skilled personnel, and robust processes. By investing in these areas, banks and other financial institutions can enhance the effectiveness of their sanctions screening programs and better manage compliance risks. 

SymphonyAI offers market-leading sanctions screening software 

SymphonyAI provides marketing-leading intelligent software screening that surfaces genuine risk and reduce false positives with AI-driven name and transaction screening solutions. 

Transaction screening allows for screening, sorting and prioritizing matches in real-time with far greater accuracy, enabling instant payments and faster, AI-powered investigations. Alongside this, name screening blends flexible list integration with advanced AI to surface genuine risk, reduce false positives and power real-time onboarding. 

With enhanced customization, tune powerful matching algorithms to your exact needs and maximize detection accuracy for any list type, situation or geography. 

Learn more about SymphonyAI’s NetReveal Sanction Screening tools. 

Discover SensaAI for Sanctions 

SymphonyAI also offers SensaAI for Sanctions. Augment your existing detection solutions to dramatically enhance matching capabilities with gen AI and predictive AI that analyzes and structures previously unstructured text and significantly reduces false positives. The result is a real-time AI upgrade for screening with a seamless, streamlined process.  

Learn more about SensaAI for Sanctions.