Sanctions Screening: A Guide to Sanctions Compliance for Financial Institutions

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Anti-money laundering (AML) compliance is not a simple matter. Your company has to practice Know Your Customer (KYC) and customer due diligence (CDD) to meet governmental regulatory measures. In addition, you are responsible for screening international sanctions lists to avoid doing business with known or suspected financial criminals such as drug dealers, human traffickers, terrorists and smugglers.

What Are Sanctions?

Sanctions are protective measures instituted by governments placed on countries, companies and individuals to prevent further financial crimes by these parties. Sanctions help ensure that high-risk entities cannot continue their illegal activities by opening accounts with financial services companies in different countries.

These measures take different forms and include financial sanctions, diplomatic sanctions and military sanctions. For instance, in response to the invasion of Ukraine, financial sanctions are currently in place on Russia and certain Russian citizens. Many oligarchs have seen their property seized by various NATO nations. Sanctions are also imposed on suspected terrorists and their organizations, countries with poor human rights records and nations with a high incidence of drug trafficking.

Multiple governmental bodies around the world control sanctions, including the Office of Foreign Assets Control (OFAC) in the U.S., Her Majesty’s Treasury (HM Treasury) in the UK, UNSC for the United Nations and Interpol for international sanction efforts.

Financial institutions must conduct sanctions checks on their new clients. These checks serve as warnings to either reject a new customer during the onboarding stage or to employ enhanced due diligence (EDD) if the client is allowed to fully onboard.

What Is a Sanctions List?

Sanctions lists are specific lists of countries, companies and individuals that pose a high risk of financial crime to financial institutions. They end up on these lists because they have a history of illegal activity. Fortunately, you have a number of lists at your disposal to identify these bad actors, including global sanctions lists from the European Union, United Kingdom, United Nations and United States.

The EU’s list can be found at the European Commission’s Restrictive Measures site. The UK provides its watch list at GOV.UK. The UN posts the United Nations Security Council Consolidated List, and in the U.S., OFAC has easy-to-access lists.

What Are PEPs?

An important part of AML compliance is identifying politically exposed persons, or PEPs. A PEP is generally a prominent individual who holds an important or highly visible position. This prominence means they are vulnerable to bribery or corruption because people seek to benefit from their influence.

Often, close business associates and family members of the PEP will be added to the PEP list, since their relationship with the prominent person also makes them vulnerable to corruption.

PEPs may appear during a sanctions screening, but you can also perform a separate PEP screening.

How Does the Sanctions Screening Process Work?

According to the OFAC, all U.S. financial institutions must comply with sanctions screening requirements to stay compliant with AML/KYC regulations. Your financial services organization should have a program in place to ensure thorough sanctions screening. This program should include the following:

  • Required sanctions list search. You will need to choose which lists to use to screen your new customers. You will also want to check any internal sources available to your organization to identify high-risk clients during the onboarding process.
  • Procedure for sanctions list matches. When your search identifies a high-risk individual or company, you need a system in place to decide whether you will proceed with the onboarding process. In some instances, you may immediately reject the customer, while in others, you may choose to designate them as high risk but allow them to open an account. You will need to establish a list of criteria to determine their eligibility.
  • Managerial and government oversight. Your program will include using your own organization’s criteria and governmental guidelines. Your company is responsible for making responsible decisions based on the available data.
  • Customer due diligence. As with any customer, you will need to perform due diligence in verifying their identity, source of funds and pattern of transactions.
  • Risk assessments. Every client must be assessed for their level of risk. For instance, a PEP is always a high risk if allowed to open an account. You’ll need to check for adverse media and other signs of potential problems.
  • Internal controls. Your company needs to establish strong internal controls that work in conjunction with sanctions lists and AML regulations. For instance, you need to have a policy to handle false positives.
  • Ongoing monitoring. High-risk customers require more intense monitoring than other clients. You will need to evaluate their account activity regularly and establish an audit trail.
  • Ongoing training. Your employees involved in onboarding and risk assessment will require ongoing training to stay current with AML regulations, which are often in flux.

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Best Practices: What Makes a Sanctions Screening Process Effective?

An effective sanctions screening process should include the following elements:

Risk-Based Approach

The crux of a good screening process is focusing on consumer risk, which can be determined by geography, industry, sanctions lists, and other criteria.

Streamline Sanctions Data

You can easily get bogged down in sanctions data if you do not set clear parameters. How many lists will you consult? Which ones for which customers? Once you consult your data sources, you need an efficient method to process and apply the information.

Workflow Automation

Workflow automation is key to effective sanctions screening. The right software program can help you identify sanctions risks, including sanctioned entities and individuals.

Sanctions Violations: What Happens If Your Sanctions Screening Process Fails?

If your sanctions screening process fails, you face serious negative consequences. When you onboard a sanctioned individual, company or country and identify them as low risk, you make it easier for them to launder ill-gotten gains and commit other financial crimes.

You are responsible for practicing customer due diligence, so missing a customer on a sanctions list is a serious issue. Your company will face action from regulatory bodies and other legal entities. You may face a huge fine and/or imprisonment. Also, your company may incur a loss of reputation and clients.

Jumio: An End-to-End Compliance Solution

Sanctions screening is another important part of AML compliance. Due to these multiple components, you can easily become overwhelmed by all the government regulations that apply to your financial services company.

Fortunately, Jumio has the answer to your compliance issues. We offer an end-to-end, fully equipped AML/KYC solution that includes real-time automated sanctions screening, PEP screening, adverse media screening, ongoing monitoring and case management.

Jumio sanctions screening software offers the utmost functionality, making it your answer for accurate AML/KYC compliance measures. For more information, contact us today.


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