What are Sanctions:
Sanctions are financial and trade-related penalties imposed by one country or a group of countries on another entity, be it a country, company, or individual. The primary purpose is to exert economic, trade, political, and diplomatic pressure on the sanctioned entity to encourage a change in behavior.
Types of Sanctions:
Various sanctions are noteworthy, including:
Diplomatic sanctions: This may include cutting off diplomatic connections or recalling ambassadors from the targeted country.
Travel bans: Restricting certain individuals from entering the EU or limiting EU nationals to their home country.
Economic sanctions: These can involve bans on importing/exporting, restrictions on investments, or prohibitions on specific services in certain industries.
What is Sanctions Screening:
Sanction screening refers to the process of systematically checking individuals, entities, or transactions against official lists of sanctioned parties or entities.
What are False Positives in Sanction Screening:
These occur when the screening system raises alerts that, after thorough investigation, turn out to be innocent. These alerts can involve customers, suppliers, employees, or transactions. False positives not only incur significant costs in terms of time and money for investigation but also pose a challenge for compliance departments.
What are False Negatives in Sanctions Screening:
These refer to customers, suppliers, employees, or transactions that should trigger alerts in the screening system but go undetected. This often happens due to deficiencies in the system and the cunning tactics of individuals trying to deliberately avoid detection and stay below the radar.
What is a Sanctions List:
A Sanctions List is a compiled record of individual sanctions that can be applied to individuals, companies, groups, countries, and states. These lists typically include names and details of entities that are subject to sanctions due to violations of international law, or engagement in activities contrary to established norms or agreements.
Who Issues Sanctions:
Sanctions are issued by different entities and can vary across jurisdictions. Some countries enforce global organizations’ sanctions, such as the United Nations (UN) or the European Union (EU), while others establish independent sanctions programs.
Key bodies include:
Office of Foreign Assets Control (OFAC): OFAC is a U.S. government agency responsible for administering and enforcing economic and trade sanctions.
European Union (EU): The EU EEAS issues sanctions to protect the EU’s values, fundamental interests, and security under the Common Foreign and Security Policy (CFSP).
Office of Financial Sanctions Implementation (OFSI): Implements UK financial sanctions on behalf of His Majesty’s Treasury (HMT).
United Nations (UN) Security Council: The UN Security Council issues sanctions, which can range from comprehensive economic measures to specific embargoes and travel bans.
Principle of Sanctions Screening:
The basic principle involves comparing data related to customers, suppliers, employees, or transactions with information from external sanctions lists, such as those maintained by entities OFAC, EU, or OFSI.
Organizations often screen against various lists, including those of Politically Exposed People, risk lists, or watchlists, which contain individuals or entities of interest for different reasons. The term “sanctions lists” is used as a comprehensive term covering all these list types in the context of the document.
Sanctions screening components:
Name Screening:
What it is: Checking people, businesses, and others against global lists to see if they are on any sanctions lists.
Why it’s done: To find out if the person or entity you are dealing with has any red flags or is listed for sanctions.
How it works: Simple comparison of names against established lists.
Reference Screening:
What it is: Looking for potential matches in the details of banking payment references.
Why it’s done: Another way to check for matches beyond just names.
How it works: Requires more effort as the system checks and verifies each detail in the reference. If the same name comes up more than once, it might need a closer look.
Benefits of Sanctions Screening
Compliance Assurance:
Sanctions screening ensures that businesses comply with international norms and regulations by preventing engagement with parties listed on sanctions lists.
Financial Risk Reduction:
Robust sanctions screening processes safeguard a business’s reputation by showcasing its commitment to ethical practices and regulatory compliance.
Financial Crime Prevention:
Sanctions screening serves as a powerful deterrent against fraudsters and illicit activities by identifying and blocking transactions involving sanctioned parties.
Step-by-Step process of sanctions screening:
Information Gathering: Obtain and maintain up-to-date lists of sanctioned entities from relevant governmental and international sources.
Data Matching: Compare customer or counterparty names and identifiers against sanctions lists using automated screening software and algorithms.
Risk Scoring: Assign risk scores based on factors like name similarity and location to prioritize matches.
Investigation and Review: Conduct manual reviews for high-risk matches, involving additional research and communication with various sources.
Decision-Making: Decide whether a match is a false positive or a true match based on the investigation.
Automated Alerts: Set up automated alerts for real-time notification of potential matches or high-risk activities.
Ongoing Monitoring: Regularly update and re-screen existing customers and transactions for ongoing compliance.
Implementing Sanctions Screening Automation with AKS iQ:
AKS iQ offers an AI-Powered comprehensive solution, Scan iQ, for sanctions and PEP screening with name scanning features, integration with global sources, and extensive coverage of sanctions lists and PEP databases.
Here’s what Scan iQ offers:
Global Integration: It gathers data from over 60 global sources, checking official sanctions lists and information on politically exposed persons and entities with criminal interests.
Sanctions Database: Covering more than 60 lists from OFAC, Canada, HM Treasury, EU, Australia, and various regions globally, it keeps you informed about potential risks.
PEP Database: With over 200,000 records from every country, including family members and close associates, our PEP database provides a thorough screening solution. associates.
