Sanctions screening involves checking against an ever-changing watchlist of businesses, organizations, individuals, and government agencies to protect against fraud and illicit activity. All industries must comply with sanctions screening. It is required for financial institutions for both transactions and customers as well as within healthcare providers to ensure individuals are not excluded from participating in federal health care programs. Sanctions screening serves to keep bad actors from committing identity theft, helps to detect and prevent financial crime, and works to restrict trade with countries and groups that have broken international laws. Government sanction lists can be tricky to keep up with, and failure to comply can mean large fines. Keeping up with sanctions screening can protect industries from high-risk individuals and organizations, leaving room for legitimate customers. It can also help to maintain compliance and save money.
Sanctions screening definition
Sanctions screening is most commonly associated with financial institutions. It is an Anti-Money Laundering (AML) control. Ultimately, sanctions screening is a tool intended to disrupt financial crime as well as both detect and prevent it. Sanctions screening can restrict trade with specific individuals, groups, agencies, and individuals in a number of industries. Failure to comply with screening for sanctions can incur major penalties, including massive fines and criminal proceedings.
A sanction is a type of punishment put on an agency, country, group, or individual that restricts trade or financial transactions with the sanctioned party. Sanctions are designed to change behaviors, alter or deter undesirable actions, and prohibit illicit activity with groups or people that have been deemed high-risk.
What is a sanctions list?
Sanctions lists compile all of the individual sanctions put on countries, agencies, groups, and individuals, and serve as records of these applied sanctions. The sanction lists document specific sanctions and help businesses maintain compliance by providing data on banned people or groups. Sanctions lists are kept by governments or international bodies.
How sanction screening works
Sanction checking involves screening sanction lists against collected customer data to ensure that the party is not on the excluded government sanction list. A sanctions checker sifts through information, such as names, birthdates, and social security numbers before approving transactions.
It can look like this:
Types of dangerous actors to watch for
Sanctions screening can protect businesses from fraud and cybercrime, and prevent money laundering and identity theft. Bad actors, or threat actors, are cyber criminals seeking to get information or engage in criminal activities through technology and digital means. Sanctions screening can detect and prevent these bad actors from accessing sensitive information and committing identity fraud. These are examples of bad actors:
- Black hat hackers
- Cyber terrorists
- Organized crime hackers
- Insider threats (former or current employees turned rogue)
When sanctions screenings are performed
Sanctions screening is performed by checking companies, individuals, and groups against the sanctions lists in the areas they are currently working within. Sanctions screening is especially important when trading with a company or agency that trades or operates within a territory containing multiple sanctions. Sanctions screening should be done directly after onboarding a third party or customer, after the initial risk assessment is completed. Sanction lists are constantly evolving and changing, so regular screenings should be performed throughout the business relationship as well. Companies or agencies should collect the following information from customers for proper sanctions screening:
- Full name
- Alternate names
- Date of birth
- Registration number
- Country of incorporation
- Key trading partners
- Supply chain information
- Ultimate Beneficial Ownership (UBO) information
- Shipping information
- Origin of goods
This information can help to accurately determine if there are any current sanctions against the individual, agency, or company, to remain in compliance.
Challenges of sanctions management
The sanctions environment is constantly changing, with sanctions being added regularly. This makes screening processes difficult. Rules within sanctions screening and control regulations are evolving continuously. Economic sanctions can also be inconsistent, with one governing body lifting sanctions while another continues to impose them. Companies are required to maintain specific sanction screening controls and regulations and proactively perform risk assessments to be sure that sanctions are not being violated and that sanctioned activities are not being facilitated, even unwittingly. There can also be complications with either over- or under-screening. If the screening is not comprehensive enough then “false-negatives” can occur, and sanctioned parties can slip through the cracks. Conversely, with over-screening “false positives” can happen, meaning that legitimate customers are denied access. A balance is necessary to make sure that the customer has a seamless transaction while also keeping the company protected and within compliance.
Mandatory sanctions screening within specific industries
Sanctions screening is mandatory in virtually all industries; however, it has been historically more prominent and well-known in specific industries.
- Financial industry: Financial institutions are required to keep up with AML rules and regulations, which include sanctions screening to detect, prevent, and deter money laundering and financial crime. More than $1.3 billion in fines were issued by the U.S. Treasury Department in the first seven months of 2019 alone for the violation of sanctions. Financial institutions must screen both transactions and customers to ensure compliance and avoid penalties.
- Health care industry: Health care companies are required to perform sanctions screening on employees, contractors, vendors, physicians, new hires, and volunteers to check them against federal exclusion databases, stating that they are ineligible to participate in federal health care programs. Those sanctioned have engaged in illegal or unethical practices and can become a liability for the organization.
Sanctioning bodies around the globe
Governing bodies, including governments and international bodies, typically collate and keep sanctions lists updated. Here are some examples of common sanctioning bodies and their lists:
- United Nations (UN): This applies to all UN Nation states.
- Office of Foreign Assets Control (OFAC): This applies to all U.S. citizens, those doing business with or within the United States, those connected to the U.S. in any way, and those trading in U.S. currency.
- European Union External Action Service (EU EEAS): This applies to all EU citizens and corporate entities within a member state.
- HM Treasury: This applies to anyone who works or conducts activities within the UK’s territory. The UK sanctions list is held here and enforced by the Office for Financial Sanctions Implementation (OFSI).
Some current global sanctions include:
Best practices for sanctions screening compliance
It is imperative to stay on top of current sanctions and sanctions lists to avoid massive penalties. Companies can easily face fines for breaches without even realizing they were noncompliant. Here are some methods for remaining compliant, and avoiding fines and criminal charges:
- Ensure that your data collection is up-to-date and comprehensive. The use of data enrichment software can improve the type of data you collect, minimize false negatives and positives, and help to screen properly.
- Use sanctions screening technology that is reliable and proven. It should be capable of handling high volumes, have proven functionality, and be user-friendly.
- The data screened against must be comprehensive and high-quality. Do not just rely on search engines. You will need to enlist a network of experts around the globe that are multilingual and collating data 24/7. Watchlists that are consolidated in one place in a database can be helpful.
- Keep up with the changes with the ever and swiftly evolving sanctions lists.
- Screen before hiring new employees, and screen customers against sanctions lists. This can prevent trading with sanctioned entities and protect the workplace.
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U.S. Sanctions Compliance Fines Hit Decade High. (July 2019). The Wall Street Journal (WSJ).
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United Nations Security Council. United Nations.
Office of Foreign Assets Control- Sanctions Programs and Information. U.S. Department of the Treasury.
Consolidated List of Sanctions. (August 2015). European Union External Action Service (EU EEAS).
Financial Sanctions Targets: List of All Asset Freeze Targets. (September 2021). HM Treasury.
What Are Economic Sanctions? (August 2019). Council on Foreign Relations (CFR).