What It Takes To Build An Effective Sanctions Screening System

International sanctions checklists are changing rapidly, posing challenges for companies to maintain AML compliance. Avoiding legal and financial penalties is crucial. Companies must ensure effective sanctions screening processes to mitigate risks.

However, many businesses struggle due to unfamiliarity with sanctions screening requirements. This leads to inefficient AML compliance.

This blog aims to guide businesses in building efficient sanction screening systems and address challenges hindering compliance. It raises awareness of AML/CFT requirements for complying with international sanction regimes.

Sanctions are often seen as bans that prevent regular transactions. But an alternative view suggests they’re coercive measures meant to change behavior. They’re not just bans; they’re targeted at reputation to deter bad behavior.

How Does Sanction Screening Help With It?

Many businesses remain fixed on the idea that sanction itself are the restrictions and limit the behavior. Despite these restrictions being imposed how does businesses ensure which entity or person is sanctioned or has had a problematic history before. 

Sanctions list screening is the process that helps with it! Many national and international sanction regimes offer a range of lists with marked entities that fall under respective sanctions. 

The sanctions screening process undertakes this vast database and then screen their customers against those lists to confirm that their business doesn’t work in collaboration with fraudsters and illicit actors. 

Are you familiar with sanction lists maintained by various government and international organizations?

Here is a quick recap of all the official lists to keep track of: 

  • United States’ Office of Foreign Assets Control (OFAC) 
  • United Kingdom’s Office of Financial Sanctions Implementation (OFSI) 
  • European Union’s Consolidated List of Person 
  • Groups and Entities Subject to EU Financial Sanctions
  • United Nations’ Security Council Consolidated List 

Look into Prominent Case Study of Sanctions Non-Compliance 

In April 2023, Microsoft was fined $2,980,265.86 by OFAC for violating sanctions on Cuba, Iran, Syria, and Ukraine/Russia. The violation involved exporting services and software to sanctioned jurisdictions and SDNs. Microsoft failed to prevent the use of its products by not identifying end users, according to OFAC.

Key Takeaways To Build Efficient Sanction Screening Process 

Money-related crimes are all across the place. Especially when it comes to corruption and money laundering, the challenges to deal with them and the cost to bear in response to non-compliance is twice more than the simple act of investing in an efficient sanction screening program. 

Given the importance of sanction screening, here are the five key strategies to follow:

  1. Risk-Based Sanction Screening Process 

Investing in risk-based sanctions checks involves filtering out only relevant red flags. How does this work? 

Business organizations set up a risk-based threshold, explicitly setting a risk score. Cases surpassing that particular risk score are considered high risk and resources of due diligence are spent on only those relevant and prioritized cases.

  1. Prioritize Credible Data Sources Over a Number of Sources

Businesses are often overwhelmed with the number of sanction lists to screen through. While many official lists are highly cluttered and don’t contain refined data, major focus in 2024 should be placed on referring to credible data sources alone. 

Two but the most relevant sources can offer twice as many insights than 100’s sanction lists. 

  1. Filter Out Relevant Lists That Apply To Jurisdiction 

Sanction screening and AML compliance require managing vast volumes of alerts and extensive sanction lists. Effective programs must prioritize lists applicable to their jurisdiction, customers, and products. Automated tools with relevant filters are crucial for extracting insights from specific sanction lists, tailored to jurisdictions, regions, and states.

  1. Simple Integration Is The Way Out 

Last but not the least, the time it takes for a solution to integrate into workflows can improve the efficiency of the sanction, so this aspect of this must never be avoided. 

To Sum It Up:

Compliance is always projected to be a complex and daunting process. Having followed these practices can simplify compliance, making it effective and making the application easier than ever.