Sanctions Screening: Important as Never Before

AMLYZE
Author
AMLYZE
Published
Oct 23, 2023

In the global business landscape, sanctions compliance and adhering to a complex web of regulatory requirements, including monitoring against sanctions lists, are critical to maintaining a solid reputation and avoiding legal problems.

And sanctions screening stands out as a critical measure that helps deter potential financial crimes and other malpractices.

Here in this article we aim to shed light on the importance, procedural dynamics, and innovative technological advances that are shaping today’s sanctions screening practices, providing a deeper understanding for businesses, especially within the financial sector.

Skyrocketing number of sanctions

Sanctions are restrictive measures imposed by governments or international bodies, such as the United Nations, the European Union and the United States, to achieve foreign policy and national security objectives. These measures are designed to force a change in behaviour, restrict access to resources and isolate entities that pose a threat to international peace and security.

They can take several forms, including:

  • Economic 

These include trade restrictions, asset freezes and financial penalties designed to limit the economic activities of targeted countries, organisations or individuals.

  • Travel bans

Prohibitions on entry into, or transit through, the territory of sanctioning countries that target specific individuals associated with targeted regimes or activities.

  • Arms embargoes

Restrictions on the export, import or transfer of arms and related materiel to specified entities or regions.

  • Sectoral 

These target specific industries within a country, such as finance, energy or defence, and restrict their ability to operate or access international markets.

Compliance with these restrictive measures is critical for companies operating in the global marketplace. Failure to comply can lead to severe legal and financial consequences, including hefty fines, loss of reputation and restricted access to markets. This is where AML/CFT software comes in, providing robust solutions for restrictive measures screening, real-time monitoring and comprehensive compliance management.

The number of restrictive measures has skyrocketed over the past two years. One of the main reasons is the West’s response to Russia’s aggression in Ukraine. 

In EU countries, the number of sanctioned individuals and organizations has increased by 142% in the last two years, from 4,445 to 10,740, according to data from the OpenSanctions database.

Number of sanctions imposed by EU countries on Russia

Number of sanctions imposed by EU countries on Russia
Source: Castellum

Since February 2022, Russia has led the list of the most sanctioned countries. About 15 000 restrictive measures have been introduced against Russia in Western countries (85% of all restrictive measures against Russia).

Russia tops sanctioned countries

Russia tops sanctioned countries
Russia leads the list of sanctioned countries with a total of 17 854 sanctions. Source: Castellum

Such a huge increase in restrictive measures creates a unique situation. The one where it becomes technically extremely difficult for any company to achieve 100% sanctions compliance.

Understanding sanctions screening

It is particularly important to understand that sanctions screening is a carefully crafted process. This process aims to match a list of names – individuals, organizations, or countries – against sanctioned or watch-listed individuals and entities. It serves as a safeguard measure to prevent engagement with parties potentially involved in illicit activities, in line with international, regional, and national regulatory requirements.

The indispensability of sanctions screening:

  • Regulatory compliance

 Compliance with international and national sanctions regulations is non-negotiable for businesses to avoid hefty fines and legal repercussions.

  • Risk mitigation

Early identification and mitigation of risks associated with doing business with sanctioned or watch-listed entities is facilitated by a thorough sanctions screening process.

  • Trust and reputation

An uncompromising approach to sanctions screening underpins an institution’s commitment to ethical and compliant operations. It also fosters trust among stakeholders and the wider community.

  • Processes optimisation

A rigorously calibrated sanctions screening process enables institutions to reduce the time it takes to identify listed entities and reduces the number of false positives.

Critical steps

Sanctions screening involves several critical steps to ensure a thorough and compliant process:

  • Customer data collection

 Gathering relevant data on customers, transactions, and counterparties is the foundation of the sanctions screening process.

  • Sanction or Watchlist data collection

Collect and enhance data published by trusted authorities prior to initiating the sanctions screening process.

During this crucial phase, the data collected is compared with various sanction lists to identify potential matches.

  • Alert resolution

Any match or near-match triggers an alert that requires review and a decision on how to proceed.

  • Reporting and documentation

Documenting the entire screening process, results and actions taken is essential for audit trails and regulatory compliance.

Possible technological advancements 

Like any other process, sanctions screening can be improved in a number of ways:

  • Automation

The introduction of automation streamlines the sanctions screening process, ensuring timely compliance and reducing the scope for human error.

  • Machine Learning (ML)

ML technologies increase the effectiveness and efficiency of sanctions screening, skillfully reducing false positives and adapting to evolving data patterns.

  • Blockchain

The use of blockchain technology enhances the authenticity and traceability of data, providing a secure and immutable record of transactions.

  • Cloud computing

The use of cloud-based sanctions screening solutions offers a scalable, cost-effective, and accessible way for companies seeking robust compliance mechanisms.

Conclusions

Navigating the intricate maze of regulatory compliance and risk management is a daunting endeavor for modern global businesses. Sanctions screening is proving to be a vital cog in this complex mechanism. It provides a safeguard against potential legal ramifications and reputational damage. 

Understanding and implementing a robust sanctions screening process, underpinned by the latest technological advances, is essential for companies seeking to maintain a reputable and compliant operational stance in the global arena.

This article serves as a beacon for organizations, helping them to decipher the complex landscape of sanctions screening and embrace a culture of compliance and ethical business practices.

Read here more about the sanctions screening module provided by AMLYZE.

About the author

AMLYZE
Author
AMLYZE
AMLYZE is a fully automated service created for the financial sector and businesses that are obliged to comply with AML/CFT regulations.

Related

Best banking core
Blog

Best Core Banking Software

Good core banking software is key for any financial institution, so we have selected and shortlisted the best of them.
by AMLYZE
11 min read
Best KYC Solutions
Blog

Best KYC Solutions

Having a good KYC/KYB software solution provider is crucial, so we have responsibly selected some of the best for your day-to-day needs.
by AMLYZE
12 min read
AML fines
Blog

AML Fines: Recent Most Famous Cases

Review of the world's largest recent AML/CFT fines and penalties. Valuable lessons learned from recent AML violations.
by Mažvydas Miliauskas
10 min read

Empower your compliance

Let us know how we can help

    Fill in the form bellow to contact us



    Why request a demo?

    It doesn’t matter whether you are interested in a complete end-to-end AML/CFT solution or just a single module from our range. We can help.

    Experience up to a 62% reduction in false positives

    Benefit from a library of over 100 risk rules

    Complete investigations in 3x less time than manually

    Save up to 3 hours per STRs/SARs filing

    Access a library of over 200 pre-defined scenarios