Sanctions and Sanctions Screening

Financial sanctions are implemented by governments around the globe to restrict or prohibit trade with foreign and domestic targets involved in illegal or undesired activities. Sanctions may be leveled against territories, individuals, or entities, as well as against any countries, individuals, or entities acting on behalf of others that are engaged in criminal activities. Sanctions are often backed by civil and criminal penalties. 

Sanctions screening is a control designed to disrupt financial crime and sanctions risk by comparing data sourced from an organization's operations, including customer or other business partners and transactional records, against global sanctions lists containing names and other indicators of sanctioned parties or locations to detect similarities to determine whether a possible match exists. 

Organizations will typically utilize two main screening controls to achieve their risk reduction objectives:

• Transactional screening that seeks to identify transactions that involve targeted individuals, organizations, or entities;
• Customer / Name screening to identify targeted individuals, organizations, or entities during the onboarding or other crucial stages of the customer relationship.

The Complex Landscape of Sanctions Screening

Accuracy is influenced by the type and availability of data, the inherent sanctions risks to which the organization and its products/services/customers may be exposed, and the third-party sanctions screening solution deployed. 

The nature of Sanctions also adds to the complexity. Unlike economic embargoes, which prohibit all activity and transactions involving a specific country, list-based or smart sanctions target particular persons, entities, and organizations rather than a specific regime or country. Secondary sanctions target third-party actors doing business with specific regimes, organizations, persons, or entities. (A good example of secondary sanctions includes many Ukraine-related programs, which target Russia’s financial and energy sectors specifically). This means that customers who are not on a sanctions list but have a relationship with a sanctioned entity could present a potential risk for the organization in question. 

Other factors to consider:

• Sanctions regimes may include sectoral or national embargoes;
• Sanctions evasion techniques such as the use of Virtual Assets are becoming more sophisticated;
• A rapidly changing geopolitical environment makes it harder for organizations to meet their sanctions obligations.
• Many legacy screening platforms are still in use, which is both cumbersome and prone to large amounts of false positives.