Sanctions and sanctions lists are an important guard against financial crime. They’re also an increasingly popular political tool in a time when global relationships change on a daily basis.
It’s essential that companies protect their business against sanctioned entities to avoid heavy fines and reputational damage. But traditional sanctions screening methods are often inefficient and time-consuming. In this article, you’ll discover the importance of sanctions, common challenges associated with sanctions screening, and recommendations for implementing a more streamlined sanctions process.
What are sanctions lists?
Sanctions lists are lists of individuals, businesses, states, or countries that have been involved in or suspected of some kind of illegal activity. They were created to help fight financial crime such as fraud and money laundering, but can also be used for political or diplomatic reasons.
Globally, sanctions lists are issued by regulatory bodies such as the European Commission, Her Majesty’s Treasury in the UK, the Government of Canada, and the Monetary Authority of Singapore.
Similarly, there are multiple sanctions lists in the United States that are managed by the Treasury Department’s Office of Financial Assets Control (OFAC), the Department of Commerce, the Department of State, and others.
What is sanctions screening, and why is it important?
A sanctions check is the process of screening customers against known sanctions and watchlists to ensure they’re not involved in any financial crime or wrongdoing. Since you need to verify the legitimacy of everyone your business works with, “customers” in this case may refer to an individual person or to a business, foundation, or other entity.
Proper sanctions screening can help your business meet regulations. Some industries, such as banks and other financial institutions, are legally required to implement screening processes.
Whether or not your business is legally required to check for sanctions, it’s illegal for any US citizen or company to do business with a sanctioned entity – which means it’s essential that your business regularly screens relevant sanctions lists. Working with a sanctioned entity, whether knowingly or unknowingly, could result in millions or even billions of dollars in fines. There can also be criminal penalties including time in prison.
Another key benefit of sanctions screening is avoiding reputational damage and public backlash. If your business is discovered to be unlawfully doing business with sanctioned people or countries, customers may choose to stop associating with you.
Most businesses conduct sanctions screening at the start of a relationship. Others choose to do it regularly, requiring a sanctions check before every transaction. As a key part of KYC/AML compliance, any business can benefit from this important assessment of who they’re working with.
Challenges of sanctions screening
The challenges associated with sanctions screening often make it difficult to complete this necessary process in a timely and efficient way. Common challenges your business may be struggling with include:
- Manual processes and efforts often can’t keep up with the sheer amount of data that needs to be screened.
- Sanctions lists are always changing, adding new entities, and updating information. In situations like the current Ukraine-Russia crisis, lists can change on a daily basis. As a result, businesses need to continuously monitor relevant lists to ensure the status of existing customers has not changed.
- No two sanctions lists are exactly the same. They may structure information differently, be broad or very specific, or track different pieces of information. Some lists are permanent, while others expire after a certain period of time. Since it’s difficult to properly analyze and act on such varying information, businesses need one system that can handle multiple inputs and sources.
- Human errors, such as typos, can lead to flaws in screening. This is especially true for foreign entities. And when customer data is incomplete, inaccurate, or outdated, sanctioned individuals may slip through unnoticed.
- False positives, duplicate results, and/or inflexible matching. Businesses usually encounter these issues if they lack an effective sanctions screening system.
How to screen for sanctions
To effectively screen for sanctions and protect your business against bad actors, you need an automated solution that can continuously monitor your customer list against relevant sanctions lists — it’s not enough to simply complete a KYC check upfront.
This system should keep customer data complete and accurate, provide flexible matching configurations to meet your needs, and pull from as many unique sources as possible. By monitoring global sanctions lists, checking watchlists, and screening for PEPs you can be confident that you’re not engaging in business with any sanctioned entities.
The best strategy is to develop an approach that balances conversion and risk. The right sanctions screening software will provide a seamless experience for legitimate customers while bringing in additional verification methods to authenticate anyone flagged as a potential member of a sanctions list.
Persona as a sanctions solution
Persona’s sanctions screening software is the key to protecting your business from sanctioned individuals, businesses, and others. Automatically screen against a wide range of lists on a regular basis to meet continuous monitoring requirements, or level up to our full watchlist solution to take advantage of PEP screening and other protective measures.
With Persona you can specify which lists to screen entities against and also configure match settings to reduce the risk of false positives. With Persona’s wide range of verification methods, you can make sanctions screening part of a tailored, fully fleshed out identity verification process that meets both your and your customers’ needs.
Ready to put Persona to work protecting your business from sanctioned entities? Get in touch today.