Sanctions and Sanctions Screening
Financial sanctions are imposed by governments worldwide to restrict or prohibit trade with foreign and domestic targets engaged in unlawful or undesirable activities. These sanctions may be directed at territories, individuals, or entities, including any countries, individuals, or organizations acting on behalf of others involved in criminal conduct. Sanctions are often backed by civil and criminal penalties.
Sanctions screening serves as a mechanism aimed at mitigating the risks associated with financial crime and sanctions. It involves the comparison of data obtained from an organization's operations, including customer information, other business partners, and transactional records, against global sanctions lists. These lists contain names and additional indicators of sanctioned entities or individuals, facilitating the identification of potential matches by assessing similarities.
Organizations generally implement two primary screening controls to accomplish their risk mitigation objectives.
- Transactional screening aimed at identifying transactions involving targeted individuals, organizations, or entities.
- Customer and name screening are conducted to identify targeted individuals, organizations, or entities during onboarding or other critical stages of the customer relationship.
The Complex Landscape of Sanctions Screening
Sanctions screening may appear deceptively straightforward. However, establishing a "true match" is a complex process that involves multiple variables, including international languages, cultures, spelling variations, acronyms, aliases, and technological limitations, such as differing algorithms, match rules, and workflows.
Accuracy is affected by the type and availability of data, the inherent sanctions risks to which the organization and its products, services, and customers may be exposed, as well as the third-party sanctions screening solution implemented.
The nature of sanctions also contributes to the complexity. Unlike economic embargoes, which prohibit all activities and transactions involving a designated country, list-based or smart sanctions selectively target specific individuals, entities, and organizations rather than entire regimes or nations. Secondary sanctions impose restrictions on third-party actors engaging in business with sanctioned regimes, organizations, individuals, or entities. An illustrative example of secondary sanctions arises during armed conflicts, where restrictions extend beyond the primary actors to third parties that continue business with sanctioned entities, thereby increasing compliance risks for organizations.
Other factors to consider:
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Sanctions regimes may include sectoral or national embargoes.
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Sanctions evasion techniques, such as the use of Virtual Assets, are becoming increasingly sophisticated.
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A rapidly changing geopolitical environment makes it more difficult for organizations to keep pace with their sanctions obligations.
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Many organizations still rely on legacy screening platforms, which are often cumbersome and prone to generating large volumes of false positives.
For further insights into Sanctions Compliance, please refer to the following resources:
- Wolfsberg Guidance and Best Practices for Sanctions Screening
- The Complete Guide for an Effective Sanctions Screening Process
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