Financial services firms need to perform sanctions screening to comply with regulatory requirements and avoid legal, financial, and reputational risks associated with dealing with sanctioned parties or high-risk activities. Sanctions screening involves checking the identities of customers, counterparties, vendors, and transactions against various sanctions lists and watchlists to prevent or detect any violations. Failing to comply with sanctions regulations can result in severe penalties, fines, legal actions, and reputational damage.
What are the Various Global Sanctions Lists Available?
Several sanctions databases are globally maintained by different governments, international organizations, and private companies. These databases contain information about individuals, entities, and countries that are subject to economic or financial sanctions. Some of the most well-known sanctions databases include:
- United Nations Security Council Sanctions List: Contains information about individuals, groups, and entities subject to sanctions imposed by the United Nations Security Council.
- Office of Foreign Assets Control (OFAC) Sanctions List: Maintained by the U.S. Department of the Treasury and lists individuals, organizations, and countries subject to U.S. economic and trade sanctions.
- European Union Consolidated List: Contains information about individuals, groups, and entities subject to EU sanctions.
- Her Majesty’s Treasury (HMT) Sanctions List: Maintained by the UK government, covering individuals, organizations, and countries subject to UK sanctions.
- Australian Sanctions List: Lists individuals, groups, and entities subject to Australian sanctions.
- Canada’s Special Economic Measures Act (SEMA) Sanctions List: Contains information about individuals, groups, and entities subject to Canadian sanctions.
Regulators may impose administrative sanctions if an Accountable Institution or person fails to comply with the Act or directives issued under it.
Which Companies and Industry Sectors Need to Screen for Sanctions?
The following sectors are required to perform sanctions screening as part of their compliance process:
- Legal Practitioners
- Trusts and company service providers (TCSPs)
- Credit Providers
- High-Value Goods Dealers
- Estate Agents
- Banks
- Financial Services Providers
- Crypto Exchanges
- Mutual Banks and Cooperative Banks
- Life Insurers
- Dealers in Foreign Exchange
Challenges Faced by Accountable Institutions in Sanctions Screening
Financial service firms face several challenges when screening their relationships for sanctions compliance, including:
- Large Volumes of Data: Financial service firms handle vast amounts of data, making it difficult to screen every customer quickly and effectively. This can lead to false positives, which are costly and time-consuming to resolve.
- Complexity of Screening Rules: Sanctions screening rules can be complex and subject to frequent changes. Keeping up with the latest sanctions updates and ensuring compliant screening processes can be challenging.
- Name Matching Algorithms: Using exact name matching in sanctions screening does not account for variations in spelling, typos, or name discrepancies, which can allow sanctioned individuals or companies to conduct business undetected.
- Lack of Standardization: Different sanctions lists have varying formats, making it difficult and costly for firms to ensure consistent screening across all jurisdictions.
Streamlining Sanctions Screening with Automation
Sanctions screening can be complex, time-consuming, and costly when done manually. To overcome these challenges, many firms are turning to Sanctions Screening Services to automate and streamline the process, ensuring compliance and minimizing risks.