Why sanctions screening is imperative

Since the onset of the Ukraine-Russia war, sanctions have been in the news on an almost daily basis. Why is the screening of sanctions so important?

In a recent post by Sentinels, the company went into greater detail on the topic of sanctions screening and why they are so important.

Sanctions screening is a critical control primarily implemented by financial institutions to detect, prevent, manage and mitigate financial crime risks.

Sentinels said, “It’s important that firms conduct thorough and effective screening as part of their financial crime compliance efforts, so as to assist with the identification of sanctioned individuals, groups, and organizations, as well as any illegal activities to which they might be exposed, such as money laundering. In short, sanctions screening helps firms to identify potential sanctions risks and assists in helping compliance teams make quick, compliant decisions.”

In the time of mass global strife where tensions are heating between a wide range of nations, sanction lists are growing faster than ever. With the definition of sanctions broadening and becoming more open to interpretation, this is making it more difficult for all companies to effectively identify and manage their sanctions risks.

What are the challenges? The evolution of sanctions lists is a key one. As governments rely more on sanctions as a foreign policy tool, new entities are regularly being added and removed from sanctions lists. In addition, sanctions are become more complex – which is leading to more uncertainty and ambiguity, thus making compliance more challenging.

Sanctions are also having impacts beyond sanctioned entities, with organisations that are owned and controlled by, or work with, sanctioned entities also need to be within the scope of compliance efforts. Also, the variety of sanctioning bodies and sanctions lists is a big challenge for sanctions.

Sentinels said, “It’s crucial for all firms to comply with sanctions screening requirements and implement adequate controls. That said, it’s particularly important for firms operating in heavily regulated industries such as financial services.

“Historically, enforcement actions have been more prominent here, but other sectors have also been the recipient of significant fines and other punitive actions by regulators that have far-reaching power and influence. We’re also seeing regulators increasingly turning their attention to other industries that have historically flown under the radar.”

What can be done? Regulators and enforcement agencies are able to impose heavy fines, not just for violations of direct sanctions but also due to failures to implement adequate controls. Many businesses must carry out effective sanctions screening against third parties and their associates, partners and the wider supply chain – something which is especially important in jurisdictions with strong links to sanctioned countries.

Sentinels detailed, “Firms need to be able to keep up with the constantly changing sanctions landscape to remain compliant. To manage sanctions risk effectively, they also need to screen their suppliers, partners, and customers (both existing and new) and transactions against multiple sanctions lists. This can be challenging for larger companies that have many partners, customers, and transactions flowing through them.”

According to Sentinels, most companies find sanctions screening is easier to manage after the initial onboarding risk assessment when onboarding a new customer or other third parties. Any possible matches should be addressed as a matter of urgency, following a clearly defined process for escalation to compliance teams and reporting to the relevant regulatory body.

The company continued, “Although transaction monitoring primarily refers to the process of observing customer transactions in real-time and/or retroactively to spot trends, it can be paired with sanctions screening to verify customer identities and watch their transactions on an ongoing basis.

“This is called ‘transaction screening’ and its goal is to identify risk in senders and beneficiaries, as well as other factors of a transaction before it transforms into a compliance problem. Essentially, transaction screening watches the senders and receivers of funds to ensure that they’re not being processed on behalf of a sanctioned entity.

“One of the most effective ways to do this is to screen and analyze as much data as possible so as to strengthen and streamline decision-making.”

Read the full post here.

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