You’ve probably heard the terms AML (anti-money laundering) Sanctions, Denied Party Screening, or Sanctions Screening. There are many others out there, but they all have a similar meaning and objective: detect and prevent financial crime and identify suspicious activity. Money laundering and the misuse of financial services for fraudulent and criminal purposes are on the rise and have been surfacing as top stories in the news lately. It feels like every other day we hear about a bank or financial institution that has been sanctioned by the Office of Foreign Assets Control (OFAC) or other enforcement agency for failure to execute on proper customer due diligence and transaction monitoring practices. With ever-increasing transaction speeds, market complexity and political instability, it is more important than ever to keep them in check. The most effective way to do this is to develop a program that is solely focused on sanctions risk mitigation— the process of verifying transactions and customers against the various government watch lists (denied party lists) of known or suspected criminals.
This article will get you started with a basic understanding of screening for AML and screening for sanctions, so that you can maintain proper compliance and protect your company’s reputation and revenue. These following information is not only important for financial institutions, but for any business that deals in cross border transactions and the exporting of goods or services.
What Is Sanctions Screening?
Governments everywhere use sanctions to combat financial crime and limit criminal access to goods such as weaponry and narcotics. These sanctions may target individuals, organizations, countries, and even vessels or other assets. They apply not only to criminals, but to those perceived as aiding them.
To facilitate enforcement of these sanctions, governments routinely issue and update lists of sanctioned individuals and entities. All financial institutions and exporters are required to screen customers and transactions against these lists. Failure to properly engage in sanctions list screening can result in severe civil and/or criminal penalties.
Challenges of Sanctions Screening
Sanctions screening is not just a matter of checking the lists. To make it work in the context of a day-to-day business environment, screening must be operationally and cost effective— with minimal interference to transaction speed and customer experience. Accomplishing this presents numerous challenges. Some of these include:
- Balancing transparency with customer experience. To maintain good customer relations and prevent abandoned points of sale, screening should not be apparent to the customer unless flagged.
- Handling large payment flows. The bigger the organization, the more complex its needs. An effective sanctions screening solution must handle large numbers of transactions flawlessly.
- Data source integration. An effective screening program must access and integrate multiple internal and external (government) data lists. Often, these lists are immense, necessitating a system capable of nimbly handling massive amounts of data.
- Language barriers. International commerce brings with it added complexities, including the need to translate or transliterate multiple languages and alphabets.
- Real-time capability. These days, customers expect to be able to pay and receive confirmation of payment instantly. While screening in real time reduces the risk of forbidden transactions, it can create challenges due to its time sensitive nature. To do this effectively and stay compliant requires advanced software and compliance experts that can handle all of the above considerations and more.
As you choose your sanction screening solutions, you’ll want to take these challenges into account and find the technology and expert support that can help you meet them all effectively and efficiently.
Transaction screening is a complex topic. Many companies fail to do their due diligence when it comes to sanctions compliance because they believe it to be too time-consuming or expensive. Don’t make this mistake. There are many reasons why screening compliance should be a priority in your business.
First, is the financial risk. Governments take sanctions very seriously, watch closely for violations, and issue severe penalties for non-compliance. Failure to meet transaction screening requirements could set your company back hundreds of thousands of dollars or more.
Then, there is risk to reputation. A screening violation can deter current and potential customers from doing business with your company — which can result in serious long-term profitability loss.
Finally, there is personal risk as well. If you are the individual in your company responsible for maintaining compliance with financial sanction requirements, a single omission or oversight could have serious consequences to your career.
Choose Your Sanctions Screening Solutions Wisely
At this point, you should have a basic understanding of sanctions screening. However, the information in this post is just the tip of the iceberg of what you need to know and do to ensure that your company stays secure and compliant.
If you are unsure of the status of your compliance program, or are seeking to improve your sanctions screening capabilities, please consider enlisting the help of a compliance expert. At Vigilant, trade compliance is our core competency. We are experts in building and supporting sanctions screening programs, and can provide the technology and expertise you need to avoid penalty and stay profitable in this competitive market. To learn more, contact us here.