Sanction Screening: a comprehensive guide to help financial institutions fulfil sanction compliances.

Why is Sanction Screening essential for financial companies?

Financial institutions use sanctions screening as a tool to detect, prevent and manage sanctions imposed on individuals and entities. Sanctions are issued on entities, organizations and individuals who are deemed drug dealers, human traffickers, terrorists and smugglers by the respective country or the U.N.

It is a requirement that all organisations should religiously scan their databases to identify such potential threats to AML through a sanctioning screening process. All such high-risk entities are subject to sanctions which prevent them from carrying out financial transactions. The most important sanctions recently imposed include the sanctions imposed by the NATO nations on Russia and its citizens due to Russia’s war efforts in Ukraine. No recent statistics except on war crimes is publicly available.

How are PEPs vulnerable? How do Sanctions screening services help?

PEPs refer to politically exposed persons who are vulnerable as they are vulnerable to bribery or corruption. Due to the high offices they hold, they are in a position to demand and receive bribes. Immediate family members are also vulnerable as normally they benefit from the influence of the PEPs and amass wealth. Sometimes, there are instances where they seek to exploit an entire country and peddle influence for amassing wealth. They even exploit the entire foreign aid given for the benefit of the ordinary citizens of the country. Such PEPs usually appear in the sanctions list of other countries.

What is Sanctions Screening? How does it help AML/CFT compliance? 

OFAC is a U.S agency within the U.S Treasury. OFAC insists on sanctions screening by all financial institutions to stay compliant with AML/KYC procedures. Sanctions screening helps financial institutions in the following:

• Helps to identify high-risk clients during the onboarding process
• When such clients who are on the sanctions lists are identified, you may decide to reject them and stop onboarding them
• Financial institutions have the fiduciary responsibility to use the government sanctions during the client screening process and identify high-risk entities
• As a financial institution, you have to perform customer due diligence by identifying the source of funds of the clients, whether they are legitimate sources, validating their identity and analyzing the pattern of transactions
• Risk monitoring, requisite internal controls and training of your staff are also required.

What is the best practice for effective sanction screening?

An effective screening process relating to AML and CTF consists of the following:

• Analysing consumer risk based on the consumer database: Such risk analysis should be carried out using the customer’s geography, and industry segment and compared to the sanctions data and other risk parameters.
• Streamlining sanctions data: You need the curate the sanctions lists as lists are generated by many organisations. After you filter the sanctions list to that which applies to your financial institutions, you need to vet the customer data against it.
• Workflow automation: This is the key to effectively managing your sanctions screening process. Programs can be made and reports generated which will provide an exception list consisting of potentially high risk, PEP and other sanction list customers.

The database needed to check for sanctions screening

The main benefits of sanction screening arise from the lack of negative consequences which will arise if you permit an entity or an individual under sanctions to carry out financial transactions at your institution.

Earlier in the article, we have given a list of financial institutions that had to pay hefty fines because they allowed transactions by sanctioned entities. As a financial institution, you are responsible for the AML and CTF screening of your customers and carrying out the appropriate due diligence while onboarding and during the pendency of their accounts. Your database should be enabled for sanction screening to avoid fines, penalties and other legal consequences.

IDcentral’s Solution for Sanctions Screening

IDcentral’s KYX solution is a powerful eKYC-enabled AI tool which facilitates financial institutions and other entities to carry out AML and KYC screening of customers during the onboarding process

Procedures that IDcentral helps you to carry out include:-

• Document verification: Using the government database of National ID verification, IDcentral carries out document verification of customers instantly
• Face match: Using techniques such as biometric verification and identity verification, Id Central facilitates Photo id match with the official documentation and can be compared to the agency sanction lists at the time of onboarding.
• Face Trace: This is done using a facial scan feature which matches the actual face of the client at the time of Digital onboarding.
• AML CTF screening: AML screening solution integrates PEP screening which uses databases with 1000+ global watch lists including PEP, fraud and sanctions and keeping your institution current to prevent fraud and money laundering.

Conclusion

As sanctions screening is vital to a financial institution’s security and ensuring compliance with all government regulations including sanctions screening, IDcentral provides an end-to-end solution guaranteed to keep your organisation updated and current with the latest watch lists and regulations and avoid hefty fines in the process.

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