LONDON: According to the 2022 Thomson Reuters Anti-Money Laundering Insights Survey, sanctions screening was already identified as a top challenge for many organisations. But the continued use of economic penalties to end a military conflict — for example, during Russia’s war of Ukraine — has made it almost impossible for companies to stay compliant without a robust sanctions screening programme.
Risk of fines and public backlash
While sanctions play an important role in national security and international peacekeeping, they’re also vital for fighting financial crimes. Given their significance, a firm that continues to do business with sanctioned governments, legal entities, or individuals faces substantial fines. In the United States, civil and criminal penalties can exceed several million dollars.
But financial consequences are not the only concern. Global investors and citizens demand genuine corporate social responsibility and are quick to distance themselves from firms that don’t measure up. The risk for businesses is that a missed screening could be seen as a failure to make a positive impact, triggering reputational damage.
State of flux is the biggest issue
That said, checking whether customers are on Office of Foreign Asset Control (OFAC) sanctions lists is easier said than done. Even though individuals and organisations are routinely vetted as part of know-your-customer (KYC) due diligence and anti-money laundering procedures, firms face the following challenges with their screening process.
Sanctions lists can change frequently, even from day to day. Whenever there is an update, the new list needs to be checked against the existing customer base.
A customer’s KYC profile can evolve as well so internal data must be kept current.
Financial or trade sanctions are complex, with each restriction designed differently to achieve a particular outcome. They vary in whether their scope is broad or specific, whether they target a single individual, an organisation, or an entire state. They may have an expiration date or go on indefinitely. With so much complexity and variation, time needs to be spent on understanding how each relevant sanction applies.
Restricted parties could use sophisticated methods to avoid detection — for example, by setting up shell companies to control prohibited firms.
Typos, misspelling of words, or different naming conventions could lead to incorrect screening, especially in relation to foreign entities.
In addition, depending on the type of business and its size, the volume of customer data that needs to be analysed could render it virtually impossible for one person or even a small team to monitor it all.
Automated tools are a critical first step
So, how can an organisation operate a screening process that remains effective and efficient in the face of constant change?
It starts with having the right technology. Since sanctions screening requires using up-to-date internal customer data, external sanctions lists and public records for regular data extraction and analysis, there is a real risk of errors for businesses hanging onto manual or paper-based solutions. Incorrect, duplicate, irrelevant, or incomplete data could lead to high numbers of false positives or missed screening. Efforts needed to clean up datasets leave less time for more important tasks like analyses and reviewing alerts.
Adopting the latest technology can potentially streamline many compliance steps. An automated solution that brings together information from different sources allows screening to be done much quicker, giving staff more time to investigate high-risk items. The reduction of manual data entry also enhances data quality, resulting in more accurate alerts.
Aggregating relevant news and online information through digital monitoring means less effort to keep up with changes. Advanced data analytics tools enable informed decisions in less time.
While automated tools bring greater efficiency, a reliable screening process still requires the human touch to ensure nothing is missed.
By combining the latest technology with professionals who are trained to use them, and who are well-versed in the sanctions landscape, firms can run a comprehensive programme that minimises the risk of an incompliant sanction. (REUTERS)
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