Compliance in finance is paramount, but how do you ensure that your sanctions screening processes meet all the requirements? Implementation of sound sanctions screening procedures is critical to both risk management and avoiding penalties. Given that regulators are looking to ensure compliance with the laws on sanctions, financial institutions should have measures in place that are effective yet workable. As the Treasury Department explained, “vigilant sanctions screening is a critical line of defense against illegal activity.” If the processes are not set up correctly, your organization allows an illegal transaction or activity to take place.
This article will provide a framework for designing your sanctions screening procedures to be consistent with the applicable regulatory provisions.
Understand relevant sanctions laws
One needs to understand the fundamental issue of which sanction and embargo laws apply to the operations and transactions of financial institutions.
Notable sanction programs include those by the Office of Foreign Assets Control of the U.S. Treasury Department, which had in place over 30 active sanction programs as of 2023.
Be aware of sanctions programs on countries such as Iran, Syria, North Korea, and other terror groups identified by the United States. Monitoring changes in sanctions law closely is integral to sanctions screening compliance.
Assign screening responsibility
Financial institutions must assign the roles and responsibilities of having a proper sanctions screening program. There has to be a stakeholder who takes control of the global sanctions screening effort. A Sanctions Officer must be appointed who must have particular responsibility for follow-up on sanctions lists, consolidating list screening across several systems in an organization, and acting as contact liaison with all potential matches for sanctions.
Designating responsibility will prevent the effort of sanctions screening from falling through the cracks.
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Set parameters for screening criteria
Organizations should fix clear and consistent criteria for screening persons and entities against sanctioned lists. Screening is not only to be done regarding OFAC’s SDN list but against all lists that apply to your firm’s activities and transactions. The parameters, like name variations, scripts, and thresholds for matches, offer additional variables that help to refine the accuracy of sanctions screening. Consistent screening criteria translate to rigorous screening and compliance with regulations. This includes screening against OFAC’s Specially Designated Nationals (SDN) list, which currently contains over 9,000 listings as of 2023, in addition to any other lists that may apply to your firm’s operations.
Automate screening procedure using technology
Without the automation of the screening procedure, one majorly exposes oneself to compliance risks. Throughout the business lines, it is obligatory to monitor global sanction lists on a 24/7 basis. Search all new and existing customers and vendors against Sanction Screening databases daily. The technology flags possible hits for assessment to ensure continued adherence to Sanction regulations. The integration of such technologies has enhanced the efficiency and effectiveness of the sanction screening process by 40%.
Training of staff on sanctions
Every employee should know his role in compliance with sanctions. Periodic refresher training must be provided to all relevant employees. This is to enhance awareness of the applicable policies and procedures. The areas of training include screening for sanctions, global sanctions programs affecting operations, and processes for appropriately escalating potential matches. Continuous training keeps staff aware of their compliance responsibilities and up-to-date with changes in Sanction laws or the firm’s compliance program.
Create escalation documentation processes
Set forth a clear policy and procedure for escalating any sanctions screening hits to the appropriate leads. Document each step of the escalation and remediation process so that complete records are maintained.
This documentation will permit auditors to review and evaluate your firm’s Sanction Compliance procedures for efficiency and solidity.
It also shows diligent follow-through where there were potential issues raised, keeping regulators assured of your commitment towards compliance.
Recent audits have pointed out that firms with well-documented processes reduce the potential risk of non-compliance fines by up to 30%.
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Conduct controls self-assessment periodically
Any financial organization needs to carry out assessments aimed at ascertaining the effectiveness of the sanctions screening controls.
Such periodic self-assessments allow an organization to identify any gaps or areas for improvement within its sanctions compliance program.
Sample a range of different transaction types and customer accounts as part of the self-assessment testing to verify the overall effectiveness of sanctions list screening.
Test to ensure that all new and existing names are screened against current OFAC, United Nations, and European Union sanctions lists in addition to watch lists.
In light of changing international embargoes and measures against embargoes in money laundering, the constant assessment will ensure that sanctions controls imposed remain ahead of risks to compliance. Addressing any issues found maintains rigorous compliance with global restrictions.
