Financial Crime World

Addressing Current Challenges in Sanctions Screening

Current Issues

The current sanctions screening process has several issues that need to be addressed. Some of these issues are:

  • Differences between UN sanctions list and MOF’s translated version: The United Nations (UN) sanctions list includes “Good quality” aliases and “Low quality” aliases, but the Ministry of Finance (MOF)’s list does not distinguish between them.
  • Risk-based approach: Financial institutions should be allowed to take a risk-based approach when screening for sanctioned individuals, rather than having to screen all aliases.

Timeframe for Completing Screening

The timeframe for completing sanctions screening is another area of concern. The Financial Services Agency (FSA) requires financial institutions to screen their customer database against sanctioned persons within 24 hours after publication of such sanctions. However, many global financial institutions follow and observe sanctions releases in major jurisdictions, and may take up to 48 hours to complete the screening process.

Looking Forward: Centralized KYC

A centralized Know Your Customer (KYC) system would be more efficient and effective than having each financial institution collate databases and screen customers individually. Such a system should accommodate the unique needs and requirements of foreign financial institutions, including those with databases using different character sets.

Cooperation Agency for Anti-Money Laundering

The Japanese Bankers Association (JBA) has established the Cooperation Agency for Anti-Money Laundering (Agency) in January 2023. The Agency will provide AI-based screening & monitoring services and AML advisory services to participating banks. However, before deciding whether to use the Agency’s services, banks may want to know more about issues such as:

  • Relevance of the Agency’s services for foreign banks’ businesses in Japan
  • Appropriateness of the fees
  • Timeline for rolling out AI-based services

Key Takeaways

Some key takeaways from this article are:

  • The current sanctions screening process has several issues that need to be addressed, including differences between UN and MOF lists, and the risk-based approach.
  • A centralized KYC system would be more efficient and effective than having each financial institution collate databases and screen customers individually.
  • The Cooperation Agency for Anti-Money Laundering provides AI-based screening & monitoring services and AML advisory services to participating banks.