Sanctions Screening Complicated by Limited Payment Transaction Data

Payment transactions often contain limited information about counterparties, making sanctions screening a complex and challenging task. To overcome these challenges, companies can leverage new technology capabilities, such as advanced analytics techniques like contextual data enrichment and entity resolution.

Higher False Positives: A Growing Concern

The current screening approach used by most companies relies on data inputs fed into a detection model, which compares client data with sanction list entries using name-matching logic. However, this approach can lead to higher false positives due to incomplete or inaccurate data. Poor data quality in client management systems and limited information about counterparties are common issues that contribute to this problem.

Managing False Positives: Three Key Areas

To improve the management of false positives, companies should focus on three key areas:

Data

• Enhance screening effectiveness by enriching contextual data and resolving entities.
• Collect relevant information during the KYC process and transfer it to increase the probability of a name match or automatically discount due to disconfirming information.

Detection

• Increase sensitivity by using string distance measures, tokenization, phonetic algorithms, and including additional data points like customer static data.
• Deploy dynamic detection algorithms that can adapt to changing circumstances.

Alert Handling

• Automate alert handling processes to reduce delays and inaccuracies.
• Use machine learning algorithms to improve the accuracy of alerts.

Germany’s Sanctions Regime

Germany has a comprehensive sanctions regime in place, which includes:

• The EU Blocking Statute: aimed at protecting against extraterritorial legislation.
• Its own export control regime: regulating the export of dual-use items, military technology, and equipment.

Conclusion

Sanctions screening is a complex task that requires careful consideration of data quality, detection algorithms, and alert handling processes. By leveraging new technology capabilities and focusing on these key areas, companies can improve their sanctions compliance and reduce false positives. Germany’s sanctions regime serves as an example of the importance of having a comprehensive and effective system in place to protect against extraterritorial legislation and promote international trade.