Financial Institutions Required to Update Sanctions Lists and Conduct Thorough Due Diligence

In an effort to combat the proliferation of weapons of mass destruction (WMDs), the United Nations Security Council (UNSC) has implemented strict sanctions against designated countries and individuals. As a result, financial institutions are now required to update their lists of restricted end-users and prohibited end-users in accordance with relevant UNSCR resolutions.

Sanctions Database

Financial institutions must maintain a sanctions database that is updated in real-time, reflecting changes made by the UNSC or its relevant Sanctions Committee. The database must be easily accessible to employees at all levels, including branch offices, subsidiaries, and outsourced service providers.

Screening Requirements

In addition to maintaining an up-to-date sanctions database, financial institutions are required to conduct thorough screening of their customer databases against the UNSCR List. This includes searching for potential matches using variations of names, versions, or arrangements for each designated person to prevent unintended omissions.

Search for potential matches using various name formats
Use different spellings and transliterations
Examine variations in names, including nicknames and aliases

False Positives

When a potential match is identified, financial institutions must take immediate action to determine whether the match is true or false. This may involve making further inquiries and obtaining additional information from the customer or counter-party.

Conduct further investigations to verify identity
Obtain additional documentation and proof of identity
Verify relationships between individuals and entities

Financial institutions are also required to conduct due diligence on related parties of designated individuals or entities. This includes examining past transactions, analyzing relationships, and maintaining records of these activities.

Review transaction history for suspicious activity
Analyze relationships between individuals and entities
Maintain detailed records of investigations and findings

Freezing, Blocking, and Rejecting Transactions

If a financial institution determines that a customer is a designated party or related party, they must immediately freeze the customer’s funds and economic resources, block transactions where applicable, and reject any further dealings with the party.

Freeze funds and economic resources
Block transactions to prevent unauthorized activity
Reject any further dealings with the designated party

Electronic Subscription Services

To ensure prompt updates to their sanctions databases, financial institutions are encouraged to subscribe to electronic services that provide real-time notifications of changes made by the UNSC or its relevant Sanctions Committee.

Conclusion

In summary, financial institutions must take a proactive approach to combating the proliferation of WMDs by maintaining up-to-date sanctions databases, conducting thorough screening of customer databases, and freezing, blocking, and rejecting transactions involving designated individuals or entities. Failure to comply with these requirements can result in serious consequences, including fines and reputational damage.