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US Companies Must Ensure Effective Sanctions Screening Process
As the US Office of Foreign Assets Control (OFAC) continues to enforce strict regulations on international transactions, American businesses are under increased scrutiny to implement a comprehensive sanctions screening process. The UN Sanctions list applies to all UN Nation-States and is overseen by the UN Council.
In this article, we will outline the essential steps for setting up an effective sanctions screening process to mitigate the risks associated with sanctioned parties and non-compliance.
Determine Where Risks Lie
First and foremost, it’s crucial that US companies understand which sanctions risks they need to prevent or detect during their operations. This may involve prohibiting dealings with any party sanctioned by the United States, United Nations, or European Union, as well as those sanctioned within their home country or countries where they operate.
Cleaning Up and Streamlining Data
One of the most significant challenges in implementing an effective sanctions screening process is data quality and integrity. Companies must compile and clean their Know Your Customer (KYC) information to avoid producing a large number of false positives and to ensure that sanctioned entities are detected during the screening process.
Determining Relevant Attributes for Screening
Not all data elements within a company’s records may be relevant for screening against specific sanctions risks. For example, names of individuals/entities with whom the organization has a relationship can be screened against name-based sanctions lists, but not geographic lists.
Sanctions Data/Screening Setup
Companies must determine which lists are relevant for screening, depending on the nature of their clients, products, and business. This is usually done through a risk-based assessment. Some customers or entities may be present on more than one list, leading to multiple matches; some organizations may want to implement a list management system to clean and parse the data to reduce these false positives.
Screening Intervals
Sanctions screening should be repeated at defined intervals through an automated process as determined by internal policies. It’s recommended that screening takes place when establishing new relationships (to ensure the permissibility of the relationship), followed by regular screening either upon trigger events or at predetermined intervals.
Handling Matches
When a match is generated during screening, indicating a match between a customer or business partner and a sanctions list, it’s not necessarily an indication of a sanctions risk. The alert must be verified, confirmed, or discounted using additional information to determine whether the match is true or a false positive.
General Challenges During Sanctions Screening Process
While sanctions screening is effective in controlling financial crime risks, it also comes with unique challenges and limitations, including:
- Evasive behaviors of Politically Exposed Persons (PEPs) or persons related to PEPs
- Poor internal data management
- Different writing systems or naming conventions
- Manual data entries during onboarding
- Isolated internal systems
Conclusion
In conclusion, every US business must have a sanctions screening strategy in place that is documented and reviewed regularly. The accuracy and depth of internal data are the key to an effective sanctions screening process, while technology remains an important part of identifying financial crime risks accurately and timeously.
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