Guide

Guide to Sanctions Screening: What is It & How to Perform It

Sanctions screening is crucial for compliance in financial and regulated sectors, combating crimes like money laundering and terrorism. Beyond regulation, it strengthens global financial security by monitoring constantly updated sanctions lists across jurisdictions.

As of 2025, over 57,000 active sanctions records exist under 300+ programs. The complexity of sanctions data challenges compliance teams, requiring them to manage false positives and vast multilingual data from international sources.

Despite these complexities, the need for robust sanctions screening systems has never been more pronounced. Substantial fines have been levied against major financial institutions in recent years for lapses in their compliance measures, underscoring the importance of effective screening.

What Is Sanctions Screening?

Sanctions screening is critical in the Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) frameworks. It is mandated for businesses under regulatory scrutiny to ensure robust compliance with global sanctions. Essential to the Know-Your-Customer (KYC) protocol, sanctions screening encompasses comprehensive due diligence and risk management strategies aimed at thwarting financial crimes.

As the global regulatory environment and sanctions regimes constantly change, businesses must remain abreast of operational and legal changes. Sanctions screening is a cornerstone of any risk-based compliance strategy, ensuring businesses meet their legal obligations and mitigate potential risks. While nuances exist in sanctions regulations across different jurisdictions, these rules generally converge to support seamless international commerce and enhance global security measures.

How Does the Sanctions Screening Process Work?

Sanction screening works by comparing customer data against government sanction lists to confirm Sanctions screening involves comparing customer data against government and international sanctions lists to ensure that individuals or entities are not restricted from conducting transactions.

Key components of an effective sanctions screening program Include:

Customer Identity Verification: As part of KYC requirements, confirming customers’ identities during onboarding is crucial.
Cross-Checking Against Multiple Lists: This involves matching verified identities against various lists, including sanctions, politically exposed persons (PEP), adverse media and other specific jurisdictional watchlists.
Manual Verification of Matches: Each match is carefully verified to avoid false positives, which can occur due to similarities in names or other identifying information.
Transaction Suspension and Reporting: If a match is confirmed, the transaction is blocked, and the details are reported to a compliance officer.
Risk Labeling and Monitoring: Customers identified as high-risk through screening are continuously monitored to manage and mitigate potential risks.
Transaction-Level Monitoring: Ensures that no transactions involve entities or individuals on any sanctions list.
Internal Auditing: Regular audits ensure that all screening protocols are appropriately documented and executed effectively.

This structured approach helps align global business practices and effectively mitigate the risks associated with financial crime.

Why Is Sanctions Screening Important?

For businesses in regulated verticals like financial services and real estate, the importance of an effective sanctions screening process is twofold: it can help combat terrorism and international money laundering and minimize risks of noncompliance penalties.

The necessity of distancing from criminal or terrorist financing is apparent. Consider the severe reputational damage a traditional bank might suffer if it were found to have facilitated transactions that supported criminal activities, such as funding the efforts of hostile entities. The implications for a business’s public image and trustworthiness are profound and potentially irreversible.

Financially, the penalties for non-compliance can be substantial. In 2023, the Office of Foreign Assets Control (OFAC) in the U.S. imposed nearly $1.5 billion in fines across 17 resolutions, marking the highest penalties ever assessed by OFAC in a single calendar year. Such penalties underscore the critical need for a robust Financial Crime Compliance (FCC) or Sanctions Compliance Program (SCP), as the consequences for non-compliance can extend beyond fines to more severe sanctions, potentially leading to the cessation of business operations.

Implementing a strong Financial Crime Compliance (FCC) or Sanctions Compliance Program (SCP) isn’t merely a regulatory requirement but a strategic imperative. Businesses must ensure that their compliance programs are thorough and up-to-date with the latest legal standards to avoid crippling fines and to protect their operations,

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When Are Sanctions Screening Required?

Sanctions Screenings are mandated whenever a business engages in international transactions or operates within sectors particularly vulnerable to money laundering, terrorism financing or other illicit financial activities.

Below are specific scenarios and industries where sanctions screening is typically required:

Financial Services: Banks and Financial Institutions are required to perform sanctions screening on all customers to prevent money laundering and terrorism financing. This includes routine checks on account openings, money transfers and cross-border transactions.
Investment firms must screen transactions and their clients to ensure compliance with international financial regulations and to prevent the funding of illegal activities.
International Trade: Export/Import companies are required to screen transactions and business partners to ensure that they are not dealing with entities or individuals on any sanctions lists, crucial for complying with trade regulations and avoiding severe penalties.
Legal and Professional Services: Law Firms and Consultancies need to conduct due diligence on their clients to ensure they are not indirectly supporting illegal activities through their advisory services.
Real Estate: Real Estate Agencies and Developers conduct transactions involving high-value assets, which are often targeted for money laundering. Screening potential buyers and investors helps prevent the illegal inflow of funds into the real estate market.
Technology and Telecom: Tech Companies and ISPs, especially those that provide services that can be used globally, conduct screening to ensure that their services are not used by sanctioned entities or for cybercrime activities.
Non-Profit Sector: NGOs and Charitable Organizations must screen donations and transactions to ensure that funds are not diverted to support terrorism or other sanctioned activities.
Energy and Commodities: Oil, gas, and mining companies are subject to geopolitical sensitivities and must screen transactions and business relationships to ensure compliance with international sanctions and avoid funding conflicts.

PEP Screening

Politically Exposed Person (PEP) screening in AML practices focuses on identifying individuals who hold or have held significant public roles and their close associates and family members. These individuals may pose higher risks due to their positions, making them potential targets for corruption and financial manipulation. Financial institutions and other obligated entities implement PEP screening to ensure compliance with global regulatory standards, including thorough checks to uncover any financial risks or unethical activities associated with high-ranking public figures and adverse media coverage.

PEP lists should be a key part of a strong sanctions strategy, tailored to each company’s risk appetite. Since relatives and close associates (RCAs) of listed individuals are also subject to scrutiny, identifying potential PEPs requires Enhanced Due Diligence (EDD) to investigate their source of funds and assess risk more thoroughly than standard customers. This includes initial vetting and ongoing monitoring to detect suspicious transactions over time. Effective PEP screening helps institutions mitigate money laundering and corruption risks, safeguarding their operations and reputation in the global market.

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How to Perform Effective Sanctions Screening

To minimize risks associated with crime, fraud, and non-compliance with Anti-Money Laundering (AML) regulations, establishing a multi-layered sanctions screening process is essential. This involves integrating various elements and expertise across your organization. Here are all the essential elements of effective sanctions screening in AML:

AML Compliance Officer: This key role, mandated by AML laws, is responsible for maintaining the screening process, training staff and leading ongoing improvements and adapting strategies to meet emerging threats and regulatory changes.
AML Software: Integral to a broader risk management platform, this software should be capable of conducting list checks, assessing risks, monitoring transactions and generating reports or audits. It should also handle fuzzy matching to improve detection capabilities and dynamically integrate updates to sanctions lists.
Understanding AML Responsibilities: Understanding the legal and regulatory frameworks underpinning sanctions screening, particularly for international operations, includes maintaining detailed knowledge of different sanctions regimes, such as those imposed by the US, EU and UK, and tailoring compliance measures accordingly.
Staying Updated: Keep abreast of the latest AML regulatory changes using tools like compliance dashboards that aggregate real-time updates, subscribe to regulatory newsletters, and participate in industry forums.
Defining Risk Appetite: Define and periodically review your organization’s risk tolerance to inform your screening procedures and monitoring intensity. Establish clear metrics or thresholds for acceptable risk exposure and the processes for reviewing these thresholds.
Data Management: Emphasize maintaining and continuously verifying customer data’s accuracy and completeness. Incorporate regular data quality audits and advanced data management technologies to support enriched customer profiles and minimize risk assessment errors.
Staff Training: Implement structured training programs that include periodic refreshers, employ real-world scenarios to ensure practical application of knowledge, and update training content with the latest compliance tactics and technologies.
Risk Management Proficiency: Ensure teams are proficient with risk management software and can adjust monitoring rules as needed to respond to changes in the risk landscape.
Manual Review and Reporting: Develop robust protocols for manual reviews and documentation when matches against sanctions lists are found. This should include steps for escalation and a straightforward decision-making process to determine the validity of matches.

By following these guidelines, organizations can effectively design and execute an AML sanctions screening process that significantly reduces the risk of non-compliance and enhances overall operational compliance. This approach not only addresses the identification of sanctioned entities but also ensures the implementation of a thorough due diligence process.

sanctions screening guidelines for a thorough due diligence process

How SEON Facilitates the Sanctions Screening Process

SEON’s fraud detection platform significantly bolsters compliance teams’ ability to conduct effective sanctions screening and maintain AML compliance. SEON streamlines the critical elements of both KYC and EDD processes by integrating a continuously updated portfolio of sanctions lists and other relevant watchlists. The platform automatically flags potential matches based on customer data, such as names and addresses, facilitating a swift manual review.

SEON’s technology extends beyond simple data matching by utilizing real-time digital footprint analysis and device intelligence. These capabilities provide a detailed profile of each flagged individual, aiding compliance officers in making informed decisions about whether a match is legitimate to reduce the likelihood of false positives.

Best Practices for Enhanced Compliance with SEON

Develop Comprehensive Policies: Organizations must establish clear internal policies that outline roles, responsibilities and procedures for conducting sanctions screening.
Leverage Advanced Screening Software: Utilizing advanced tools like SEON that integrate seamlessly with existing systems ensures that data is managed effectively and remains up-to-date with the latest entries on sanctions lists.
Stay Informed: It is essential to stay abreast of the latest developments in international law and changes in sanctions lists. Reliable sources for these updates include the United Nations, the European Union and the US Office of Foreign Assets Control (OFAC).
Regular Audits: Conducting regular audits helps assess the effectiveness of the sanctions screening processes and can identify any areas for improvement. This practice ensures that the compliance measures adapt over time to meet evolving regulatory requirements.
Continuous Education and Training: Investing in ongoing education and training for compliance teams can enhance their ability to use screening software effectively and better prepare them to respond adeptly to changes in the regulatory landscape.

By adopting these practices and utilizing SEON’s advanced screening capabilities, organizations can significantly reduce non-compliance risks. This proactive approach protects against legal and financial repercussions and contributes to global efforts to combat financial crimes, ensuring operational integrity and maintaining the organization’s reputation in the international marketplace.

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FAQs for Sanctions Screening

What are sanctions in AML?

Within anti-money laundering mandates, sanctions are restrictions imposed upon entities that are meant to prohibit that entity from furthering their agenda through business. These entities generally have been determined to be malicious or otherwise detrimental – for instance, members of terrorist groups and warmongers.

Who should be screened for sanctions?

For companies that fall within the AML perimeter, all new users should be screened against all relevant sanctions lists during the onboarding process. Existing users determined to be risky should also have their transactions monitored for involvement with sanctioned entities, as well as for suspicious behavior associated with corruption.

Who needs to do sanctions screening?

Depending on the jurisdiction – including any country business is being conducted – certain verticals need to do sanctions screening as part of KYC. Regulated verticals typically include financial institutions, building societies and other money services, gambling institutions, and in some cases high-end retail like art dealers and real estate services.

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