Sanctions Screening: What you need to know

19 August 2019

Recently, we hosted a member session on sanctions screening to explore the growing complexity of the changing payments landscape. The thought-provoking session featured a panel discussion moderated by Richard Storey, Head of Risk Solutions Sales at Refinitiv and market experts Dinesh Anand, Head of Sanctions Compliance at ANZ Group, Oliver Lauterwein, Director of Digidentity and Rachel Waldren, Partner at Murray-Waldren Consulting.

What is sanctions screening?

Broadly speaking, sanctions screening is a control used to detect, prevent and manage a firm’s sanctions risks. Global regulations, including Australian law, impose significant penalties for breaching sanctions.

The Wolfsberg Group 2019 describes the way sanctions screening works as "the comparison of one string of text against another to detect similarities which would suggest a possible match. It compares data sourced from a financial institution’s operations such as customer and transactional records, against lists of names and other indicators of sanctioned parties or locations".

Why is it important?

The panel pointed to the severe penalties for not complying with sanctions laws, and to the importance of 'knowing who you are doing business with' in order to successfully identify and mitigate risks, and meet obligations. The US has the strictest sanctions regime, with extra-territorial reach, so firms operating in or with the US, or in US Dollars, need to be highly aware of the sanctions implications. With the Bank for International Settlements (BIS) estimating that over 80 percent of global trade transactions occur in US dollars, having regard to US Sanctions as well as other global sanctions regimes is clearly important.

How does this impact domestic transactions?

The session touched on the different aspects of sanctions screening, highlighting how it affects both domestic and international transactions. The Australian Banking Association's (ABA) industry guidelines set out best practice in conducting customer due diligence, with a focus on KYC (know your customer) processes. These guidelines are currently being reviewed and the ABA anticipates updating them in late 2019. Globally, firms are looking to solve the challenge of securely identifying individuals and organisations online in order to mitigate their risks of sanctions exposure.

The panel discussed the challenges firms face in establishing whether their customers are subject to sanctions, or are doing business with sanctioned countries, entities or individuals. The speakers highlighted that the complexity of sanctions is further complicated by 'sectoral sanctions'. Rather than applying to a country or individual, these are targeted sanctions which apply to specific areas of the economy (e.g. technology and the energy sector).

The panel highlighted that the big questions for firms are:

  • Are your sanctions screening processes effective to ensure compliance?
  • How do you keep up to date with the ever-changing sanctions landscape?
  • Is your sanctions screening capability ISO 20022 ready?
  • How do you keep across the changing developments in the digital identification and emerging technology arena to enhance your sanctions screening capability?

How can you manage risk in an increasingly complex sanctions environment?

The Wolfsberg Guidance recommends banks adopt a risk-based approach based on four core principles:

  • Articulate the specific sanctions risk the financial institution is trying to prevent or detect
  • Identify and evaluate the inherent potential exposure to sanctions risk presented by the financial institution’s products, services and customer relationships
  • A well-documented understanding of the risks and how they are managed through the set-up and calibration of the screening tool
  • Assess where, within the financial institution, the information is available in a format conducive to screening

The full-house event concluded with networking and refreshments. We thank our speakers and all the participants from our member community who made it a successful event. To find out more about our member sessions, contact us.