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Why Sanctions Screening Matters for Businesses in 2024?

27 June, 2024

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While the financial and corporate world continues to evolve, businesses in several industries are now more vulnerable to fraud and illicit monetary crimes. This necessitates for companies to comply with sanctions screening policies. Nevertheless, the process itself doesn’t come without challenges and obstacles. In addition, businesses worldwide are now more focused on adhering to constantly evolving sanctions screening regulations, including the EU’s recent directives and the 50% rule by the Office of Foreign Assets Control (OFAC). The significant aim behind imposing sanctions is to prevent illegitimate financial activities among businesses at the corporate level while reducing the challenges of monetary fraud, business identity theft, terrorist financing, and money laundering. 

This article gives a comprehensive insight into sanction screening and why it is important for businesses in 2024 to ensure a transparent corporate world.

What is Sanctions Screening?

Sanction screening is an approach that helps organizations recognize, evaluate, and control possible hazards related to people or businesses that are included on global sanction listings. For financial companies, digital banks, and financial technology companies in particular, sanctions screening is essential to ensure risk mitigation. Appropriate execution of financial sanctions is one of the main obstacles associated with sanctions screening; nonetheless, it also helps prevent illegal activity and acts as a barrier to the funding of terrorists and illicit trade in drugs.

Sanction Screening Under Regulatory Framework

Monetary sanctions, diplomatic restrictions, and military sanctions are all examples of the many shapes that these actions might take. Consider the present financial restrictions imposed on Russia and certain Russian people as a result of their invasion of Ukraine. Assets owned by several oligarchs have been confiscated by members of NATO. Terrorist groups and individuals, as well as countries with dismal civil rights reputations or significant drug trafficking rates, are subject to bans.

Numerous international organizations oversee sanctions screening regulations, such as the United Nations Security Council (UNSC), Interpol, the United Kingdom’s Her Majesty’s Treasury (HM Treasury), and the United States’ Office of Foreign Assets Control (OFAC). Any prospective client of a financial company must undergo a sanctions screening. Before allowing a business to onboard, these screenings should be used as indicators to either decline them or to do enhanced due diligence (EDD).

Global Sanction Lists

Sanctions List: A Quick Overview

Institutions in the financial sector face a significant threat of financial crime from certain nations, businesses, and persons included on sanctions listings. People and businesses with a criminal record are the ones who wind up on these lists. Several lists are available to you to help you recognize these illegal actors; they include international sanctions databases from the US, EU, UK, and UN.

You may see the European Union’s list on the Restrictive Measures Site of the European Commission’s website. To access the UK’s monitoring list, visit GOV.UK. Both the United Nations Security Council Consolidated List and the United States Office of Foreign Assets Control provide user-friendly listings.

Sanctions Screening: How Does it Work?

Sanctions screening is an integral aspect of the onboarding process for businesses in the financial sector, particularly with regard to AML and CTF activities. There are six essential phases to the process:

  • Gathering Necessary Business Information

Gathering all relevant data to compare with sanctions lists is the first step in the first screening procedure. Data pertaining to companies, associates, commercial partnerships, or financial dealings might fall under this category. Other relevant information such as names, addresses, identifiers, registration, license numbers, and financial transaction amounts may be gathered during data gathering.

Related: Empower Your Decisions with Comprehensive Business Information Collection

  • Verifying the Information

It is critical to confirm the correctness of the data and detect false positives once it has been collected. This entails comparing the data with other credible sources, including government records, business registries, or external data suppliers. Before doing any sanctions screening, it is crucial to verify the data to ensure its veracity. Validating data improves the efficacy of compliance procedures and aids in risk avoidance.

  • Screening for Sanctions

A worldwide sanctions list, which includes persons, companies, or nations embargoed or sanctioned by regulatory agencies, is cross-referenced with the verified data using The KYB’s extensive database. Implementing sanctions screening is a complex procedure, but the KYB can manage large volumes of data and execute real-time KYB checks with a sanctions list.

  • Analyzing the Results

Additional analysis is carried out to ascertain the relevance of any matches discovered during screening. This requires determining whether the match justifies more inquiry or action based on the amount of risk and related concerns. The similarity in identities or additional information elements may have legitimate explanations. Thus, not every match against a sanctions list indicates a violation. At this point, we know for sure whether the warnings were accurate matches or false positives.

  • Maintaining and Reporting on Records

The last part of complying with penalties is reporting and retaining records, which begins only when a real match is discovered. The institution has to provide a suspected activity report (SAR) to the relevant supervising body or authorities. Ignoring reporting guidelines has major implications, surpassing only legal fines. Institutions risk incurring heavy fines, having their reputations tarnished, and even facing criminal charges if they do not comply with reporting obligations.

  • Ongoing Surveillance

Regular monitoring of businesses, transactions, and sanctions lists is necessary for sanctions screening, a crucial phase in the process. Because anti-money laundering rules and punishment lists are subject to constant revision, vigilant monitoring is essential. Verifying and ensuring compliance with ongoing due diligence duties should be done in real-time or rarely.

How The KYB Can Help

Compliance hazards are invariably linked to businesses during the corporate induction process. This is why sanction screening is the most effective solution for businesses worldwide to guarantee corporate compliance both during and after the induction process. It is here that The KYB, the world’s largest corporate verification service, enters the picture. With access to databases of over 300 million companies and sanction screening in 250+ countries and states worldwide, our objective is to assist businesses with a comprehensive sanctions screening process that includes UBO screening, risk assessment, and enhanced due diligence. 

For further details on how we assist businesses in adhering to international business standards, please reach out to The KYB team today. Now is your chance to make the business environment more open and conducive to development.

Also Read: The Essential Sanctions Compliance Guide for Businesses

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