Sanctions screening
Also called sanctions list screening, watchlist screening
Sanctions screening is the process of checking customers, counterparties, beneficial owners and payments against official sanctions lists to find designated persons or prohibited countries. Lists include those published by the UN, the UK's OFSI, the EU and the US OFAC. A confirmed match usually means freezing assets or stopping the transaction and reporting it.
How it works
Firms screen two things. Name screening checks the customer base at onboarding and every time lists change. Payment screening checks each transaction, including parties, banks, vessels and free-text fields, before it is processed. Software uses fuzzy matching to catch spelling variations and transliterations, which produces many false positives that analysts must review and clear.
Screening matters because sanctions breaches carry severe penalties. In the UK, OFSI can impose civil penalties on a strict liability basis, so a firm can be fined even without knowing it dealt with a designated person. US penalties under OFAC programmes can also be strict liability. Screening must cover entities owned or controlled by designated persons, not only exact names on a list.
The rules
Provides the legal basis for UK sanctions regulations, which prohibit dealing with funds of designated persons and require reporting to OFSI.
All UK persons and anyone in the UKAllows OFSI to impose civil monetary penalties for breaches without proving the person knew or suspected a breach.
Persons subject to UK financial sanctionsSets out five components of a sanctions compliance programme and lists screening software faults as a recurring cause of violations.
US persons and organisations dealing with the USRequires freezing of funds and economic resources of listed persons and prohibits making funds available to them.
EU persons and anyone doing business in the EUCommon questions
Which sanctions lists do firms screen against?
Most firms screen against the UN Security Council list, the UK sanctions list, the EU consolidated list and OFAC's SDN and other lists. The choice depends on where the firm operates, its currency exposure and its risk appetite.
What is the difference between name and payment screening?
Name screening checks static customer data, such as clients and beneficial owners. Payment screening checks each transaction in real time, including originators, beneficiaries, banks and free-text fields, before the money moves.
Why does sanctions screening produce so many false positives?
Matching tools search for close variations of names to avoid missing a true match. Common names, transliteration from other alphabets and partial data generate large numbers of alerts that analysts must review.
Do firms need to screen owned or controlled entities?
Yes. UK, EU and US rules extend asset freezes to entities owned or controlled by designated persons. OFAC applies its 50% rule, and UK and EU rules use ownership above 50% plus a control test.
