What is Sanctions Screening?
Sanctions screening is the process of checking customers, counterparties, and transactions against government sanctions lists to make sure a business does not deal with sanctioned people, entities, or countries.
Sanctions screening enforces legal restrictions set by governments and international bodies. Sanctions aim to pressure governments or groups to change their behavior, cut off funds to terrorists and criminal networks, and signal diplomatic disapproval. Financial institutions put those measures into practice by blocking or rejecting transactions that involve sanctioned parties.
Sanctions screening covers two types of sanctions. Country-based sanctions block nearly all activity with an entire jurisdiction, such as North Korea or Cuba, so firms check where customers and payments come from and go to. List-based sanctions target specific people, organizations, vessels, or sectors, so firms screen names and identifiers against lists that change frequently.
Which lists does sanctions screening use?
Sanctions screening draws on several primary lists, including the following.
- The UN Security Council Consolidated List
- The US OFAC Specially Designated Nationals (SDN) list and other OFAC lists
- The EU Consolidated Financial Sanctions List
- The UK Sanctions List
- Local lists, such as Canada's and Australia's national sanctions lists
Sanctions lists change often, so firms ingest updates at least daily. Many also track change logs and cross-check multiple sources to catch feed delays.
When does sanctions screening happen?
Sanctions screening happens throughout the customer relationship. Firms screen customers and their beneficial owners before onboarding, rescreen the customer base whenever lists change, and screen payments as they move. For wires and correspondent banking flows, each sender and beneficiary is screened before a payment settles, since sanctioned parties can hide behind intermediary banks.
What happens when sanctions screening finds a match?
A possible sanctions match goes to an analyst for review. The analyst compares details such as date of birth, nationality, and location to decide whether the match is real or a false positive, and records the outcome with a clear rationale.
A confirmed sanctions match goes straight to the MLRO. Depending on the regime, the firm must block or freeze the funds, reject the transaction, and report to the relevant authority. Most firms use a hybrid model, with automated screening as the first line of defense and trained analysts investigating the alerts it raises.
