What Is A Global Watch List And Why Is It Important?

Financial sanctions are an important tool in the global fight against financial crime. Governments around the world use sanctions to restrict and prohibit trade with foreign targets as a means to achieve political objectives or punish violations of international law such as acts of terrorism, financial crime, the undermining of elections, and human rights abuses.

Sanctions are imposed by governments or by international organizations such as the United Nations, and may target entire countries, governments, businesses, or individuals. After a government designates a sanctions target, that target is added to an official global watchlist or sanctions list. When firms within that government’s jurisdiction deal with foreign customers or transactions that involve foreign parties, they should – where appropriate – screen their customers’ names against the relevant watchlists in order to ensure that they do not violate the sanctions regulations.

Since sanctions are backed by financial and criminal penalties, firms should understand their compliance obligations, and how to check global watch lists accurately and effectively.

What are the types of global watch list?

Many governments maintain global watchlists in accordance with their active sanctions programs and international obligations. The United States, for example, maintains dozens of different sanctions programs, including programs against Iran, Cuba, Russia, and Syria, but also enforces sanctions that are imposed by the United Nations Security Council (UNSC).

Examples of notable sanctions watchlists maintained by governments and international organizations include:

• The US Office of Foreign Assets Control (OFAC) Blocked Persons and Specially Designated Nationals (SDN) List
• The UK’s Office of Financial Sanctions Implementation (OFSI) UK Sanctions List
• The EU Consolidated List
• Australia’s Department of Foreign Affairs and Trade (DFTA) Consolidated List
• Canada’s Consolidated Canadian Autonomous Sanctions List
• The UNSC Consolidated List

What does it mean to be on a watch list?

When a country or individual is added to a global watchlist they become subject to a range of potential sanctions measures. Some sanctions prohibit trade with their targets completely, while others limit or restrict trade. When a firm matches a customer name to a watchlist designation they must ensure that they comply with the relevant restrictions. Sanctions measures generally impose one or a combination of the following restrictions:

• Embargoes: Prohibitions on the import and export of goods and services to a target country. Embargoes may apply to specific business sectors or products, such as technology services or weapons.
• Business restrictions: Prohibitions on trade, investment and business relationships with target countries, individuals, and organizations.
• Asset freezes: Measures that freeze the foreign-held assets of target countries, organizations, and individuals.
• Travel bans: Measures that prohibit sanctioned individuals from travelling from their country of residence to countries that abide by the relevant sanctions measures.

Sanctions violations carry serious criminal consequences. In the US, for example, sanctions penalties include fines of up to $1 million per violation, and prison sentences of up to 20 years.

What is a global watch list screening solution?

In order to screen customers and transactions against the relevant global watchlists, firms should develop and implement a sanctions screening solution as part of their wider AML/CFT program – which should include robust Know Your Customer (KYC) processes to establish and verify the identities of customers.

Sanctions solutions should be updated regularly with the latest designations and should accommodate the unique challenges of watchlist screening, including recognition of non-Western naming conventions and non-Latinate characters, and the use of nicknames and aliases. In order to manage the vast data collection and analysis requirements of sanctions screening, firms should also seek to integrate a suitable software platform in order to add automated speed and accuracy to the process, and to reduce the potential for human error during manual watchlist checks.

With those considerations in mind, a sanctions screening solution should be supported by the following measures and controls:

• Customer due diligence: In order to perform accurate checks of sanctions watchlists, firms should capture identifying information about their customers, including names, addresses, dates of birth, and business incorporation details. Firms should also seek to establish beneficial ownership when doing business with customer-entities.
• Transaction monitoring: Firms should use advanced transaction monitoring software to check if their customers are doing business with counterparties that are named on international watchlists.
• PEP screening: Elected and government officials may pose a greater sanctions risk than other customers. Firms should seek to establish whether customers are politically-exposed persons (PEP) in order to inform watchlist checks.
• Adverse media screening: News stories may indicate that customers are subject to sanctions measures before that information is confirmed officially. Accordingly, firms should screen on an ongoing basis for adverse media that involves their customers.

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