Automated sanctions screening: A guide for compliance professionals

Automated sanctions screening is a crucial process used by financial institutions (FIs) and organizations to identify individuals, entities, and transactions that may be subject to economic sanctions or restrictions imposed by governments or international bodies. It involves the use of advanced technology, such as artificial intelligence (AI) and machine learning (ML), to quickly and accurately analyze vast amounts of data in real-time. 

The importance of automated sanctions screening was highlighted following Russia’s invasion of Ukraine in February 2022, which resulted in an unprecedented amount of penalties being placed on Russian entities. With global economic sanctions constantly changing and cross-border payments rapidly increasing, many firms have sought to move away from legacy systems and introduce automated real-time sanctions screening processes for a more robust approach. 

The challenges of traditional sanctions screening

In 2022, sanctions screening was identified as a top challenge for many FIs due to the necessity of keeping up with new designations and ensuring compliance solutions consistently reflect rapid updates. With traditional sanctions screening measures, the challenge is more pronounced as more manual effort is required to investigate flagged alerts.

The main pain points experienced with traditional sanctions screening solutions include:

• False positives: Traditional screening systems often generate a high number of false positives, where legitimate transactions are wrongly flagged as potential matches to sanctioned entities or individuals. This requires extensive manual reviews, impacting operational efficiency. 
• Lack of real-time updates: Legacy databases may not quickly reflect new sanctions, which can lead to delayed processing and increased risk when dealing with recently sanctioned parties.
• Complex entity matching: Matching entities accurately across different languages, name variations, and spelling differences poses a significant challenge. Traditional systems may struggle to correctly identify variations of names or entities, leading to missed matches or false negatives.
• Assessment of risk: Traditional screening methods may not accurately assess the level of risk associated with flagged transactions. This can result in “over-blocking” or “under-blocking”, where high-risk transactions are overlooked, or low-risk transactions are unnecessarily delayed or halted.
• Scalability: As transaction volumes increase, traditional screening systems may struggle to handle the growing workload efficiently. Scalability challenges can lead to delays in processing and potential compliance risks.
• User experience: Delays caused by extensive false positives and manual reviews can negatively impact the customer experience. Customers may face unnecessary transaction delays, leading to frustration and potential loss of business.

The benefits of using automated sanctions screening processes

By employing automated sanctions screening, businesses can enhance their compliance efforts and minimize the risk of inadvertently engaging in business relationships with designated entities. The software scans various data sources, including customer records, transaction details, and watchlists maintained by government agencies and international organizations. When a potential match is found, the system generates alerts for further investigation by compliance professionals.

This technology helps organizations: 

• Approach sanctions screening proactively.
• Streamline their compliance processes.
• Reduce manual efforts and operational costs.
• Mitigate the risk of regulatory violations. 
• Improve accuracy by minimizing human errors.
• Ensure consistent screening procedures. 
• Ensure compliance with the latest requirements.
• Structure data and reduce false positives with machine learning algorithms that can learn to prioritize and categorize information based on its relevance to particular types of alert.
• Cope with large transcation volumes and scale with demand. 

With automated tools, compliance professionals can be confident that sanctions due diligence is carried out on all relevant parties and counterparties. With ML, the software learns from historical data, which can help mitigate future mistakes after an accidental breach has occurred.

Key factors to consider when implementing sanctions screening automation

Firms considering implementing automated sanctions screening or upgrading their existing programs, may be wise to ask: 

• How easy will it be to implement new systems? 
• Will a new training program for compliance teams be required?
• What are the pain points, limitations, and opportunities of the existing sanctions screening processes?  
• What are the priorities for improvement? 
• What are the requirements and risks at each stage?  

When selecting a vendor for automated sanctions screening, firms should also consider asking for case studies and testimonials. Many providers offer proof of concept examples and use a test-and-improve approach where the product is closely monitored for opportunities to improve performance.

Automated sanctions screening solutions with ComplyAdvantage

Amid constantly changing sanctions lists, heightened regulatory expectations, and faster processing times, it is imperative for organizations to adopt a risk-based approach to sanctions compliance and not take a minimalistic approach to detecting potential sanctions exposure. Firms should evaluate the challenges posed by their current screening software and consider the benefits of implementing new automated sanctions screening tools.

With ComplyAdvantage’s watchlists and sanctions screening software, firms can benefit from:

• Quickly knowing about critical changes to a customer’s risk status.
• Reducing onboarding cycle times by tailoring the sanctions screening program to a risk-based approach.
• Minimizing false positives. 
• Streamlining customer onboarding by improving alert quality with a consolidated, real-time AML risk database.
• Automating ongoing monitoring by moving away from delayed flat file uploads.
• Syncing with existing tools by integrating data feeds, case management systems, and CRMs to match exisiting workflows via industry-leading API integration.