3 ways to perform better AML sanctions screening

Increased enforcement efforts are shining a spotlight on anti-money laundering (AML) sanctions compliance. Firms increasingly must elevate their game to keep pace with regulators’ demands while still providing their customers with exceptional service — which means fast and frictionless service.

The key is to take a comprehensive, risk-based approach to AML sanctions screening that relies on high-quality, real-time data – and the implementation of an efficient technology stack that supports both business goals and compliance obligations. While there is no one-size-fits-alls solution, there are a few goals that all firms should pursue to successfully navigate the  fast-paced and complex sanctions landscape.

1. Respond quickly to sanctions changes

Government bodies impose, lift, and modify sanctions lists regularly. To avoid hefty fines from regulators, firms must monitor for changes on these lists and act on them immediately.

But being responsive requires having the right data at the right time. To effectively close compliance gaps, sanctions screening software should be calibrated to monitor the lists maintained by the Office of Foreign Assets Control (OFAC), the European Union, and the United Nations – in addition to any lists specific to the countries or regions in which a firm operates. Further, since sanctions lists are complex and constantly changing, manual monitoring is unlikely to meet the standards of a risk-based approach. 

Having a list management solution that consolidates data and offers real-time updates is crucial to staying on top of the various changes across all sanctions programs and reacting to them quickly. Yet even with streamlined solutions, there can be variations in performance. Firms should consider three things when evaluating a sanctions screening solution:

1. 1. Where is the data sourced? Official sources are always the most reliable. Firms should also consider whether the available lists comprehensively include all jurisdictions – and whether the data can be tailored to their specific risks. 
   2. How quickly is it updated? In a world where the consequences of missed sanctions evasion can be steep, it’s essential to have updates available and integrated into a firm’s screening system as soon as possible. Look for solutions that update in minutes – and allow integration into alerting soon after.
   3. Is there satisfactory human quality control for updates? No automated compliance solution should go without quality controls. Automated lists can greatly enhance compliance, but check that human teams are verifying the accuracy of the updates before they are integrated into an alerting system.

2. Optimize transaction screening

Ongoing sanctions screening will involve transaction screening before financial activity is approved – with transaction monitoring serving as another layer to catch activity that may have slipped past the screening process. Transaction screening and monitoring sit at the intersection of financial crime risk management and are part of the backbone of ongoing customer due diligence (CDD). Although customers are screened against sanctions lists and adverse media at onboarding, this is only the first step in a risk management process that must be ongoing throughout the customer lifecycle.

An effective sanctions screening program should include well-integrated transaction screening alongside customer screening. The processes and tools used to screen transactions should use the same quality sanctions screening data as the processes for onboarding new customers. Ongoing transaction analysis is as dynamic as the ever-evolving sanctions landscape – and, therefore, heavily depends on up-to-date, reliable sanctions data that can be clearly interpreted.

There are several benefits to ensuring sanctions screening is well-integrated into transaction screening and monitoring via a robust, flexible screening solution.

1. Better management of risks – Some solutions can optimize their screening using matching algorithms so that firms see alerts aligned to their risks. At the same time, a robust solution should be able to integrate data across the risk management lifecycle. This helps ensure sanctions screening is not siloed but is available at every relevant stage in the due diligence process.
2. More efficient processes – Better-tailored alerting and clear explanations for analysts mean higher-risk activity gets investigated sooner and quicker. The ability to eliminate irrelevant risks and sort the highest risks first helps eliminate the backlogs and missed activity false positives can cause.
3. More straight-through processing – Data-optimized screening algorithms can help ensure more legitimate activity gets greenlighted for processing without delay. Yet by tailoring alerts to a firm’s risks, those same algorithms can help analysts catch, review, and, if necessary, stop and report more illicit activity.

3. Ensure integrated and documented data

Robust sanctions screening must ultimately be part of an integrated, tailored financial crime risk management framework. Sound AML/CFT programs follow a “three lines of defense” model, where the first line includes reviewing activity, contacting customers, and any executives overseeing the process. The second line of defense involves the teams objectively evaluating the firm’s risk via regular enterprise-wide risk assessments (EWRAs) and creating risk-based policies and procedures in response. The third line of defense includes internal audit teams that hold the whole firm’s AML/CFT approach accountable.

Integrated sanctions screening should include processes that ensure a clear audit trail for the third line of defense – and clear information and holistic data for those reviewing customer information and screening transactions at the first line of defense. Measures include:

1. Integrating data and processes from across the risk management system to include fraud, sanctions, AML/CFT, predicate offenses, and any other risks relevant to the firm. Executive leadership overseeing the first line of defense can help ensure this.
2. Documenting risks, policies, roles, and resources according to the firms’ unique risks. This entails performing a regular EWRA. Each renewed EWRA should include a tailored assessment of a firm’s current sanctions risks according to the trending typologies and regulations they are subject to. This step would fall to the second line of defense.
3. Documenting the due diligence process, including all levels of sanctions screening. Firms must demonstrate to regulators that their processes have been effective at stopping payments designated for sanctioned individuals or entities. An easy-to-follow audit trail is imperative. Tools that automate the process of tracking sanctions activity as it relates to a specific individual or entity, as well as a financial institution’s response to changes in that activity, can help manage the risk of human error and make such information easily accessible.

Meeting the requirements of both customers and regulators can be challenging – yet with the right resources and planning, firms can mitigate risk and offer a seamless customer experience. With sanctions increasingly becoming an enforcement tool of first resort — especially in the US — managing both will require an agile, automated approach that provides firms with the most up-to-date sanctions information and that can be tuned to their specific workflow requirements and the unique challenges they face.