The Ultimate Sanctions Screening Guide:  Everything You Need to Know

What Is Sanctions Screening?

Sanctions screening allows companies to efficiently screen customers, clients, or suppliers against sanctions lists. The process is part of a broader anti-money laundering (AML) compliance plan that all companies and organizations with international exposure should incorporate. 

In this comprehensive sanctions screening guide, we will cover the following:

• Why Is Sanctions Screening Important?
• What Are Sanctions?
• What Are Sanctions Lists & Sanctions Databases?
• How Does Sanctions Screening Work?
• How to Set Up Effective Sanctions Screening Processes?
• 7 Sanctions Screening Best Practices

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Each business has unique sanctions obligations to follow, depending on the jurisdictions and sectors in which they operate. Laws vary depending on the country, impacting which industries must legally screen customers for sanctions. 

For example, the sanctions.io blog reports that OFAC sanctions compliance is essential for software companies. All businesses and organizations with international exposure must seek local AML advice or hire qualified professionals for their unique circumstances. 

‍But it's important not to over-complicate this. 

Use US Dollars in Business? Sanctions Screening Is a Must

Regardless of complex sanctions rules, here is a fact: In today's globalized and digital world, a vast amount of businesses are international to a degree - whether through the customers they seek online or the products and services they import or contract over the Internet. 

From companies in Australia to the UK, and everywhere in between, two things are now widespread:

• International customers & suppliers
• Payment in dollars is essential

Does your business have international customers and suppliers? Do you trade using US dollars? Perhaps you are nodding your head to both. And here is an example of why global sanctions screening is fundamental: As far as the US Office of Foreign Assets Control (OFAC) is concerned, any foreign party avails itself to the US financial system if it trades in dollars - and hence becomes subject to US sanctions laws. 

The above is just one example. The UN, EU, and UK sanctions lists are also equally important - violations may lead to hefty financial penalties, severe limitations on your financial flows, and reputational damage. 

Because of all the above risks, global sanctions screening is increasingly popular for regulated and non-regulated businesses. ‍

Why Is Sanctions Screening Important?

Sanctions screening is an increasingly important process that all companies and organizations with international exposure should initiate. Here are seven reasons why sanctions screening is important:

Avoid Large Financial Penalties

In 2022, there was a 50% surge in money laundering fines. Violating sanctions laws comes under the broader money laundering umbrella. And a large percentage of the above statistic comes from sanctions violations. For example, at the time of writing, Wells Fargo was fined almost $100 million for sanctions violations.

Sanction evasion is also increasingly in the spotlight. The DOJ announced in March 2023 that it plans to hire over 25 new prosecutors to go after companies who knowingly (or unknowingly) break sanctions laws. 

Both smaller companies and large ones are fined for sanctions breaches. You can learn more here. Sanctions screening software minimizes the risk of receiving such penalties. 

Avoid Reputational Damage

Receiving a sanctions penalty may result in severe reputational damage to a company. It's important to remember that sanctioned individuals and companies are often associated with heinous crimes such as human trafficking and extortion. Any company that even unknowingly abetted illicit criminal activity may receive a public backlash. Its reputation with customers, regulators, employees, and other stakeholders may also suffer. 

Be Compliant with Sanctions Laws

Compliance with relevant sanctions laws is integral to a company's broader compliance processes (e.g., data protection, cyber compliance). Sanctions screening software helps businesses stay compliant and thus avoid issues with regulatory bodies. 

Reduce Money Laundering Exposure Risk (AML)

Sanctions and money laundering are inextricably connected. Individuals and companies on sanctions lists are severely restricted - and are forced to take illegal money-laundering actions to move funds. 

They may also be on sanctions lists because of money laundering offenses. By activating robust sanctions screening processes, businesses can minimize the risk of funds flowing through their accounts from sanctioned individuals or entities. 

Reduce the Risk of the Financing of Terrorism (CFT)

Another illegal activity, the financing of terrorism, is also related to sanctions and the broader money laundering umbrella. As sanctions.io reported, the Lafarge Sanctions Violation Case is an example of a company breaking sanctions laws, pleading guilty to conspiring to provide material support to the Islamic State of Iraq and al-Sham (ISIS).

Sanctions screening solutions help businesses minimize the risk of the illegal financing of terrorism as part of a Combating the Financing of Terrorism (CFT) process. 

Reduce the Risk of Fraud

Two related offenses come under the financial crime spectrum: Money laundering and fraud. Know-Your-Customer (KYC) processes, such as identity verification, help reduce fraud - but it also minimizes the risk of money laundering. Equally, anti-money laundering (AML) methods, such as sanctions screening, also reduce the risk of both money laundering and fraud. 

Ethical Responsibilities

All companies and organizations have an ethical responsibility to themselves and their stakeholders to prevent money launderers from using their businesses to launder dirty money. Sanctions screening supports ethical and responsible business practices. 

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What Are Sanctions?

In reality, many businesses, especially SMEs and start-ups, don't need to bog themselves down in the intricate details of sanctions - that's why they consult experts. They want peace of mind that they aren't dealing with sanctioned individuals and entities, exposing themselves to severe sanction violation punishments. 

And that's why sanctions screening services like sanctions.io are now fundamental to doing business. But it's still important to understand what sanctions are.

Sanctions are a tool used by countries, or international organizations such as the UN, to put economic or political pressure on a country (or countries) to discourage, punish or influence behavior. 

It's important to remember this: Sanctions are not embargoes. The sanctions.io blog discusses the difference between sanctions and embargoes, but in a nutshell, embargoes are partial to complete trading bans. Sanctions are more targeted - for example, UN sanctions limiting oil and refined petroleum imports to North Korea.

Sanctions are an increasingly hot topic, especially since the 2022 Russian invasion of Ukraine. Intriguing stories of sanctioned Russian oligarchs moving superyachts between Mediterranean ports have made national news and captured the public's attention.

There are different kinds of sanctions, from diplomatic to sporting, to travel and cyber. However, the most common type of sanction is the one that hits the target where it hurts most - in the pocket. Economic sanctions may restrict or prohibit trade, investment, and financial transactions between the sanctioning county (or countries) and the sanctioned entity. 

For example, the relationship between a sanctioning country and the sanctioned country could mean:

• A ban on financial transactions
• Restrictions on trade
• An investment ban

And here is the reality: The world is overflowing with economic sanctions from many countries and organizations, targeting countries from North Korea and Iran to Zimbabwe and Russia. 

But how is this all relevant to your business?

It's relevant because if your company trades, even unknowingly, with sanctioned individuals or entities, you will expose your business (and yourself) to civil and criminal penalties. We discuss the cost of neglecting sanctions list screening on the sanctions.io blog. 

What Are Sanctions Lists & Sanctions Databases?

Sanctions Lists

Here are the four significant sanctions lists from around the world:

If sanctions are a strategy to discourage, punish or influence behavior, then sanctions lists are the tactic for achieving the objective. It's best to think of it this way: Politicians will agree on sanctions against an entity (such as Russia). Civil servants from government departments then identify individuals, companies, and organizations to go on the sanctions lists.

The lists are carefully curated to maximize pressure on the sanctioned country. In the case of sanctions against Russia, billionaire Russian oligarchs are on sanctions lists - and the consequences are tangible. For example, their children may no longer attend British elite schools. 

And appearing on a sanctions list may lead to punishment more than financial. It's also humiliating, especially for individuals from elite circles. Information such as passport number, address, the types of assets frozen, and more are held for each entry and are publicly available.

Knowing which sanctions lists to screen can be a challenge. Businesses must consider the relevant sanctioning bodies (with sanctions lists to screen) active in the countries and territories they trade, and the currencies they complete transactions. However, the following sanctioning bodies are the most important. 

Failure to comply with any of the below sanctions lists may cause serious issues to any company or organization with international exposure:

• The OFAC Sanctions List applies to all US citizens and corporate entities constituted in the US, as well as any entity that either trades in US dollars, US goods, or US components or that has a US parent or affiliate. The US Office of Foreign Assets Control (OFAC) is its regulatory body.
  
• The UN Sanctions list applies to all UN Nation-states. The UN Council oversees it. 

• The EU Consolidated List of Sanctions applies to all EU citizens or corporate entities constituted in a member state. The EU Council oversees it.

• The HM Treasury Sanctions List applies to all individuals and legal entities
  within or who undertake activities within the United Kingdom and all UK nationals and legal entities established under UK law. It's enforced and overseen by OFSI (the Office for Financial Sanctions Implementation). 

Sanctions Databases

A sanctions database pools global sanctions lists together into one database. For example, sanctions.io's developer-friendly database contains all of the above sanctions lists and from countries such as Australia, Canada, Switzerland, France, the UAE, and many more. Additional lists are always available on demand. 

Our AI-powered sanctions database updates every 60 minutes and contains cleansed and enriched data - ensuring the information is accurate and high-quality. The following section will discuss how sanctions databases allow for effective and efficient sanctions screening in various use cases. 

How Does Sanctions Screening Work?

Sanctions screening works by checking individuals, companies, and organizations against all the global sanctions lists (such as OFAC & UN lists). 

Sanctions screening can be as simple as manually typing a name into a sanctions database, hitting enter, and seeing the results instantly appear. However, companies and organizations with numerous clients, customers, and suppliers require scalable, frictionless sanctions screening solutions that blend into their business processes.

‍Sanctions screening services not only offer the most up-to-date lists pooled into one database. The value to the customer is also how screening efficiently takes place at scale.

Here are types of sanctions screening solutions:

Transaction Sanctions Screening

Transaction sanctions screening works through an API offered by the screening provider. For example, InsurTech companies have a USP that traditional insurance firms don't have: New customer approvals in a matter of clicks. 

To achieve this, the InsurTech company screens the customer for sanctions when completing other Know-Your-Customer (KYC) checks through APIs, as offered by services such as sanctions.io. Our developer-friendly, enterprise-grade RESTful API has guaranteed uptime of more than 99.99% and ~200ms response time.

Batch Sanctions Screening

‍Batch Sanctions Screening is when the company or organization has implemented, for example, an automated daily check on all its customers' and suppliers' databases through a screening providers' API. This solution is rapidly increasing in use. As reported on the sanctions.io blog, governments are more than ever punishing any company involved in sanctions evasion (knowingly or unknowingly) from regulated and non-regulated sectors. 

Manual Batch Sanctions Screening

Manual Batch Sanctions Screening allows companies and organizations to upload a .csv file containing customer and supplier data to the sanctions screening provider. Results are instantly available, and there is no requirement to set up an API (although manual batch screening through an API is also standard).

How to Set Up Effective Sanctions Screening Processes?

Setting up an effective sanctions screening process is one of the more daunting tasks for businesses and organizations without screening experience or who do not have a qualified compliance officer in their ranks.

All companies should consult with sanctions and AML compliance experts to create an adequate sanctions screening process. To help you, sanctions.io put together a free effective sanctions screening process guide. The guide covers the following essential steps:

• Identifying sanctions risks for your business (risk assessment)
• Cleaning up & creating high-quality data
• Determining relevant data to screen
• Identifying relevant sanctions lists
• Type of screening solutions required 
• Screening intervals (e.g. transactional, daily)
• Handling matches (e.g. false positives, whitelisting, etc.)

A reality of sanctions screening is that challenges exist. For example, screening names written in Chinese, Cyrillic, or Arabic alphabets (different writing systems or naming conventions) may create issues. The quality of data and how its structured also present obstacles. We'll be discussing sanctions screening best practices in the next section. 

If you want more information and guidance about setting up a sanctions screening process, don't hesitate to contact sanctions.io for an obligation-free discussion. You can also find some further tips here.

7 Sanctions Screening Best Practices

The most critical sanctions screening best practice is to get started - and to have a form of sanctions screening in place. It's surprisingly simple to do. For example, upload a .csv file with customer data into a sanctions screening database and see if any matches appear (and take action). This step alone goes a long way in meeting sanctions compliance obligations. 

But as alluded to earlier, sanctions screening is not a perfect science. Like many business processes, there are always ways to improve effectiveness. Continuous improvement is also fundamental in sanctions screening. 

Here are some best practices for your sanctions screening journey:

1. Collect High-Quality Customer Data
2. Seek Expert AML Advice
3. Use Sanctions Screening Technology
4. Use the Best Sanctions Databases
5. Use Sanctions Screening Automation Tools
6. Integrate Sanctions Screening in CRM Tools
7. Red Flags? Know What Actions To Take

Collect and Store High-Quality Customer Data

Data quality issues do trip up sanction screening processes. Incomplete or inaccurate customer information can lead to false positives (when the match is not the sanctioned individual). Data issues can also mean even worse - missing detections of sanctioned individuals and entities. Companies should ensure that KYC data is compiled, cleaned, and mapped across all relevant systems.

Seek Expert AML Advice

As mentioned in the guide previously, all companies with international exposure must seek local AML advice or hire qualified professionals for their unique circumstances. Different industries (regulated and non-regulated) have differing sanctions compliance obligations depending on the jurisdictions their businesses operate. 

Use Sanctions Screening Technology

Here is a fact: Sanctions lists are fluid. They are constantly updated (hourly) as data changes. And new sanctions are announced almost daily, reacting to the ever-changing geopolitical landscape. Using sanctions screening technology, such as sanctions.io's smart AI-powered sanctions database, significantly helps businesses stay compliant 24/7. 

Use the Best Sanctions Databases

Not all sanctions databases are made equal. Technology-driven sanctions screening services will offer a comprehensive global sanctions lists screening service as part of a standard package. For example, sanctions.io's standard package covers 30+ sanctions and criminal watchlists. 

It's the industry standard for screening sanctions lists and criminal watchlists together. The standard package offered by sanctions.io includes FBI and Interpol watchlists. If a specific sanctions list is not covered, we can add it without any additional cost to our client.

Sanctions screening services may also offer Politically Exposed Persons (PEP) screening databases - such as sanctions.io. You can learn more about it in our article covering the best practices for PEP screening. 

Use Sanctions Screening Automation Tools

Companies seek sanctions screening solutions that are frictionless to the business. Understanding how sanctions screening providers can support screening automation is always best practice. The next step is putting it into action. 

The results are incredible when businesses implement an effective automated sanctions screening process. How? Because using tools such as APIs and automated batch screening means the daily job is simply checking and examining the matches (red flags).

Integrate Sanctions Screening with CRM Tools

An increasingly standard best practice in the world of sanctions screening is this: Integrating sanctions screening with CRM tools. And it makes complete sense. After all, protecting your business from sanctions violations by identifying individuals or other entities in the sales stage before any transaction occurs is a no-brainer. 

Our sanctions screening solutions integrate with popular CRM tools such as Hubspot, Salesforce, Pipedrive, and more (no-coding necessary). You can learn more about it here: Integrating sanctions.io with Salesforce, Pipedrive, HubSpot & More CRM systems.

Red Flags? Know What Actions To Take

A red flag is when information (e.g., a customer) matches an individual or entity on a sanctions list. Larger companies, especially from regulated sectors, will clearly understand the required actions. However, smaller businesses and start-ups without qualified AML compliance officers - and experience - may wonder this: What next?

It's best practice for all companies utilizing sanctions screening services to have a process for dealing with red flags. This will depend on the jurisdictions in which the business operates (e.g., where to report it). Seeking local expert AML compliance advice is essential in this step. 

However, the first step in all cases is to seek further information about the red flag and ensure the match is not a false positive. 

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How sanctions.io Can Help Your Sanctions Screening Needs

For businesses and organizations with previous sanctions screening experience, you are welcome to sign-up right now to sanctions.io's solutions on a free 7-day trial (no credit card required). If you are still trying to understand sanctions screening and wish to have a clearer idea, please get in touch with sanctions.io for an obligation-free discussion. We will be delighted to hear from you. 

If you have any questions, you can also get in touch using the contact form or email address on this page. 

Frequently Asked Questions About Sanctions Screening

What is sanction screening in KYC?

‍Sanctions screening is a process that is often part of the Know Your Customer (KYC) procedures used by companies and organizations to identify sanctioned individuals and entities.  

‍Why is sanctions screening required?‍

Sanctions screening is required to ensure compliance with national and international sanctions laws and regulations. Failure to comply may result in severe financial penalties. 

What is sanctions and pep lists screening?

Sanctions and PEP lists screening are products often offered by screening providers. PEP stands for Politically Exposed Person. Many companies and organizations conduct sanctions and PEP screening as part of a risk-based approach to AML regulations. 

What are the four types of sanctions?

Four types of sanctions may include economic, diplomatic, military, and cyber.

Who should be screened for sanctions?

Customers, clients, vendors, and business partners can be screened against sanctions lists and other watchlists. Specific requirements for sanctions screening can vary depending on the country and industry.

Is OFAC screening required?

OFAC (Office of Foreign Assets Control) screening is required for many companies and organizations under US law. Regardless of your business's location worldwide, if US dollars is a currency you trade with, you should initiate OFAC screening. 

What is global sanctions screening?

Global sanctions screening checks customer data (and other stakeholder data) against multiple international and national sanctions lists. Companies and organizations use global sanctions screening services to help comply with sanctions laws and regulations.