With the ongoing Russian invasion of Ukraine, coordinated global sanctions have become a crucial strategy against state and non-state actors, leading to increased attention to their severity. As a result, financial institutions must now consider sanctions lists when designing their AML compliance programs. The current global sanctions lists are the most extensive ever aimed at a significant economy, and the list of organizations subject to them continues to grow. Therefore, monitoring and screening new and current clients against international sanctions lists have become crucial components of any company's or financial institution's AML compliance program.
Businesses must keep an eye on numerous international lists to comply with these global sanctions. However, many businesses monitor different lists beyond what is required to stay ahead of possible dangers. This is where an efficient AML screening system comes into play, which includes automated procedures to help organizations safeguard their transactions from fraud and money laundering while weeding out rogue actors. Identity verification is the first step in the AML screening process, followed by checking if potential customers are on any international sanctions lists. The AI-driven system employs machine learning algorithms to simultaneously monitor sanctions lists from financial regulators, law enforcement organizations, and those with worldwide access. In addition, AML screening also conducts real-time scans of databases of politically exposed individuals (PEPs) to prevent financial institutions from inadvertently aiding money laundering or terrorism funding. Ultimately, businesses need to enhance their compliance systems and consider the most recent worldwide sanctions lists to close potential vulnerabilities that may land them in trouble.
The Role of Global Sanctions Lists in AML Compliance
Global sanctions lists comprise various regulatory and improved due diligence lists from all significant sanctioning agencies worldwide. These lists include the U.S. sanctions list produced by OFAC, the U.K. sanctions list made available by OFSI, the Canada sanctions list, and the UN sanctions list. Additionally, enterprises and financial institutions should also consider other watchlists such as Interpol's law enforcement databases, state and federal government organizations, local police forces, regulating regulatory bodies' lists, and harmful media listings.
To comply with global sanctions, companies that provide financial services abroad must consider over 1700 global sanctions lists. However, monitoring all these lists manually is a significant challenge. An efficient AML screening system includes automated procedures that employ machine learning algorithms to monitor sanctions lists from financial regulators, law enforcement organizations, and those with worldwide access. This system should also conduct real-time scans of databases of PEPs to prevent financial institutions from aiding money laundering or terrorism funding.
U.S. Sanctions List
OFAC, a department of the U.S. Treasury, is responsible for creating and managing economic and trade sanction lists aimed at mitigating risks to U.S. national security, international relations, and the economy. These lists contain the names of specific individuals and businesses from identified countries, as well as other risks.
OFAC's listings include the Specially Designated Nationals List (SDN), which targets specific individuals or groups unrelated to a particular nation and includes entities that are owned or controlled by, or operate on behalf of, targeted countries. Additionally, there is a Consolidated Sanctions List that consolidates information from various non-SDN databases. OFAC's extensive listings serve as a crucial tool in enforcing U.S. economic and trade policies.
U.K. Sanctions List
The U.K. maintains a sanctions list that identifies individuals and entities subject to financial sanctions. The Office of Financial Sanctions Implementation (OFSI), a division of H.M. Treasury, regularly updates the list. Sanctions on this list include asset freeze targets, as well as investment and financial restrictions. It's important to note that in February 2022, the structure of the consolidated list was changed.
Canada Sanctions List
Canada has the authority to impose sanctions under three laws: the United Nations Act (UNA), the Special Economic Measures Act (SEMA), and the Justice for Victims of Corrupt Foreign Officials Act (JVCFOA). In addition, the Freezing Assets of Corrupt Foreign Officials Act allows for the freezing of assets belonging to politically exposed persons (PEPs).
The Consolidated Canadian Autonomous Sanctions List includes individuals and organizations subject to specific sanction restrictions under SEMA and JVCFOA. This list is regularly updated and made available to the public.
U.N. Sanctions List
The U.N. Security Council Consolidated List comprises all individuals and entities currently subject to sanctions imposed by the U.N. Security Council. As of March 7, 2022, the list included 256 entities and 703 persons. Financial institutions and other enterprises usually consider this list, along with Interpol's law enforcement lists and other government and state agency lists, to comply with anti-money laundering (AML) requirements. Some media lists also monitor entities' involvement in incidents that may harm their reputation, as well as financial and securities regulatory agencies' listings.
Other watchlists
In addition to the global sanctions lists mentioned above, there are various other watchlists that businesses should consider when designing their AML compliance programs. Interpol's databases, for example, provide valuable information on individuals and entities involved in criminal activities worldwide. The Interpol Red Notice is a global alert that provides information on wanted fugitives, while the Interpol Stolen and Lost Travel Documents database helps identify individuals attempting to use fraudulent travel documents.
Local police forces may also maintain watchlists that can be used for AML screening purposes. For example, the Metropolitan Police in London maintains a database of suspected money launderers, while the New York Police Department has a similar database of individuals involved in organized crime.
Regulatory bodies also maintain watchlists that businesses should consider when designing their AML compliance programs. For instance, the Financial Conduct Authority (FCA) in the UK maintains a list of high-risk countries, while the Financial Crimes Enforcement Network (FinCEN) in the US maintains a list of foreign financial institutions of primary money laundering concern.
Finally, harmful media listings can also be useful in identifying entities that pose a reputational risk to businesses. These lists contain information on entities involved in illegal or unethical activities, such as corruption, fraud, and environmental violations.
How Can Businesses Comply with Global Sanctions?
Compliance with global sanctions is a complex process that involves monitoring multiple sanctions lists in various languages and formats. Businesses that operate internationally must prioritize implementing AML screening procedures that use automated systems to help prevent financial crimes such as fraud, money laundering, and terrorism financing. The consequences of non-compliance can lead to severe penalties, loss of reputation, and, most importantly, potential harm to society. By implementing efficient AML screening systems, businesses can safeguard their transactions and prevent themselves from falling victim to organized financial crime.
