Sanctions Risk Exposed: The Power of Sanctions Screening

Settled for a penalty of $466,912 against the violations of the Foreign Narcotics Kingpin Sanctions Regulations (FNKSR) imposed by the Office of Foreign Assets Control (OFAC), Apple Inc. commonly known as Apple endorsed the event as a failure of their sanction check list screening.

Continuously upgrading and inconsistent sanctions regulations are more like a dozen balls being jiggled on an icy slope while dropping a single ball can expose larger businesses to startups to severe legal and monetary penalties. Amid Russia-Ukraine conflict 2022, the nature, type, and complexities of sanctions particularly list-based sanctions against flagged individuals have posed more compliance difficulties than country-based sanctions, elevating the need of sanction list screening which must comply with technical and regulatory advancements and be simpler and easier to use.

Apparently violating the FNKSR- § 598.203, Apple was found facilitating the company interests of a Slovenian software enterprise (SIS, d.o.o) who was blacklisted as a foreign narcotics trafficker in the Specially Designated National and Blocked Persons (SDN) list by the OFAC. Attributing this failure to sanction list screening software, Apple failed to identify the sanctioned entity name “SIS, d.o.o” which was mismatched with “SIS DOO” in their screening tool where the suffix d.o.o represented the SIS as a limited liability company in Slovenia.

Being aware of the technology evolution, it’s time to take a closer look at how crucial it is to navigate through the complex web of regulations and screening challenges businesses on all levels get to encounter while maintaining sanctions risk reduction.

Regulatory Outlook: A Rigorous Chase

Preventing sanctioned entities from conducting illicit activities such as money laundering, facilitating conflicted countries and individuals involved in war crimes and mass destruction weapons manufacturing, trafficking of narcotics, various dedicated and general global sanctions lists are maintained by sanctioning authorities such as OFAC in the U.S, OFSI (Office of Financial Sanctions Implementation) in the UK, and Consolidated List of Entities and Persons in the EU.

Failure to sanctions compliance has cost businesses heavy civil monetary penalty (CMP) estimating 1.3% of total fines imposed and collected by the U.S Department of Justice and OFAC. Along with enforcing the implementation of automated sanctions list screening solutions for both financial and non-financial businesses, these jurisdictions have set briefings on factors that cause failure to active employment of sanctions compliance and sanctioned list check. Below is the brief visual representation of key factors that can possibly lead to the failure of sanctions compliance.

In addition to the existing guidelines, in 2015, OFAC issued a one-pager guidelines addressing the management of false hits requiring the involvement of compliance experts and a methodical approach to handle false positives which hinders the effectiveness of sanctions compliance programmes.

In 2022, for violating the OFAC sanctions, the jurisdiction imposed 16 public enforcement actions, amounting to $42.7 million fines. Collaborated with the FinCEN (Financial Crimes Enforcement Network), OFAC imposed the largest penalty of the year 2022 against Bittrex.Inc costing $24 million, a cryptocurrency company followed by a settlement of $6.1 million forfeited against a logistics company Toll Holdings Ltd.

To traverse through the changing environment of sanctions and facilitate organizations to meet the RegTech gaps in screening, the FCA (Financial Conduct Authority) enforces organization whether small or large to implement a functional sanctions list screening for new and existing customers, where employment of sanctions check list screening is not the requirement of law but it ensures the organizations to comply with sanctions and avoid their breach. Led by the ineffective automated sanctions list screening system, let’s take a look at the history of the draining cost of compliance breach businesses paid.

Threatening Compliance Cost: Efficient Sanctions Screening is the Bandage

The infamous Russia-Ukraine war has energized the government of United States to mercilessly impose sanctions compliance and regulations to keep a robust check on the transnational framework of institutions both financial and non-financial, encouraging organizations to employ for scrutiny measures effective enough to identify the sanctioned entities before getting in business with.

Below is the detailed history map of hefty compliance costs both financial and non-financial businesses paid as a consequence of failed sanctions compliance, published by OFAC.

Lesson Learned

Having understood the magnitude of threat and cost of sanctions compliance breach, it is equally important to not miss the loopholes of screening measures faced by small to large organizations. Let’s take a brief tour of the requirements and challenges of efficient sanction list screening software enabling you to opt for the best eradicating measures for sanctions compliance risks.

Sanction Screening Complexities: Threading the Needle

The politically driven motives and volatility of the economic environment drive varying challenges in effective sanctions screening for businesses of various sizes.

Large-Scale Firms

Taking the risk assessment in context, big firms whether financial or non-financial are posed to more intense challenges therefore, making it crucial for them to analyze the risk residing with clients or partners based on geographical placement, business nature, mode of sales, and a robust ongoing monitoring of existing client bases. To pace the gap of evolving regulations and effective compliance measures, below are some intricate factors impacting the efficiency of screening tools.

Intensive Resource Allocation

The larger firms with huge global investments require dedicated resources such as IT professionals and compliance officers to maintain a functional screening tool. Including the tool’s installation, integration, and customization, maintenance of sanction screening tools can be a rigorous and overwhelming process for the firms which hinders the enforcement of sanctions compliance.

Authenticity & Reliability of Data Providers

The aggravating criminal acts layered in sophisticated ways makes it challenging for the businesses to rely on outdated data provided by the automated sanctions list screening solution providers. The reliability of data such as watchlists formulated and maintained by the government plays a vital role in effective screening while not missing a crack in the wound. Similarly, the verification of the data is another facet of judging your vendor based on their methodologies of collecting data and its adherence with updating regulations.

Management of Complex Web of Global Regulations

With multiple regulations being imposed, few have the clear guidelines to be implemented while others are subjected to open interpretation. The specificity and diverse scope of these regulations has become a hurdle for larger firms to standardize their compliance measures. While facilitating the cross-border business transactions in compliance with global yet varying regulations under various jurisdictions, an efficient sanction screening requires not only the interpretation but also automation of these regulations into its framework.

Growing Businesses & Customization Needs

In addition to the management and handling of huge data sets and limited dedicated resources to overlook the changes in compliance regulations, medium scale firms face challenges with their screening customization needs. Generally, the sanctions list screening tool comes with complex and overloaded screening protocols for diverse financial crime monitoring making it difficult for midsized businesses to employ relevant and required screening measures. Aiming for growth and global market, medium scale firms need to have screening measures and tools to accommodate growing compliance complexities.

Small-Scale Firms & Cost Constraints

The lack of human and technical resources to maintain an efficient screening process is a big challenge for startups while limited budgets make it more vulnerable to compliance breaches. The alignment of their operations with continuously changing compliance guidelines becomes overwhelming results in facilitating corrupt actors in carrying out financial and behavioral crimes. Thriving for growth, small businesses strive to manage aggressively increasing compliance regulations.

Traverse through the Ambiguities with AML Watcher

In the multiverse of intricate and evolving compliance web, AML Watcher offers a consolidated but simple and easy to operate sanction check list screening making your business swiftly navigating through dubious criminal framework. Let’s take a quick overview of how AML Watcher makes screening as easy as searching through YouTube.

Diverse and Continuously Updating Databases

Overcoming the credibility and relevance of data challenges faced by organizations, AML Watcher empowers your screening measures with handpicked and timely updating autonomous sanctions lists from more than 235 countries and their jurisdictions which makes it hard for sanctioned entities to be missed while screening.

Customized & Proficient Screening Process

Customized settings and screening protocols embedded in our tool enables medium to small scale firms to opt for a reliable, user-oriented, and budget friendly screening while staying compliant with global sanctions regulations. The application of fuzzy matching in the screening algorithm allows your business to save resources and time in catering huge volumes of false positives which can actually be utilized for the business growth.

Aligned with Global Sanctions Regulations

Missing out on the latest updates from jurisdictions on evolving regulatory guidelines and sanctions lists is not something you should be worrying about while striving to see your business grow in the global marketplace. AML Watcher takes care of that through its real-time ongoing monitoring protocols integrated in the most simple and easiest way possible.

Anti money laundering (AML) and sanctions compliance is a complex process undoubtedly but the perfect blend of advanced technology and human intelligence seems the perfect solution to maintain global and economical peace. Visit us for your customized screening needs because staying ahead of the compliance is as crucial as thriving in your business.