: Sanctions Screening: What is sanctions screening and why it is critical for financial institutions

What is Sanctions Screening, and Why is It Critical for Financial Institutions?

Table of Contents

What is Sanction Screening?

Sanction screening is a critical component of electronic Know Your Customer (eKYC) processes. What is eKYC you might ask, well it is the digital process of verifying the identity of customers to ensure they are who they claim to be. This process is an absolute necessity for financial institutions and other businesses that need to comply with regulatory requirements. Through eKYC, businesses can mitigate risks, prevent fraud, and meet compliance standards efficiently and effectively.

What are Sanctions?

Sanctions are restrictive measures imposed by governments and international bodies to achieve foreign policy and national security objectives. These measures can target individuals, entities, or countries and may include travel bans, asset freezes, arms embargoes, or economic restrictions. Sanctions are designed to influence behavior, deter illegal activities, and promote peace and security.

Let’s take Iran for example. Over the years, various countries including the United States, have imposed sanctions on Iran to deter its nuclear program. These sanctions have included restrictions on trade, banking, and oil exports, significantly impacting Iran’s economy and its ability to pursue its nuclear ambitions. If we look at what was previously said, the restrictions imposed on Iran influenced their behavior, which in turn made it more difficult to continue illegal activities.

Types of Sanctions

There are various types of sanctions, each serving different purposes and imposed for various reasons:


These involve restricting trade, investment, and financial transactions with targeted entities or countries.


Measures such as the withdrawal of diplomatic relations or the expulsion of diplomats


These include arms embargoes and other military restrictions.


These can include the suspension of teams or athletes from international competitions.


These are imposed to protect the environment, such as restrictions on illegal logging or fishing.

Why is it Important?

After learning what sanctions exist and what purpose each one serves, it’s pretty clear that they are important for legal and regulatory reasons, to avoid fines and to sustain reputation etc… etc… But if we read between the lines and dig deeper, one could say that sanctions hold a major role in global security. They prevent the flow of resources to entities such as terrorists, human traffickers, or groups developing weapons of mass destruction. Sanctions, in many disciplines, are an absolute must.

Importance in Financial Institutions

Sanction screening is an inseparable part of financial institutions. Banks and financial services are often targets for money laundering and other financial crimes due to the constant cash flow. By implementing sanctions screening processes, financial institutions can prevent illicit activities, protect their assets, and ensure they do not inadvertently engage with sanctioned individuals or entities.

Anti-Money Laundering (AML) regulations are designed to prevent criminals from disguising illegally obtained funds as legitimate income. AML screening go hand in hand as part of a comprehensive compliance strategy.

Consider a bank that unwittingly processes transactions for a sanctioned entity involved in money laundering. This oversight could result in harsh legal penalties, loss of reputation, and a severe blow to credibility; not to mention how frustrating it can be to realize you’ve been taken advantage of. By utilizing effective sanctions screening, the bank can avoid this disaster altogether, blocking such transactions before they occur.

How Does Sanction Screening Work?

Sanction screening involves several steps to ensure thorough compliance:

  1. Data Collection: Gathering customer information from various sources.
  2. Screening: Comparing customer data against sanction lists, watch lists, and politically exposed persons (PEP) lists.
  3. Risk Assessment: Evaluating the risk level associated with the customer or transaction.
  4. Monitoring: Continuously monitoring transactions and customer activities for any suspicious behavior.
  5. Reporting: Reporting any matches or suspicious activities to the relevant authorities.

Here’s how these steps take shape. A global financial institution, for instance, uses an automated system to screen new customers against the OFAC’s Specially Designated Nationals (SDN) List. During onboarding, a new client’s information triggers a match with an individual on the list. The institution’s compliance team investigates further, confirming the match and subsequently blocks the account opening, reporting the match to OFAC as required.

AML sanction screening

Sanctioning Bodies Prominent

Several key bodies are responsible for issuing and enforcing sanctions. These include:

United Nations (UN)

The UN imposes sanctions to maintain or restore international peace and security. These sanctions are typically adopted by the Security Council and can include asset freezes, travel bans, and arms embargoes.

European Union External Action Service (EU EEAS)

The EU EEAS manages the EU’s foreign policy and security. It implements sanctions to promote international peace and security, uphold human rights, and combat terrorism.

Office of Foreign Assets Control (OFAC)

OFAC, part of the U.S. Department of the Treasury, administers and enforces economic and trade sanctions. These sanctions are based on U.S. foreign policy and national security goals.

His Majesty’s Treasury (HMT)

HMT oversees the UK’s financial and economic policy. It implements sanctions to meet the UK’s foreign policy and national security objectives.

What are the Sanctions Lists?

Sanctions lists are databases containing the names of individuals, entities, and countries subject to sanctions. These lists are maintained by various sanctioning bodies and are used by organizations to screen their customers and transactions. Some well-known sanctions lists include the bodies discussed above:

  1. UN Sanctions List: Managed by the United Nations.
  2. EU Sanctions List: Managed by the European Union.
  3. OFAC’s Specially Designated Nationals (SDN) List: Managed by the U.S. Treasury.
  4. UK Sanctions List: Managed by His Majesty’s Treasury.

When Should Sanctions Screening Be Conducted?

Sanctions screening should be conducted at multiple points throughout the customer lifecycle:

  1. Onboarding: During the initial onboarding process to ensure the customer is not a sanctioned entity.
  2. Ongoing Monitoring: Continuously throughout the customer relationship to detect any changes in their status.
  3. Transaction Screening: For specific transactions, especially cross-border transactions, to ensure compliance with sanctions.

Challenges in Sanctions Screening

Sanctions screening isn’t a one perfect solution for you and your company. There are factors that can influence the reliability of this tool.

  1. Data Quality: Inaccurate or incomplete data can lead to false positives or negatives.
  2. Complex Regulations: Navigating the complex and changing regulatory landscape is no easy task.
  3. Resource Intensive: Effective sanction screening requires significant resources, including technology and skilled personnel.
  4. False Positive: High rates of false positives can result in operational inefficiencies and increased costs.

If we look at a brief real-world example, a large bank might face hundreds of false positives daily. This could be due to common names or incomplete data. Each potential match requires investigation by compliance staff, which can be time-consuming and costly. We at AU10TIX always recommend utilizing several types of fraud detection methods relevant to you. Reach out to us, and hopefully we can be your partner in providing you with the best solutions to problems you might not even know you have.

Consequences of a Sanctions Breach

Breaching sanctions can have severe consequences for organizations, including:

  1. Financial Penalties: Sizable fines imposed by regulatory bodies.
  2. Legal Action: Potential legal proceedings against the organization and its executives.
  3. Reputational Damage: Loss of trust and credibility with customers, partners, and stakeholders.
  4. Operational Disruptions: Interruptions in business operations due to frozen assets or restricted activities.

In 2014, BNP Paribas, a French bank, was fined nearly $9 billion by U.S. authorities for violating sanctions against Sudan, Cuba, and Iran. This case underscores the importance of sanctions screening mechanisms to avoid similar repercussions. Nobody wants to lose such a large sum of money let alone the smear it left on the bank’s name.


Sanction screening is an indispensable part of modern compliance practices, ensuring that organizations adhere to legal requirements and contribute to global security efforts. By understanding what is sanction screening, recognizing the types and purposes of sanctions, and implementing effective sanctions screening processes, businesses can protect themselves from various risks. Continuous monitoring, staying updated with regulatory changes, and leveraging advanced technologies are sure ways to maintaining an effective sanctions screening program.


What Technologies Are Commonly Used in Sanction Screening?

Common technologies used in sanction screening include artificial intelligence (AI), machine learning, and natural language processing (NLP). These technologies help automate the screening process, improve accuracy, and reduce the number of false positives. Additionally, database management systems and real-time monitoring tools are essential for maintaining up-to-date screening processes.

How Can Small Businesses Implement Sanction Screening?

Small businesses can implement sanction screening by leveraging software solutions designed for compliance. These solutions often provide cost-effective options tailored to the needs of smaller organizations. Additionally, small businesses can partner with third-party service providers who specialize in compliance and sanction screening.

What Are Politically Exposed Persons (PEPs), and Why Are They Relevant to Sanction Screening?

Politically Exposed Persons (PEPs) are individuals who hold prominent public positions or have significant political influence. They are considered higher risk due to their potential involvement in corruption or other illicit activities. Including PEPs in sanction screening processes helps organizations identify and assess the risks associated with doing business with these individuals.

How Do Sanction Screening Processes Handle False Positives?

Sanction screening processes handle false positives by incorporating advanced technologies and employing a risk-based approach. When a potential match is identified, it is reviewed by compliance professionals who assess the accuracy and relevance of the match. By refining algorithms and improving data quality, organizations can reduce the occurrence of false positives and streamline the screening process.

What Role Do Regulators Play in Sanction Screening?

Regulators play a crucial role in sanction screening by establishing and enforcing the rules and guidelines that organizations must follow. They provide the sanction lists, monitor compliance, and impose penalties for non-compliance. Regulators also offer guidance and support to help organizations understand and meet their obligations.

Sign up for our newsletter

Stay updated on the latest news