Since the Russian invasion of Ukraine, coordinated sanctions have gained attention for their severity as a strategy against both state and non-state actors. As a result, financial institutions must consider sanctions lists when designing their AML regime as the world's governments react to Russia's invasion of Ukraine.
Global sanctions lists are the strongest ever aimed against a significant economy, even though the list of organizations subject to them keeps growing. Therefore, monitoring and screening new and current clients against international sanctions lists are one of the most crucial components of any company' or financial institution's AML compliance program.
The Role of Global Sanctions Lists in AML Compliance
Even though thorough screening against international watchlists has always been a need in financial institutions, the situation is different now that Russia has invaded Ukraine. According to monetary authorities, banks and other institutions must comply strictly. In the U.S., the Internal Revenue Service has requested $5 billion in resources to carry out the sanctions. Based on the current scenario, it is anticipated that enterprises would face increased scrutiny for AML compliance and screening.
To close potential vulnerabilities that may land them in trouble, businesses need to enhance their compliance systems and consider the most recent worldwide sanctions lists. The number of regulatory agencies for companies that provide financial services globally is expanding. As a result, businesses frequently track many global sanctions lists to assess and reduce potential hazards.
Global Sanctions Lists
There are various global sanctions lists to keep an eye on if your company operates internationally. Unfortunately, many businesses monitor different lists beyond what is required to stay ahead of possible dangers.
Global sanction lists, often known as anti-money laundering (AML) watchlists, are an amalgamation of several regulatory and improved due diligence lists from all significant sanctioning agencies worldwide, including international and national lists like:
U.S. sanctions list
OFAC, which the U.S. Department of the Treasury runs, produces trade and economic sanction lists that target specific people and businesses from identified nations as well as other risks to the national security, international relations, or economy of the United States.
The OFAC maintains a lot of listings. For example, the Specially Designated Nationals List (SDN) focuses on specific persons or groups unrelated to a targeted nation and includes ‘individuals and enterprises owned or controlled by, operating for or on behalf of, targeted countries.’ Additionally, there is a Consolidated Sanctions List that compiles information from several different non-SDN databases.
U.K. sanctions list
An updated list of everyone subject to financial sanctions imposed by the U.K. is made available by OFSI, a division of H.M. Treasury. Asset freeze targets and those subject to investment and financial restrictions fall under this category. However, it should be noted that in February 2022, the structure of their consolidated list changed.
Canada sanctions list
Three laws—the United Nations Act (UNA), the Special Economic Measures Act (SEMA), and the Justice for Victims of Corrupt Foreign Officials Act—allow Canada to impose sanctions (JVCFOA). In addition, the associated Freezing Assets of Corrupt Foreign Officials Act also permits freezing the assets of politically exposed people (PEPS).
The list of people and organizations subject to particular sanctions restrictions under SEMA and JVCFOA is known as the Consolidated Canadian Autonomous Sanctions List.
U.N. sanctions list
All people and organizations covered by sanctions imposed by the U.N. Security Council are included on the U.N. Security Council Consolidated List. On the Consolidated List, as of March 7, 2022, there were 256 entities and 703 persons. Other, less well-known sanctions lists, such as Interpol's law enforcement lists and government and state agencies, are also considered by most enterprises and financial institutions to comply with AML requirements. In addition, some media lists monitor involvement in incidents that damage an organization's reputation and listings of financial and securities regulatory agencies.
Other watchlists
The lists mentioned above are only a few of the lists that may require verification; others include:
Interpol's law enforcement databases, state and federal government organizations, and local police forces
Regulating regulatory bodies' lists (financial and securities commissions)
Harmful media listings suggest a connection with stories that might damage one's reputation
How Can Businesses Comply with Global Sanctions?
Before accepting clients from high-risk nations, companies that provide financial services abroad must account for more than 1700 global sanctions lists. Furthermore, entities are regularly added to and deleted from all these sanctions lists according to the risk. International sanctions lists are kept in the national languages of the nations that support them and do not have a consistent format or organization. Companies that don't have strong AML safeguards in place find it challenging to monitor sanctions lists and assess the risk posed by potential clients.
There are several good reasons businesses implement AML screening into their system. Penalties for non-compliance and the possibility of reputational impact are some of these. On the other hand, some companies opt to omit this step because of the expense of manually keeping an eye on the global sanctions lists to reduce risks. However, the risk of losing clients after falling prey to organized financial crime still outweighs these ramifications.
An efficient AML screening system includes automated procedures that help organizations safeguard their transactions from fraud and money laundering and weed out rogue actors. Identity verification is the first step in the AML screening process, which continues with a check to see if possible customers are on any international sanctions lists.
The AI-driven system employs machine learning algorithms to concurrently monitor sanctions lists from financial regulators, law enforcement organizations, and those with worldwide access. In addition, to stop financial institutions from accidentally aiding money laundering or terrorism funding, AML screening also conducts real-time scans of databases of politically exposed individuals (PEPs).
