The Role of Sanctions in Achieving International Peace and Security
The Role of Sanctions in Achieving International Peace and Security
Sanctions are a form of control a country exercises to coerce another country, group of countries, individuals, or entities to change their behavior and policies and follow the international trade rules. It is an integral part of the AML process and KYC procedures.
Sanction lists help to know which individuals, entities, and businesses are banned from trading. So, companies can make an informed decision regarding establishing and continuing a business relationship with the sanctioned entities or individuals. The sanction screening process helps businesses to know if their customers have been banned, and they can stop doing business with them to safeguard their reputation, protect their business interests, and avoid AML penalties.
What are Sanctions?
Sanctions are part of the foreign policy imposed by a country or groups of countries to ban another country, individuals/entities from doing business with them. Sanctions act as a coercion tool that governments use to pressure the prohibited countries/entities/ individuals to follow the rules and regulations and work in the interest of the global economy.
There are several forms of sanctions, and the most popular is the economic sanction that bans countries or groups of countries from doing business with sanctioned entities. Economic sanctions are measures one or more countries adopt against a business organization/government or group of nations to force them to follow international laws. Economic sanctions create financial difficulties for the banned countries and lead to substantial monetary losses. Sanctions can be unilateral and multilateral.
The former refers to when a government imposes a sanction on a person, entity, or nation – businesses operating in the sanctioned country will also be banned from doing business with them. The latter refers to when an international body such as the UN imposes sanctions. All the members of the UN will have to issue sanctions against the notified persons in their respective countries. So, the importance of the global sanction lists is no lesser than the local list of the respective country.
Who Appears on the Sanction List?
Sanctions are imposed on an individual – it may be a PEP, a business head, a criminal, or a terrorist. Sanctions may also be issued against the entity or a group of people – may be a terrorist or criminal organization. Sanctions are also issued against countries. It prohibits businesses from conducting transactions with persons or enterprises operating in or from the sanctioned country.
Sanctions prohibit different activities, such as trade restrictions and banning commercial activities. It is against the law to do business with a sanctioned entity. So, as a part of its AML compliance and KYC process, a company must verify sanction entities with a proper sanction screening process.
What are sanctions lists?
Sanction lists mention the sanctioned entities on which unilateral and multilateral sanctions have been imposed. It flags individuals, entities, and countries that pose a high risk to a business and the world economy. It helps to protect a business from being misused for or vulnerable to money laundering and terrorism financing. Several global bodies, such as the EU, OFAC, and the UN, impose sanctions and issue a detailed listing of the same. The sanctioned entities or individuals have a higher probability of committing financial crimes.
But it is pertinent to note that the sanction lists are updated regularly to accommodate the changes in the current political and economic scenario. It is important to note that businesses keep track of the frequent listings and de-listings made in the sanction lists and keep themselves updated with the latest sanctions.
Non-compliance in Sanction Screening
Non-compliance in the sanction screening process leads to paying fines and huge penalties. Failure to follow the sanction screening rules also leads to imprisonment for a considerable term. Apart from the penalties, non-compliance leads to reputational damage, negatively impacting the goodwill of the business earned over the years.
The diligence required in sanction screening
It is advisable to adopt a proactive compliance approach and conduct due diligence based on the business’s risk appetite and the customer’s potential risk. It will prevent risks of noncompliance. Integrating a practical compliance framework into the system is the best practice for an efficient approach toward compliance with AML rules, KYC, and sanction screening. Also, businesses must keep themselves updated with the revised guidelines and regulations and conduct due diligence accordingly.
With a good software solution, a company must bother about the AML compliances, where the screening and other compliance processes would be automated. It will keep the business ahead of the curve by following all the latest guidelines in AML compliance and conducting the sanction screening in almost real-time.
How does Sanction Screening Work?
In sanction screening, businesses have to screen the customers’ database/profile against the individuals/entities and countries appearing on the sanction list issued by the local government and international bodies. Basis the sanction searches, a business will screen its customers on the global and local lists to check whether any of its customers are named on the sanction list. The objective is to conduct a thorough screening to help them comply with the sanction rules and regulations and protect the business from being exploited by the money launderers. It also helps in protecting the company’s reputation. Today, businesses rely on software solutions to automate the sanction screening process and get quick and accurate results.
Manual sanctions screening processes are time-consuming and cumbersome, with the possibility of human errors, making the whole exercise futile. It results in the wastage of precious resources and time. So, it is best to rely on technology to bring in the much-needed efficiency and higher accuracy in the results, saving time and cost.
Why should automated sanctions screening be preferred?
With technology and digitization spreading their wings across different spans of businesses, it is recommended to deploy an advanced tech-based solution for the sanctions screening process. There are several advantages of the sanction screening software. The software will automatically run quick and accurate searches in the local and global sanction lists and quickly identify if any of the customers are sanctioned. Technology will automate the process, bring more efficiency, and speed up the customer onboarding decision-making process.
Ease of Search
The software will run quick searches in the local and international sanction lists and deliver fast results. It helps the business make swift, informed decisions that will help them identify companies appearing on the sanction lists and whether to conduct business transactions with them or not.
Accuracy
Relying on the software will eliminate human errors and provide more precise outcomes.
Integration with Existing Systems
The software solution integrates with the current in-house AML systems and increases the existing solution’s capability. Business organizations get a 360-degree view of their customer’s profiles and correctly determine the true identities of the customers and the associated risks.
Updated Information
The software will conduct searches based on the latest and revised guidelines in the sanction screening rules and updated lists without businesses manually tracking the amendments.
Additional Tip for Sanction Screening:
It is highly suggested to develop a robust AML compliance framework in the organization and adopt a proactive approach toward sanctions screening. So, during the screening process, businesses should search for aliases, and name variations, including and excluding middle names. Also, match the customers’ information based on the date of birth, middle name, nationality, ID number, etc.
Final Words
It is mandatory to follow the sanction screening rules and comply with the AML regulatory compliances. Sanction monitoring can be effective and result-oriented with the help of technology that automates the AML compliance process. It helps to keep in sync with the latest updates in new listings and de-listings so they have updated lists and can correctly screen their customer database and keep it up to date. It allows businesses to avoid penalties and make informed decisions by not doing business with a sanctioned entity, saving monetary costs and reputational damages.
AML UAE
AML UAE is one of the leading AML consultancies in the region, offering unparalleled services in AML compliance and advisory support. We help you identify the most optimal AML software for your business and sanction monitoring solutions. Deployment of this technology will help you effortlessly screen customers’ profiles against local and international sanctions. Get assistance with the KYC and sanctions screening process and achieve 100% AML compliance.
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About the Author
Jyoti Maheshwari
CAMS, ACA
Jyoti has over 7 years of hands-on experience in regulatory compliance, policymaking, risk management, technology consultancy, and implementation. She holds vast experience with Anti-Money Laundering rules and regulations and helps companies deploy adequate mitigation measures and comply with legal requirements. Jyoti has been instrumental in optimizing business processes, documenting business requirements, preparing FRD, BRD, and SRS, and implementing IT solutions.