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Sanctions are tools used by governments and international bodies to exert pressure on individuals, companies and other entities. Sanctions violations can have severe financial and reputational consequences for firms.
Screening existing and new customers and third parties against sanctions lists is vital to ensure compliance. But doing so can be difficult.
Sanctions can be complex, and the list of countries, entities and individuals subject to sanctions is constantly evolving. As a result, ensuring that your screening systems are working as efficiently and accurately as possible is critical.
The increasing number of sanctions and heightened regulatory vigilance around them have increased the pressure on firms to conduct effective risk-based screening. This includes not only the screening of direct third parties, but also associates and beneficial owners and the extended supply chain. Determining ownership and control is a particularly challenging aspect of this process, as sanctioned persons often employ secrecy jurisdictions, complex ownership structures or rely on family members to conceal their assets.
To help mitigate this, a cognitive solution that can enhance your screening system’s performance through automation of the alert review process is key. This can improve system optimization and reduce the potential for human error while improving efficiency and speed of review. It is also a cost-efficient way to increase the quality of your sanctions screening tests.
International sanctions are a powerful tool for countries and organizations to enforce foreign policy goals, protect human rights and combat illicit activities. They may take many forms, ranging from economic-commercial measures (like an arms embargo) to financial and travel restrictions. In most cases, however, they must be in accordance with international law and avoid affecting third parties.
To comply with sanctions regulations, companies need to conduct specialised searches through global, government and regulatory databases. They must also review their entire portfolio of transactions to identify possible violations and ensure they have the correct policies in place.
The right technology solutions can make this easier by streamlining the process and improving data quality. They can also help mitigate the risk of costly sanctions violations by combining data sources to improve system optimization and alert review processes. This enables companies to reduce the number of false positives and save time by reducing manual checking of lists. The result is a more consistent due diligence process and greater peace of mind for compliance managers.
Sanctions laws, regulations and guidance are complex and constantly changing. Combined with high transaction volumes and the need to rapidly react to changes in political landscapes, these factors can create significant challenges for Financial Institutions, especially when their existing systems are not geared to meet them.
The consequences of breaching sanctions can be catastrophic, ranging from large fines to the disruption of business and reputational damage. Considering the risks involved, it’s crucial to develop a comprehensive approach to sanctions compliance and ensure that all relevant information is fed into the overall risk assessment.
The best way to do this is through a holistic, risk-based continual loop that includes sanctions screening results, regulator feedback and intelligence, industry peers, internal audit and compliance reviews. To do this, a sanctions screening engine needs to be able to be precisely tuned to reflect the risk exposure of each firm and screen against global lists as well as local and country-specific rules.
Developing a compliance strategy is a critical part of any business. It ensures that everyone involved in a company’s compliance processes understands what they need to do to stay compliant. This includes the management, workforce and any third parties that interact with the business.
Whether it’s to cut the amount of fines paid out or to save time and money on retrospective investigations after breaches, the benefits of having a solid compliance strategy are numerous. It’s also helpful to have documentation of these policies in case you need to justify your actions to staff or investors.
Automation and technology should be used wherever possible to help achieve your compliance goals. Better technology runs faster and provides better documentation, which can be essential if you need to prove your compliance efforts to regulators or the board. It also means your team can focus on tasks that matter, rather than chasing after paperwork. For example, IntegrityLog helps businesses accept whistleblowing reports securely and automatically, ensuring confidentiality while meeting compliance standards.