Sanctions

In order to prevent financial crime, certain types of regulations are imposed on individuals and entities. These requirements are oftentimes termed as sanctions that are used to prevent potentially unlawful pursuits carried out by fraudsters. Sanctions are enforced when a certain country or person is found guilty of violating internationally acclaimed standards, human rights, or laws to protect the legal financial system. Moreover, sanctions target organizations working for terrorist financing and those dealing in the proliferation of weapons of mass destruction. 

What are Financial Sanctions?

Financial sanctions are documents and lists published by financial regulatory authorities, the United Nations or the European Union that are aimed at mitigating monetary crime. Business entities have the responsibility to make sure that they are compliant with financial sanctions and suspicious transactions are continuously monitored.  

Given the stringent requirements set forth by regulatory watchdogs, businesses take into account data from global, national and regional sanction lists to perform transaction monitoring of high-risk customers. The Security Council Consolidated List by the UN states all types of entities and individuals that need to be subjected to AML/CFT measures and that need proper due diligence while onboarding. Fines and penalties as a result of non-compliance or data breach are also listed in statutory regulations of each jurisdiction. 

What are Sanctions Lists?

Sanction Lists are documents that contain information about high-risk entities and individuals, designated nationals, and those with a possible criminal background. Following are some sanction lists that financial organizations use to monitor customer behaviour and perform safe customer onboarding. 

• Specially Designated Nationals and Blocked Persons List (SDN): This list is maintained by the Office of Foreign Assets Control (OFAC) and holds information about companies and individuals that are linked in any way to a targeted country or entity. Apart from that, it lists the names and profile of criminals involved in selling narcotics, trafficking, and terrorist financing, etc. The assets of such individuals are blocked and businesses operating in the US are not allowed to associate ties with them. 
• Specially Designated Global Terrorist (SDGT) Lists: The OFAC defines SDGT as an internationally acclaimed entity (individual or organization) with a notorious criminal background. These entities actively deal with extremist groups and ultimately pose a significant risk of terrorism. The US Department of Treasury in an Executive Order published the SDGT list to advance CFT (Countering the Financing of Terrorism) compliance efforts.
• OFSI Consolidated Lists: Sanction lists by the Office of Financial Sanctions Implementation (OFSI) of the HM Treasury enables organizations to find out information regarding investment banks and frozen assets across the UK’s financial regime. 
• UN Sanctions: The United Nations’ Security Council compiles a set of targeted sanctions that cover a variety of aspects. These include economic and trade restrictions for defining specific embargoes, financial limitations, travel bans, and commodity regulations. These regulations allow countries and entities to significantly take down terrorist financing, constrain the violation of human rights, mitigate the proliferation of arms, and enable peaceful transitions in the legal financial system.   

• Other Sanction Lists: The UN also maintains ‘selective sanctions’ to prohibit the sale and purchase of luxury items, diamond trading and financial flows with high-risk sanctioned countries. Lists designated by the European Union (EU) and other sanction authorities are also used in Anti Money Laundering Screening of customers. 

What is Included in a Sanction List?

Sanction lists contain information through which businesses and financial entities can decide whether a customer/user needs further monitoring or enhanced due diligence checks. Below is listed data provided in sanction lists:

• Full name of the customer/client and their aliases
• Nationality, date and place of birth 
• Details listed on passport, driving licence, and ID cards
• An identification number or Social Security Number (SSN)
• The date on which the person was added to the list
• Information about family members or tier businesses

Suggested Reads:

AML Screening in the light of Compliance Regimes Around the Globe

A Comprehensive Guide to AML Compliance