What is Transaction Screening?

Transaction Screening is the process of checking the parties, banks, goods, vessels, and locations in a payment, including free-text fields such as payment references, against sanctions and watchlists. Where the institution’s risks and applicable rules justify it, screening also looks for indicators of prohibited goods or activities, such as a payment reference naming restricted goods or a sanctioned port. The check is usually run before the payment is completed, so a potential match can be held for review and then released, rejected, or frozen if it involves the designated person or entity, a sanctioned state or region, or restricted goods. It is the payment-level control behind the freezing obligations in the FATF recommendations and the national sanction laws. 

Transaction Screening meaning in AML: 

AML transaction screening operates within the broader AML compliance program. In AML, transaction screening asks one question of each payment. Does anyone or anything in this transfer appear on a list you are legally barred from dealing with? 

The check involves:

• Payer and payee names and addresses
• Intermediary and Correspondent institutions that include BIC and SWIFT codes. 
• Purpose of the transfer and free text fields such as references and the remittance information.
• Wallet Addresses in case of Crypto-asset transfers. 

The common failure point happens when only the structured name fields are screened. Sanctioned party details can appear in the payment reference or the intermediary bank field, where name-only screening can miss them. 

Transaction Screening VS Transaction Monitoring

Transaction Screening Process: 

Identify Transaction Information: 

The institutions identify which payment fields and supporting documents are relevant. It includes the payer and beneficiary names, addresses, bank identifier codes, intermediary banks, and payment descriptions. Trade transactions can involve different factors, including checks on vessels, shipping companies, and locations. 

Select and Maintain Screening Lists: 

The lists need to cover the sanctions regimes and risks relevant to the business, based on its markets, customer type, and payment corridors. The updates should be made to reach screening systems promptly. The list matching also has its own limitations. Under the OFAC’s 50 percent rule, an unlisted entity is blocked when one or more blocked persons own 50% or more of it, directly or indirectly, in aggregate. Therefore, ownership checks also matter along with the AML name screening. 

Compare details and generate alerts: 

The transaction screening system compares the transaction information with the relevant entries. Fuzzy matching helps in identifying similar names despite spelling differences or transliteration. The matching setting requires testing because overly restrictive settings can miss targets, while excessive sensitivity can overwhelm the reviewers with irrelevant alerts.

Investigation of Potential Alerts: 

An alert can be a possible match, not a confirmed breach. The reviewers have to compare the available identifiers, such as addresses, dates of birth, and registration numbers, and can obtain further information where it is necessary. Then, they get access to the applicable prohibition and any exemption or license. A similar name alone can never identify whether the parties are identical or not. 

Decide, Document, and Report: 

The outcome involves clearing a false positive, escalating an unresolved alert, rejecting a prohibited transaction, or freezing funds. Blocking and rejection have different types of legal consequences. A confirmed match must be frozen or stopped immediately. The institutions are required to retain the information reviewed, decision rationale, and the actions that are being taken, and to submit the required regulatory reports. 

Legal Requirements: 

For the EU instant euro transfers, Article 5d of Regulation (EU) No 260/2012 requires covered providers to check users at least daily and immediately when there are relevant sanctions changes that take effect. It prohibits additional checks against those EU-targeted financial sanctions during individual transfer execution. Other sanctions and AML obligations still apply.