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Sanctions Screening

Definition

Sanctions screening is the process of checking customers, transactions, and counterparties against lists of individuals, entities, and countries that are subject to economic sanctions imposed by governments and international bodies. It is a legal obligation — transacting with sanctioned parties can result in criminal prosecution.

Major Sanctions Lists

List Maintained By Scope Update Frequency
OFAC SDN US Treasury Blocked persons/entities — US sanctions Multiple times per week
UN Consolidated UN Security Council Global — binding on all UN members As resolutions are passed
EU Sanctions European Commission EU-wide sanctions As regulations are adopted
UK HMT HM Treasury UK financial sanctions Regularly updated
OFAC Sectoral US Treasury Sector-specific restrictions (Russia, Iran) As policies change
BIS Entity List US Commerce Dept Export control restrictions Periodically

How Sanctions Screening Works in eKYC

graph TD
    A[Customer Data<br/>Name, DOB, Nationality, Address] --> B[Screening Engine]

    B --> C[Exact Match Search]
    B --> D[Fuzzy Match Search<br/>Jaro-Winkler, Soundex, Levenshtein]
    B --> E[Alias Search]
    B --> F[Phonetic Search]

    C & D & E & F --> G{Results}
    G -->|No match| H[✅ Clear]
    G -->|Potential match| I[Match score + details]

    I --> J[Analyst Review]
    J -->|False positive| H
    J -->|True positive| K[🚨 BLOCK]

    K --> L[Reject/freeze account]
    K --> M[File SAR/report to authority]
    K --> N[Preserve all records]

    style K fill:#e53935,color:#fff
    style H fill:#2E7D32,color:#fff

Screening Triggers

When to Screen Details
Onboarding Every new customer, every new account
Transactions Real-time screening of payment beneficiaries
List updates Re-screen entire customer base when lists are updated
Periodic batch Regular re-screening (daily/weekly) of all customers
Trigger events Name changes, new adverse media, geographic changes

Fuzzy Matching Algorithms

Algorithm How It Works Best For
Jaro-Winkler Character-level similarity, weighted toward prefix Typos, minor spelling variations
Soundex Phonetic encoding of names Names that sound alike but spelled differently
Levenshtein Edit distance (insertions, deletions, substitutions) General name similarity
Double Metaphone Advanced phonetic algorithm Cross-language phonetic matching
Token-based Compare name tokens regardless of order Different name orderings (family name first vs last)

Sanctions Compliance Requirements

Requirement Details
Real-time screening Payment screening must happen before transaction executes
100% coverage Every customer, every transaction — no exceptions
List currency Must use most current version of all applicable lists
Record keeping All screening results and decisions must be retained
Escalation True hits must be escalated immediately to compliance
Blocking Confirmed sanctioned party's assets must be frozen immediately
Reporting Report to relevant authority (OFAC, HMT, etc.) within required timeframe

Key Takeaways

Summary

  • Sanctions screening is a legal obligation — transacting with sanctioned parties is a criminal offense
  • Must screen against multiple lists (OFAC, UN, EU, UK HMT) simultaneously
  • Fuzzy matching is essential — names are transliterated, misspelled, and aliased
  • Screening happens at onboarding, every transaction, and on list updates
  • True hits require immediate action — freeze assets, file reports, block transactions
  • False positive management is a major operational challenge — good algorithms reduce this burden