Sanctions Checks

What is a financial sanction?

A financial sanction is a legal restriction, usually implemented in order to limit or ban trading by specific individuals, organisations and even whole countries, who have committed financial crime or misconduct. When companies conduct a sanction check, any sanctions on a company or individual are flagged.

As outlined by the Office of Financial Sanctions Implementation, there are three different types of financial sanction in the UK. These are defined as:

• Targeted asset freezes

• Restrictions on a wide variety of financial markets and services

• Directions to cease all business

What is a sanction check?

A sanctions check is the term used to describe the process of searching sanctions lists for your potential client or customer, to make sure that they do not have any historic or current financial sanctions levied against them. 

Who needs to conduct sanction checks?

All businesses across a range of sectors are required to carry out sanctions screening, the main sectors you can expect to carry out sanction checks include:

• Accounting companies

• Legal businesses

• Financial institutions

• Banks

• Property developers

• Investors

• Insurance firms

How do sanctions screenings work?

A sanction screening involves screening individuals against a number of sanctions lists across the world. For example, SmartSearch uses the Dow Jones WatchList to carry out sanctions checks. This database comprises 1,100 different public and private lists sourced internationally. 

These tools will automatically check the data entered and flag any sanctions or restrictions on a client or individual. 

When do sanction checks take place?

Sanction screening checks should take place before new clients are onboarded, using fast acting screening software like TripleCheck to ensure any matches or potential risks are quickly identified and can be addressed. If sanctions have been identified, this should be reported to the appropriate senior staff and AML compliance officers to ensure further checks are carried out before moving forward. 

Who imposes sanctions in the UK?

Any financial sanctions that are imposed by the United Nations must be implemented by the countries they are relevant to – they can use Resolutions passed by the UN Security Council to do this.

The European Union must also implement all financial sanctions which are imposed by the UN, but the EU can impose its own financial sanctions on member states too, including the UK.

The United Kingdom has some measures in place to ensure that EU and UN sanctions are adhered to. According to the OFSI, there are regulations which will ‘impose penalties for breaches of EU regulations’. 

In some circumstances, the UK also has the capacity to impose its own domestic sanctions, under legislation like the Sanctions and Anti-Money Laundering Act 2018, or the Anti-Terrorism, Crime and Security Act 2001.

Sanction Screening and AML Compliance

PEP screening is a part of sanction screening and is an important element of AML compliance as well as your company’s fraud prevention strategies. It is illegal to do business with an individual, corporation or country that breaks the terms of the sanctions placed upon them and companies must ensure they conduct checks to avoid damage to their own institution.

There are some exceptions to this law, but even in these instances you need a licence to work with anyone who has been sanctioned. Whether your dealings with a sanctioned customer are conscious or not, they increase how vulnerable your business is to financial crimes like money laundering.

What happens if your business does not conduct sanction screening?

If you fail to conduct sanction screenings not only do you put your company at huge risk of financial crimes, fraud and money laundering schemes but your company can also face criminal charges. 

Not only do you need to carry out sanction checks but any sanctions must be reported to OFSI. Failure to comply with these regulations can result in hefty fines, with recorded cases of over £20m in penalties and up to 7 years imprisonment. 

SmartSearch Sanctions Checks

Even if you do have access to all the sanctions lists required to do a thorough screening, carrying out these checks manually is a time-consuming, inefficient process, with no guarantee that you won’t miss something.

SmartSearch’s sophisticated platform carries out automated screening for sanctions as part of a series of comprehensive anti-money laundering checks. We can find a match for your potential customer or client, even if they’re registered with a nickname or an abbreviation. We weed out the false positives too, so you won’t waste time carrying out due diligence on the wrong individual.