The Ultimate Guide to Sanction Screening

In March 2023, the US Federal Reserve and Treasury fined Wells Fargo $97.8 million for violating US sanctions regulations. More recently, in December 2024, Aiotec GmbH, a Germany-based company, agreed to pay $14.55 million to settle violations of OFAC sanctions on Iran.

These enforcement actions highlight the critical importance of sanction checks. Sanction screening is an essential step in ensuring that organisations do not engage in transactions with individuals, entities, or countries subject to economic sanctions, thereby avoiding severe legal penalties.

In this guide, we will explore what is sanctions screening, how the sanctions screening process works, and the challenges associated with real-time sanctions screening and global sanctions check. 

As global sanctions checks become more sophisticated, the demand for real-time sanctions screening software has grown significantly. In this article, we will explore why a sanctions screening tool is essential for streamlining your AML compliance process.

What is Sanctions Screening?

Sanctions screening, also known as a sanction check, is the process of verifying individuals, entities, or transactions against government-issued sanctions lists. These lists include names of individuals, organisations, and countries subject to economic or trade restrictions due to their involvement in activities such as terrorism, drug trafficking, money laundering, and human rights violations.

Sanction check is an integral component of the broader AML screening process, which also involves checking global watchlists, politically exposed persons (PEP) lists, and adverse media sources to identify high risks users and clients.

The primary goal of sanctions screening is to ensure that businesses and financial institutions do not engage in transactions with sanctioned parties. By implementing real-time sanctions screening through advanced sanctions screening software and tools, organisations can safeguard themselves from legal penalties, reputational damage, and financial losses.

Read More: What is AML Screening? The Ultimate Guide

Sanction Screening Softwares

To streamline the sanctions screening process, many organizations rely on advanced sanctions screening software. These Sanction Screening tools streamline the process of verifying names, transactions, and entities against global sanctions lists, minimising the risk of human error and improving operational efficiency.

How Does Sanctions Check Work?

The sanctions screening process is a multi-step, ongoing procedure designed to ensure that organisations comply with global sanctions regulations and avoid engaging in prohibited transactions. Below is a detailed breakdown of how AML sanctions checks work.

Data Collection

The first step in the sanctions screening process is gathering accurate and comprehensive data about customers, vendors, counterparties, and other entities involved in transactions. This data typically includes:

• Full name (including aliases or variations)
• Date of birth
• Addresses (current and historical)
• Nationality or citizenship
• Identification numbers (e.g., passport numbers, tax IDs)
• Business registration details (for entities)

Accurate data collection is the foundation of effective sanctions screening. Incomplete or incorrect data can lead to missed matches (false negatives) or unnecessary alerts (false positives), both of which can have serious consequences.

Screening Against Sanctions Lists

Once the data is collected, it is screened against various sanctions lists issued by regulatory bodies and international organizations. These lists include:

• OFAC’s Specially Designated Nationals (SDN) List: Maintained by the U.S. Office of Foreign Assets Control, this list includes individuals, entities, and organizations involved in activities such as terrorism, narcotics trafficking, and weapons proliferation.
• EU Consolidated List of Sanctions: A comprehensive list of individuals and entities subject to EU sanctions.
• UN Security Council Sanctions List: A global list targeting individuals and entities involved in activities that threaten international peace and security.
• Country-Specific Lists: Many countries maintain their own sanctions lists, such as the UK’s HM Treasury Consolidated List or Canada’s Consolidated Sanctions List.

Sanctions screening is most effectively conducted using advanced sanctions screening software. These solutions enable organisations to perform global sanctions checks within minutes.

These sanctions screening tools collect and analyse data from all sanctions lists globally, including government, financial, and international regulatory databases, and update them in real time.

Sanction Screening Match

The next step of the sanctions screening process is to identify potential matches between collected data and entries on global sanctions lists. 

The sanction screening tools are designed to minimise false positives while ensuring that high-risk individuals and entities are detected with precision. These software consider factors such as:

• Name matching: Exact matches, phonetic matches, and partial matches (e.g., "Mohammed" vs. "Muhammad").
• Geographic indicators: Addresses or locations associated with sanctioned entities.
• Date of birth or other identifiers: To reduce false positives, the system may use additional data points like dates of birth or identification numbers.

When a potential sanction list match is found, the system generates an alert for further investigation. These alerts are prioritized based on the likelihood of a true match.

Investigation and Resolution

Once there is a match with any global sanctions list, the compliance team investigates it using the sanctions screening process to verify whether it is a true positive (an actual match with a sanctioned party) or a false positive (a coincidental match with a non-sanctioned entity).

If the match is confirmed as a true positive, the organisation must take immediate action, such as:

• Blocking the transaction
• Freezing assets
• Terminating the business relationship
• Reporting the match to regulatory authorities

Continuous Monitoring

Sanctions screening is not a one-time process but an ongoing activity. Continuous monitoring ensures that organisations remain compliant with global sanctions regulations even after the initial sanction check. This step is crucial because:

• Sanctions lists are dynamic – New individuals, entities, or countries can be added to sanctions lists at any time, requiring real-time sanctions screening.
• Customer profiles change – Customers may move to high-risk jurisdictions, change their names, or engage in new business activities, affecting their risk profile.
• Transactions evolve – Ongoing monitoring with sanctions screening software helps detect suspicious patterns or behaviours that may indicate sanctions evasion.

Read more: What is AML Ongoing Monitoring?

What is a Sanctions List?

A sanctions list is an official database of individuals, entities, or countries subject to economic, trade, or financial restrictions due to their involvement in activities such as terrorism, money laundering, or human rights violations. These lists are crucial to perform sanctions checks.

• OFAC Sanctions List – Maintained by the U.S. Treasury's Office of Foreign Assets Control (OFAC), enforcing economic and trade sanctions globally.
• UN Sanctions List – A global sanctions list targeting threats to international peace and security, binding on all UN member states.
• EU Sanctions List – Applies to EU citizens and entities, targeting activities such as terrorism, corruption, or human rights abuses.
• HM Treasury Sanctions List (UK) – The UK sanctions list, enforcing UK-specific sanctions, often aligned with UN or EU measures.
• US Treasury’s SDN List – Part of the OFAC sanctions list, targeting individuals and entities that threaten U.S. national security or foreign policy.
• National Sanctions Lists – Country-specific lists (e.g., Canada, Australia, UAE) targeting threats to national interests.
• FATF Blacklists – Identifies high-risk jurisdictions for money laundering and terrorist financing, impacting global financial institutions.
• Non-Governmental Sanctions Lists – Maintained by private organisations, often used for enhanced due diligence and sanction checks.

What is the Purpose of Sanctions Screening?

Sanctions screening is a crucial compliance measure that ensures organisations adhere to global sanctions regulations, prevent financial crimes, and protect their reputation and financial stability. The key purposes of sanctions screening include:

Regulatory Compliance

Governments and international organisations impose sanctions to enforce foreign policy and national security objectives. Financial institutions and businesses are legally required to perform sanction screening and conduct global sanctions checks to avoid regulatory violations. Failure to comply can result in hefty fines, legal penalties, and even criminal charges.

Preventing Financial Crime

Sanctions screening process plays a key role in detecting and preventing money laundering, terrorist financing, and other financial crimes. By conducting automated sanction checks using sanction screening tools, organisations can identify doing business with sanctioned parties, strengthening global efforts to combat financial crime and improve regulatory compliance.

Protecting Reputation

Failing to conduct proper sanctions screening can severely damage an organisation’s reputation. Engaging with sanctioned entities can lead to public scrutiny, loss of investor confidence, and regulatory sanctions. By implementing a robust sanctions screening process, businesses can uphold their public image while demonstrating strong compliance practices.

Avoiding Financial Losses

Non-compliance with sanctions screening regulations can result in substantial financial losses, including fines, legal costs, and lost business opportunities. For instance, in October 2024, TD Bank pleaded guilty to Bank Secrecy Act and money laundering conspiracy violations, agreeing to pay over $1.8 billion in penalties. 

By integrating real-time sanctions screening software, organisations can reduce risks, avoid financial penalties, and ensure full compliance with global sanctions regulations.

When Are Sanctions Checks Performed?

Sanctions screening is a crucial component of AML compliance, and its timing is as important as the process itself. Conducting a sanctions check at the right moments ensures that organisations remain compliant with regulatory requirements and avoid engaging in prohibited transactions. 

One of the most critical times to perform sanctions screening is during the customer onboarding process. This is when organisations first establish a relationship with a new customer, whether an individual or a business. Sanctions screening software automates this process as part of the broader Customer Due Diligence (CDD), which includes  KYC process.

Challenges in AML Sanctions Screening

While sanctions check is essential for AML compliance, it comes with several challenges that organisations must address to maintain regulatory adherence and avoid compliance risks.

False Positives

One of the most significant challenges in the sanctions screening process is the high rate of false positives. Common names or incomplete data can lead to matches that are not actual sanctioned parties. This can overwhelm compliance teams and delay legitimate transactions.

Evolving Sanctions Lists

Sanctions lists are frequently updated due to changing geopolitical dynamics. Using a sanction screening software ensures that the lists are continuously updated to prevent missing new sanctioned individuals or entities.

Global Complexity

Different countries and regions maintain independent sanctions lists with varying compliance requirements. Multinational organisations must conduct global sanctions checks while navigating conflicting regulations, ensuring adherence across multiple jurisdictions.

Data Quality

Inaccurate or incomplete data can hinder the effectiveness of a sanctions check. Organizations must invest in robust sanctions screening tools to enhance the accuracy and completeness of collected data.

Technological Limitations

Performing a sanction check manually is a time consuming task. Outdated sanction screening software also struggles to handle the volume and complexity of modern sanctions screening. 

How to Choose the Right Sanctions Screening Tool?

Selecting the right sanctions screening software is essential for ensuring AML compliance, global sanctions checks, and risk mitigation. A reliable tool should provide real-time sanctions screening, automated monitoring, and seamless integration to prevent prohibited transactions and enhance regulatory compliance.

1. Global Coverage – Must conduct global sanctions checks across OFAC, UN, EU, UK, FATF blacklists, and country-specific sanctions lists, including non-governmental databases for enhanced due diligence.
2. All-in-One AML Screening – Should integrate sanctions screening, AML screening, watchlist screening (PEPs, RCAs), adverse media screening, and Enhanced Due Diligence (EDD) for a complete sanctions screening process.
3. KYC & KYB for Onboarding – Includes document verification, Ultimate Beneficial Ownership (UBO) identification, and biometric verification to ensure compliance with sanctions screening regulations.
4. Ongoing Monitoring – Offers real-time sanctions screening with continuous tracking of customer activity, high-risk transactions, and regulatory updates to prevent sanctions evasion.
5. Real-Time Updates – Ensures sanction checks reflect the latest regulatory changes by automatically updating sanctions lists and risk databases.
6. Advanced Matching Algorithms – Uses AI-powered fuzzy matching to reduce false positives and false negatives, improving sanctions screening accuracy.
7. Compliance Reporting – Provides detailed audit trails and compliance reports to demonstrate AML compliance and ensure organisations meet sanctions screening process requirements.

The right sanctions screening software should offer real-time sanctions screening, automated global sanctions checks, and AI-driven accuracy to help organisations stay compliant with sanctions screening regulations while improving operational efficiency.

Bottom Line

AML sanctions screening is a critical component of financial compliance, helping organizations prevent money laundering, terrorist financing, and other illicit activities. With regular sanction checks, businesses can avoid legal penalties, financial losses, and reputational damage.

However, the sanctions screening process comes with challenges such as false positives, evolving regulations, and data quality issues. To overcome these obstacles, organisations must invest in advanced sanctions screening tools that perform real-time sanctions screening using up-to-date sanctions lists.