Sanctions lists are records, usually published online, of countries, regimes, groups, and individuals currently under sanctions. It is the legal obligation of every citizen and regulated business to comply with sanctions, and checking the list of sanctions lists and applicable sanctioned bodies is one way to ensure your compliance with the Anti-Money Laundering and Terrorist Financing Act.

What are sanctions?

Before we explain them in more detail, it is useful to keep in mind the very definition of sanctions in order to understand why sanctions lists are so important.

Sanctions, also called restrictive measures, are punitive or restrictive actions taken by individual countries, regimes or authorized institutions. Sanctions can restrict organizations, individuals and states in conducting trade, financial transactions, etc. Sanctions in application and execution can be specific or general. Organizations must meet the expectations of regulators and adopt a risk-based approach to sanctions compliance with access to constantly updated sanctions lists, i.e. databases with lists of individuals, legal entities and countries with which it is illegal to do business.

Sanctions lists are lists of persons and entities subject to comprehensive or targeted restrictive measures under international and domestic sanctions regimes.

Individuals and entities are added to these lists for a variety of reasons, including links to terrorism, terrorist financing, proliferation of weapons of mass destruction, arms trafficking, narcotics trafficking, or war crimes. Ultimately, sanctions can be used to freeze assets and restrict trade to achieve foreign policy and national security goals.

In relation to sanctions affecting the financial sector, financial sanctions prohibit transactions and, in some cases, all financial services with a sanctioned person (natural or legal).

Who is subject to financial sanctions?

Financial sanctions are typically penalties imposed against individuals or groups (known as "sanctioned persons or targets") who are known to be engaging in conduct that is not only unlawful but also poses a threat to the international community. The designation "target" can refer to a range of entities, including:

• countries and their regimes;
• organizations;
• individuals;
• ships and aircraft;
• illegal or threatening conduct that may lead to financial sanctions includes:
  • terrorism,
  • money laundering,
  • trafficking in drugs, arms or people,
  • involvement in the proliferation of weapons of mass destruction;

Who issues sanctions lists?

There are a multitude of sanctions lists published around the world for the purpose of their verification. This provides a single source of high-quality and accurate sanctions data for regular, automated review.

Sanctions lists are created and published by sovereign states, regional unions and international organizations, government agencies or bodies, including regulators or law enforcement, and the monitored entities have a legal obligation to verify them. These are usually freely accessible online, but many companies choose to check them through a service provider. Some of the issuers that issue sanctions lists include:

• United Nations Security Council;
• European Union;
• HM Treasury – UK;
• Office of Foreign Assets Control (OFAC) – US;
• Financial Crimes Enforcement Network (FinCEN) – US;
• Monetary Authority of Singapore (MAS);
• Department of Foreign Affairs and Trade (DFAT) – Australia;
• World Bank Group and many others.

Sanctions lists are updated daily, but the lists do not always contain the same information, which can complicate the screening process. A consolidated view of global sanctions lists can therefore improve efficiency and assist organizations in their legal obligations.

How do sanctions lists work for financial sanctions screening?

Examples of the effects of sanctions lists include freezing of funds and economic resources, restrictions on access to certain individuals, arms embargoes, trade/export restrictions and prohibitions on the provision of certain services to certain countries.

Sanctions lists are an integral part of sanctions screening. The basic principle is quite simple: compare any data you have about a customer, supplier, employee or transaction with the data contained in the relevant external sanctions lists. In order to reduce the risk, the sanctions check should not only be carried out at the beginning of a new relationship, but regularly.

Examples of Legal Sanctions

Sanctions lists play a key role in global compliance efforts to promote international security, deter illicit activities, and protect national interests. The process of being legally required to be screened can often depend on where a company is headquartered and operates, as well as other factors including its partnerships and alliances.

For example, for companies based in the United Kingdom, a check against the Consolidated Financial Sanctions Target List is mandatory. For those based in the EU, a check against the Consolidated Financial Sanctions List is mandatory. Checking against some sanctions lists, such as the World Bank’s list of ineligible entities and individuals, is at the discretion of the company.

The Importance of Sanctions Lists for AML Compliance

Regular screening of sanctions lists is essential to prevent transactions related to bribery, corruption, or extortion. It is a regulatory requirement for reporting entities to conduct effective sanctions screening with appropriate controls. Screening should not only be done on clients, but also on their associates, beneficial owners and the extended supply chain.

However, as sanctions lists are constantly changing, and different jurisdictions have different lists, and the nature and consequences of sanctions list checks are becoming increasingly complex, managing the risk of sanctions list checks is becoming increasingly challenging.

The need for effective management of sanctions lists, along with reliable systems for their screening, is of paramount importance. Too often, inadequate screening systems and technology are the cause of many challenges in complying with anti-money laundering and financial crime legislation.

Use sanctions lists effectively

Working with the most relevant sanctions lists, KYC.hr offers screening solutions to revolutionize the sanctions list screening process, minimizing false positives, improving efficiency, presenting screening results (if any), and thereby protecting your organization from costly legal penalties.

Customer Screening

Is your existing or new customer subject to sanctions? The KYC.hr system checks sanctions lists using client data to go through sanctions lists to identify and draw your attention to sanctioned individuals or entities.