Guide to Sanction Screening

Sanctions screening (also known as global watchlist screening or OFAC compliance) is a fundamental requirement for enterprises in all major industries, driven by the need to prevent money laundering, terrorist financing, and financial crime. Whether you’re in financial services, technology, or international trade, failing to comply with the rapidly evolving global restrictions imposed by regulatory agencies including OFAC can incur crippling fines and result in severe reputational damage. According to recent studies, the total amount of fines for global sanctions violations exceeded $8 billion globally in the past two years. Notably, in November 2023, Binance Holdings Ltd. settled with OFAC for $968 million as part of a broader $4.3 billion agreement addressing U.S. anti-money laundering and sanctions violations – underscoring the escalating enforcement risks businesses face today.

As financial crime becomes more sophisticated and regulatory scrutiny intensifies, the clock is ticking for organizations that fail to modernize their watchlist compliance frameworks. Legacy watchlist screening methods are inadequate, burdening firms with excessive false positives and costly manual reviews. To ensure sanctions screening compliance and protect themselves, businesses should look to AI-powered screening platforms with two-stage risk scoring and precise matching. Read on to discover how to implement effective AI-driven sanction screening solutions that reduce the need for human verification and drive operational efficiency. 

What is Sanctions Screening?

Sanctions screening (or OFAC screening, and more broadly, watchlist or financial crimes screening) is a critical component of financial crime compliance. It ensures individuals and entities are systematically checked against government watchlists to mitigate risks related to money laundering, terrorist financing, and other illicit activities.

Effective screening goes beyond simple name-matching. It requires analyzing corporate ownership structures, including Ultimate Beneficial Owners (UBOs), to uncover hidden ties to sanctioned entities while  adhering to rules like OFAC’s 50% rule. Secondary sanctions add another layer of complexity, targeting foreign entities that engage with sanctioned parties—even if they fall outside the direct jurisdiction of the sanctioning authority.

A strong watchlist screening program is essential to meeting sanctions and AML regulatory requirements. Recent enforcement actions have emphasized the elevated risk associated with payment processors and real estate firms, sectors frequently exploited for sanctions evasion. Institutions must also assess payment risks to prevent transactions that could be blocked or lead to frozen assets, disrupting business operations.

Who Maintains Sanction Lists?

Sanction watchlists (as well as regulatory watchlists such as enforcement actions) are created and managed by a network of government bodies and law-enforcement agencies. Key entities include: 

1. National Authorities

• • Office of Foreign Assets Control (OFAC): OFAC is a key agency of the U.S. Treasury Department, and enforces U.S. sanctions under various legal frameworks. Among its key enforcement tools is the Specially Designated Nationals (SDN) list, a U.S. Treasury search tool and comprehensive database identifying individuals, groups, vessels, and aircraft restricted from conducting business with U.S. entities. Many sanctions derive from the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA), with other sanctions programs rooted in targeted legislation and executive orders. For example, the Foreign Narcotics Kingpin Designation Act focuses on major international drug traffickers, while the Antiterrorism and Effective Death Penalty Act underpins Foreign Terrorist Organization designations. Additional executive orders, such as Executive Order 12947, address specific threats like terrorism undermining the Middle East peace process. OFAC’s authority thereby extends across a wide range of sanctions programs, covering both SDN and Non-SDN designations under these various legal mandates.
  • HM Treasury: The United Kingdom’s designated sanctions authority oversees the UK Sanctions List, which describes all financial sanctions targets. 
  • EU Sanctions: The European Union operates a centralized sanctions framework through its consolidated list of persons, groups, and entities subject to EU financial sanctions. Although sanctions are adopted by the entire EU, enforcement is the responsibility of each member state. 

2. International Organizations

• • United Nations Security Council (UNSC): Under Article 41 of the United Nations Charter, the Security Council has the authority to maintain and enforce global sanctions. 
  • World Bank and IMF: The World Bank Listing of Ineligible Firms and Individuals describes all entities barred from participating in World Bank-financed contracts. 

3. Law-Enforcement Agencies

• • Financial Action Task Force (FATF): While not directly responsible for sanctions lists, FATF issues authoritative guidance on sanctions implementation and provides frameworks for identifying high-risk jurisdictions requiring enhanced sanctions screening measures. 
  • Interpol: Issues and manages red notices on individuals who are wanted for prosecution. In some cases, these notices may overlap with current sanctions. 

Understanding these authorities’ global sanctions list is essential for any KYC compliance program aiming to reduce financial crime risk.

Why Is Sanction Screening Important for Your Business?

Sanction breaches or evasions can lead to significant regulatory penalties, damaging brand reputation and exposing organizations to criminal liability. According to recent data from OFAC enforcement actions, the largest penalties topped $8.9 billion. 

 Implementing robust sanctions screening helps you: 

• Uphold Regulatory Compliance: Avoid penalties from agencies such as OFAC, EU regulators, and FATF and associated remediation costs of up to 12X the fine amount. 
• Mitigate Operational Risks: Avert the impacts of cease & desist orders, which can shut down your organization for months, completely derailing ongoing programs and fracturing vendor relationships. 
• Protect Corporate and Individual Reputations: Build stakeholder trust through consistent regulatory compliance. Shield your organization from reputational damage, and BSA officers from career-ending consequences.
• Ensure Global Market Access: Comply with global trade and sanctions laws to preserve essential relationships and participate in international markets. 
• Safeguard Financial Assets: Prevent monetary losses from frozen assets or regulatory fines. 

The Sanctions Screening Process

The most effective approach to sanctions screening merges systematic automation with expert human oversight. Below is a breakdown of a comprehensive sanctions screening process: 

• Data Collection: The first step is to gather relevant information about customers, partners, and transactions from multiple sources. Organizations use onboarding forms and transaction records to collect PII, such as names, addresses, dates of birth, and government IDs.
• Intelligence Risk Intelligence in List Matching: After preparation, enterprises typically compare their data against sanctions lists using exact and fuzzy matching techniques. Most compliance tools only provide a basic name match score (a number representing how confident the system is in the match). However, the best approach goes a step further utilizing two-stage scoring with an additional Entity Correlation Score, along with custom search policies that allow flexible thresholds for different lists. This second score determines if the match is the same person in question, automating the work of the analyst. These market-leading features reduce false positives and offer unparalleled accuracy in sanctions list matching.  
• Alert Generation: If a possible match is detected, screening platforms send an alert to analysts that includes the reasons why the case was flagged, such as name similarities, addresses, or connected entities. 
• Investigation: Using the information in the alert and any additional features their sanction screening software provides, trained analysts then review the flagged case, examining additional information to determine if a true match exists.
• Decision-Making: For confirmed matches, analysts will assess the level of risk and determine the appropriate actions based on regulatory requirements and company policy. Options may include rejecting transactions, freezing accounts, or filing reports, such as a suspicious activity report (SAR) to the appropriate authorities. 
• Documentation: Businesses must maintain detailed records of all screening activities, including match scores, analyst notes, decisions made, and supporting evidence. This audit trail is important for demonstrating compliance and supporting continuous improvement of the sanction screening process. 

By integrating these steps, businesses build a compliance pipeline that is both resilient and scalable in the face of evolving global sanctions.

What Industries Require Sanction Screening?

Although all enterprises operating in regulated jurisdictions must comply, certain sectors face heightened scrutiny. Here’s how sanctions requirements impact different industries: 

• Financial Institutions: From Bank Secrecy Act regulations to Section 312 of the USA Patriot Act, fintechs and banks have high regulatory exposure and must screen transactions and customers to combat money laundering and block terrorist financing.
• International Trade Companies: Organizations conducting overseas transactions must perform careful checks on all business partners and recipients of goods to ensure compliance with OFAC and Bureau of Industry and Security (BIS) export regulations. 
• Insurance Providers: Insurers must screen policyholders and beneficiaries against sanctions lists. These organizations are legally obligated to deny any claims originating in sanctioned regions. 
• Healthcare Organizations: Medical providers must assess vendors and transactions for compliance with global restrictions. Special attention is necessary to block pharmaceuticals from being used in illegal applications.
• Gaming and Crypto Industries: Know your customer (KYC) compliance and watchlist screening are critical in the gaming and crypto sectors to prevent fraud and unauthorized transactions that could violate financial regulations.
• Technology Companies: Tech firms must verify customers and ensure compliance for software and hardware exports. Cloud service providers are legally required to block access to sanctioned entities and maintain data transfer restrictions. Recently, regulatory bodies have introduced new restrictions on the exports of advanced AI models. 
• Nonprofit Organizations: Charities must conduct a thorough screening of donors and aid recipients while also navigating humanitarian exemptions. Regulators are focused on preventing indirect support to restricted entities. 
• Professional Services: Law firms and consultancies can be liable for direct work with sanctioned entities and even for providing indirect support through advisory services. Enhanced due diligence is essential to understand complex ownership structures (for 50% rule compliance) and cross-border transactions. 

Each industry’s regulatory compliance obligations may vary, but advanced sanction screening is a universal necessity for risk mitigation. 

Challenges in Sanction Screening

Relying on legacy compliance systems is becoming increasingly risky in today’s rapidly evolving global sanctions environment. Here are the top challenges facing organizations: 

• Excess False Positives: High transaction volumes, complex identity verification processes, and basic name-matching solutions lead to too much noise, overwhelming false positives, and wasted time.
• Manual Processes: Excessive reliance on costly human verification creates bottlenecks and inconsistencies. Each manual review takes up to 10 minutes, and at least a quarter of these must be managed by L2 senior analysts with high salaries. This approach leads to burdensome operational costs and can cause backlogs for smaller compliance teams. 
• Compliance Risks: False negatives introduce noncompliance risks such as consent orders, on-site regulatory investigations, lengthy audits, financial penalties, and reputational damage that lowers the stock price of publicly traded companies. 
• Evolving Threats: Regulators can update their lists hundreds of times each year, sometimes making several modifications in a single day. Organizations that lack ongoing monitoring of existing customers to adapt to real-time customer status changes risk violations.

• Inconsistent Screening: Many businesses incorrectly assume sanctions do not apply to them. This creates dangerous compliance gaps, especially in sectors like technology and professional services where sanctions exposure may be less obvious. As it pertains to the United States, every organization doing business in the U.S. including any foreign entity owned by a U.S. entity or doing business in the U.S. must comply, regardless of industry. 

• Customer Abandonment: Poorly optimized sanction screening processes cause unnecessary friction, leading to delays, customer frustration, and revenue losses, particularly in industries like crypto and gaming, where customers expect instant, seamless experiences. 

These factors expose financial institutions and businesses to heightened regulatory scrutiny, making the move to advanced AI solutions a top priority. 

Sanction Screening Best Practices

To prevent costly but common compliance failures, every business should develop and routinely update a comprehensive sanction screening program. Here are ten proven strategies to protect your organization while increasing operational efficiency:  

• Implement a Risk-Based Approach

Organizations should calibrate screening intensity based on risk exposure. High-risk customers and transactions require enhanced due diligence, while lower-risk activities can follow standard protocols. This optimizes resource allocation while maintaining compliance. 

• Update Sanctions Screening Data

Companies must ensure that their internal watchlists are automatically updated as authorities add or remove restricted parties. This accuracy should also be verified with regular manual reviews to validate data quality and coverage. 

• Ongoing Monitoring

Real-time screening of transactions and continuous monitoring of customer statuses lets you pinpoint sanctions risks as they emerge. In contrast, batch processing creates gaps between updates, leaving you exposed to changing restrictions and sophisticated evasion attempts. 

• Train Staff Regularly

Compliance teams need up-to-date knowledge of sanctions requirements, screening procedures, and emerging risks. Ongoing training should cover alert investigation protocols, documentation standards, and escalation procedures. Staff must understand both regulatory requirements and internal policies. 

• Conduct Regular Audits

Independent testing validates screening effectiveness through sample reviews and process assessments. Audits should verify technical controls and human decision-making, with findings driving continuous improvement. 

• Maintain Audit Trails & Report

Record all screening decisions and supporting evidence for regulatory review. Complete monthly reports to auditors and sponsor banks to demonstrate ongoing program success. 

• Document Procedures Clearly

Spreadsheets are not enough to demonstrate proof of compliance when faced with an audit. Companies must have formal, written procedures that detail every step of the sanctions screening process, from initial alerts through final disposition. Clear guidelines ensure consistent handling of potential matches while providing evidence of compliance controls for regulators. 

• Review False Positives

Organizations should track false positives by type, customer segment, and transaction category to identify opportunities to adjust screening parameters. This reduces unnecessary results without compromising detection. 

• Consider Local Regulations

Businesses operating across jurisdictions must adapt screening processes to meet local requirements while maintaining global compliance standards. For example, if a customer in the European Union opens an account with a U.S. firm, the business must screen the individual against both the SDN list from OFAC and the EU Sanctions List. 

• Use Advanced AI Sanctions Screening Software

Leverage AI-powered sanctions screening software to automate the screening process while sharpening the accuracy of your compliance program. Modern sanctions screening systems use sophisticated algorithms to track variations in name spelling, format, and transliteration across all lists. 

Following these best practices helps ensure you stay compliant, cut costs, and maintain a smooth customer experience. 

How Socure’s Global Watchlist Screening with Monitoring  Transforms Sanctions Screening

In light of the severe financial and reputational consequences of breaching international sanctions, organizations need robust, trustworthy, and exact screening solutions. The stakes are too high to rely on outdated processes and tools that leave you exposed to compliance risks.

Conventional tools rely on basic name-matching, often overwhelming analysts with excessive potential matches. Socure’s Global Watchlist Screening with Monitoring solution cuts through the noise with a two-stage risk scoring system, delivering greater accuracy and efficiency.

Stage 1: Name Match Score

The system first cross-checks the subject’s name against global watchlists within customer-defined thresholds, generating a risk score that indicates the likelihood of a match. Potential matches are then consolidated into enriched entity profiles, incorporating additional customer data for deeper insights.

Stage 2: Entity Correlation Score (ECS)

Next, the platform assigns an Entity Correlation Score by analyzing each personally identifiable information (PII) element for relevance. Powered by advanced AI, this stage automates investigative tasks typically performed manually, significantly reducing analyst workload and operational costs.

With Socure’s AI-driven approach, the result is fewer false positives, faster decision-making, and a more intelligent compliance process.

• AI Matching: AI acts as your “Copilot” and identifies sanctioned entities with higher accuracy through advanced machine learning algorithms while preserving human oversight of final decisions. 
• False Positive Reduction: Minimize false alerts by 30% with precise entity resolution, reducing unnecessary manual reviews
• Operational Efficiency: Automate case management and accelerate investigations with AI-generated, plain-language explanations, with a one-click resolution to reduce operational costs by 60%.
• Real-Time Monitoring: Stay ahead of emerging risks with daily proactive alerts on any changes in customer status.
• Flexible Configuration: Gain granular control over sanctions screening parameters to align with your business’s unique risk policies.
• Custom List Integration: Seamlessly incorporate internal watchlists alongside official sanctions databases for a more tailored risk approach.
• Comprehensive Coverage: Screens against global sanctions, PEP lists, and adverse media in one solution.
• Audit-ready Documentation: Generate detailed records of screening decisions with supporting evidence for confident audit responses.
• Case Management: Streamline alert handling with intelligent workflows and AI-powered decision support.

This end-to-end automation delivers immediate ROI by lowering costs, improving compliance, and increasing trust across your entire business ecosystem. 

Ready to safeguard your organization from costly sanctions risks? Request a demo of Socure’s Global Watchlist Solution or talk to our compliance specialists today. Gain the confidence of 20% better accuracy, 30% fewer false positives, and a 75% faster review time so you can focus on growing your business with peace of mind.