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How sanctions screening can mitigate treasury risk

Effective sanctions screening is vital for corporate treasurers at a time when geopolitical events and outdated banking systems have increased the risks of operating globally.

  1. Corporate treasurers can’t rely on the screening technology of banks to manage their sanctions risk.
  2. Sanctions screening technology should be able to offer a single view of the data or text that caused the sanctions alert.
  3. A webinar hosted by ourselves and Treasury Today has examined the processes and systems that can help corporate treasury mitigate risk.

Over the past decade, the global sanctions landscape has become increasingly complex as various countries and international bodies impose sanctions at an unprecedented rate.

Unfortunately, these measures very rarely align with each other.

This has put all affected organizations in a difficult position, heightening the risk of them falling foul of sanctions somewhere in the world.

More than half of corporates, when polled during a recent webinar we hosted in collaboration with Treasury Today, said they were either ‘not confident’ or ‘very unconfident’ about their knowledge of the sanctions environment and the impact it is having on their organization.


How confident are you on the current sanctions environment and the impact on your organization?
Source: Results from the webinar, The New Sanctions Compliance Challenge, April 2018

Complex sanctions landscape

Jesse Spiro, Global Head of Threat Finance & Emerging Risk, said the poll results were unsurprising, given the complexity of the global sanctions landscape and how ‘narrative sanctions’ were putting the onus on risk managers to ensure companies are not falling foul of the rules.

Using sanctions placed on Russia and Iran as case studies, Spiro revealed in the webinar the complexity that risk managers face when trying to understand the sanctions that apply and whether their organizations and staff are exposed.

Indeed, complexity is the watchword when it comes to sanctions.

Corporates, it seems, can no longer rely on their banks — and their outdated sanctions screening technology — to manage the risk.

At least half of corporates polled during the webinar: The New Sanctions Compliance Challenge, said that to the best of their knowledge they had had payments stopped by their banks.

To the best of your knowledge, has your organization had payments stopped by its banks?
Source: Poll results from the webinar, The New Sanctions Compliance Challenge, April 2018

Sanctions screening programs

The ultimate goal of any sanctions screening program is to prevent a company from undertaking any transaction, or working with any entity or individual, that would see it violate regulations.

To that end, sanctions screening programs must start with the treasury department determining precisely what it is going to scan, including customers, vendors, partners, and agents.

Treasury will then need to decide what sanctions lists to scan these counterparties against, depending on the type of business it is in, and the geographies in which it operates.

The system must also do this in a streamlined and efficient manner so as not to create any extra work for the treasury team.

For example, antiquated systems do not have the sufficient level of sophistication to recognize that a bank branch with the legitimate address of 128 Baghdadstrasse in Berlin is not the same as the sanctioned city of Baghdad in Iraq.

The system will, therefore, generate an alert, stop the payment and create more work for the treasury.

The use of AI and machine learning

Selecting a technology that can best meet these objectives in the most efficient manner is the next step.

Picking a system that understands the context of the payment should be a key driver as this can eliminate the type of issues experienced when sending payments to the aforementioned Baghdadstrasse.

Another way to reduce false positives is to leverage AI and machine learning so the system can learn from ‘clean’ transactions and not flag the same data twice.

The technology also needs to detail clearly why it has created an alert.

99% of fines imposed for breaching U.S. OFAC Sanctions in 2017 were issued to non-banking institutions
Source: Research we conducted in 2017

Best-in-class sanctions screening

Best-in-class technology should be able to offer a single view of the data or text that caused the alert and the source of conflict. This will dramatically shorten the time taken to start the remediation process.

Treasurers need to think about adopting a system that integrates with existing systems and processes easily.

Corporate treasury departments should not have to change a payment file in any way to be able to scan it, and the system should be flexible to enable users to choose at what point in the process they want to do the scanning. If you’d like to find out more, please contact us.

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