The war in Ukraine unleashed unprecedented sanctions against Russia, pushing sanctions activity to new heights in the first half of 2022. Lists maintained by the four key regulators – the United Nations (UN), European Union (EU), Office of Foreign Assets Control (OFAC), and the Office of Financial Sanctions Implementation (OFSI - UK) changed constantly, with entities added, deleted, and modified at a brisk pace. Although the number of updates for the first half of 2023 is down by 31%, sanctions activity remains at historical highs, and is likely to continue for the foreseeable future.

Banks and other organisations conduct sanctions screening to comply with anti-money laundering (AML) and countering the financing of terrorism (CFT) regulations. While sanctions change constantly, the regulatory requirement to screen for sanctions is unwavering. Doing business with a sanctioned bank or other sanctioned entity puts every participant in the payments chain at risk.

Why strengthen compliance and improve customer experience

Keeping up with the ongoing changes to sanctions lists is a significant challenge for all organisations, but the cost of non-compliance is steep. In fact, sanctions violations and issues with AML and know your customer (KYC) compliance cost financial institutions globally nearly $5 billion in 2022, according to the Financial Times, which is a 50% increase over the previous year.

Although the initial sting of a fine or financial penalty for non-compliance may be painful – and trigger increased regulatory scrutiny and onerous ongoing audits – the reputational damage can have an even longer-lasting impact on business. Screening for sanctions early in the payments process provides an additional layer of defence that strengthens compliance, saves time, and improves the overall customer experience.

What are the benefits of early sanction screening?

At most organisations, the payments process from sender (‘payer’) to recipient (‘payee’) leaves the sanctions ‘door’ constantly open, exposing banks, payment service providers (PSPs) and businesses to risk when sending or receiving payments.

While the payer organisation typically checks customer-entered information against payments data requirements (e.g., bank name, IBAN number) so errors can be corrected before the payment is initiated, screening for sanctions occurs later in the payments process – after the validated payment is sent to the bank. If a sanctioned entity is identified by the bank, the payment cannot be executed and is returned to the payer for further action, slowing the payments process.

Failed or stopped payments are costly. In fact, an estimated $118.5 billion was lost to failed payments globally in 2020. It is not just lost revenue that is concerning, failed payments negatively impact the customer experience and can threaten the entire relationship. With more than 70% of organisations indicating that they are not satisfied with their payment failure rate, it not surprising that reducing failed payments and boosting straight-through processing are a high priority.

What is the importance of gaining greater control over screening?

To keep pace with changing sanctions, ensure compliance, and prevent payment delays, organisations should consider technology that provides greater control over sanctions screening earlier in the payment process.

Several technology solutions are available to instantly validate customer-entered account details to ensure payments are routed to the correct account holder. They typically alert the payer in the event of an error, so changes can be made before the payment is sent to the bank. However, these systems do not check for sanctioned banks.

Screening for sanctioned banks before initiating payment to the payee offers numerous benefits to all participants in the payments chain. In addition to reducing repairs and costly failed payments, saving time, and improving straight-through processing rates, early sanctions screening provides a better customer experience with fewer processing delays. Above all, early screening delivers an additional layer of security that strengthens compliance. When combined with accurate, up-to-date data, early screening also enables organisations to automate payments with confidence.

How to achieve early sanctions screening

In addition to instantly verifying domestic and international payment information and driving automation wherever it is needed in the payments flow, organisations can now also see if the bank to be paid is sanctioned through innovation sanctions screening solutions. This empowers organisations and their customers to cease payment at the point of initiation.

With data updated daily from the OFAC, EU, UN and OFSI sanctions lists, organisations can reliably increase compliance posture in a way that complements existing financial crime compliance controls and improves customer experience.

What’s next for sanctions screening?

The brisk sanctions activity these past 18 months may very well be the new normal. Taking steps now to ensure payment systems and processes can meet the demands of this challenging landscape with its changing political pressures and increasingly complex regulatory environment makes smart business sense.

Screening solutions that enable organisations to instantly check for sanctioned banks before initiating payment to the payee offer an early line of defense to pre-emptively identify sanctions risk in the payments flow, all whilst improving customer experience.