The conflict between Russia and Ukraine has moved leaders in many countries to introduce unprecedented financial sanctions aimed at isolating Russia’s financial system and creating economic consequences for activities in Ukraine.
In this article, Ted Sausen, director – AML Subject Matter Expert at NICE Actimize, explores ongoing sanctions developments and their impact on financial institutions (FIs).
NICE Actimize is a provider of financial crime, risk and compliance solutions for regional and global financial institutions, as well as government regulators.
The company provides real-time, cross-channel fraud prevention, anti-money laundering detection, and trading surveillance solutions that address such concerns as payment fraud, cyber crime, sanctions monitoring, market abuse, customer due diligence and insider trading.
The sanctions environment is in flux – new sanctions are being announced almost daily as countries seek to limit Russia’s ability to participate in the global economy.
You don’t have to look further than the SWIFT message-related sanctions which blocked a number of Russian banks from the SWIFT international payments system to realise that these sanctions are unprecedented.
Some of the most significant sanctions seen in recent months include:
- Barring several institutions from using the SWIFT network to facilitate payments
- Freezing assets owned by and stopping transactions to and from the Russian Central bank, finance ministries, national wealth funds, and several financial institutions
- Banning Russian oil and gas imports or developing price caps for Russian-sourced oil and gas
- Placing travel bans on and freezing assets of high-ranking government officials, parliament members, and wealthy businesspeople with government connections
- Restricting military, transport, sport, and luxury goods-related business activities
What these sanctions mean for financial institutions
From validating the identities of individuals and corporates to unraveling complex banking relationships, FIs face significant challenges complying with the sweeping, dynamic restrictions and require a clear understanding of their exposure to sanctioned assets, individuals, and entities.
With governments updating sanction lists on a regular basis, FIs must adapt to maintain compliance with who and what is listed in each jurisdiction. Many FIs question if they can move quick enough to understand all sanctioned activity and ensure they are screening against accurate, up to date sanctions lists. Some organisations have even decided to simply redlined all Russian-related activity and operations.
To continue operations, FIs must comprehensively evaluate all existing customers. This includes checking sanctions lists, further evaluating each entity’s network and beneficial ownership structure to better understand associated risks, and continually assessing client transactions for links to sanctioned individuals or entities.
FIs who break new sanctions face severe consequences with considerable fines and damage to their reputations.
With many governments leveraging sanctions as a foreign policy tool, most FIs have had to significantly increase resources and focus on sanctions compliance to conform and manage exposure to new restrictions. However, even with enhanced compliance controls, many organisations struggle with the current pace, volume, and changing complexity of the sanctions landscape.
The complexity of sanctions is apparent with Donetsk and Luhansk. Because Russia recognises these regions as independent peoples’ republics, the US government has placed them under comprehensive sanctions. There isn’t a list of specific individuals or entities operating in these regions, and IP addresses are not precise enough to identify activity originating from there. Consequently, some FIs have resorted to using maps to block services and stop payments to and from the embargoed regions.
The technologies available to streamline compliance
FIs need to protect themselves with effective and fast-acting compliance technology that keeps up with the expanding restrictions and sanctions lists. Many solutions can help FIs better analyse clients and associated relationships – solutions such as:
Identity resolution – Removes duplicate records and uncovers each clients’ hidden relationships allowing FIs to gain a consolidated view of each entity. This higher quality deduplicated view enhances screening inputs to improve match confidence and hit accuracy and reduce alert volumes.
Network analytics – enable FIs to evaluate an entity’s relationship network. Network analytics help FSOs identify related sanctioned and high-risk entities by accurately identifying direct and indirect entity sanction exposure and individuals trying to circumvent sanctions using third parties.
Payment and party screening with advanced name matching and biometric capabilities – Intelligent analytics including fuzzy matching, payments message parsing, biometrics, free text expansion, and edit distance algorithms can boost accuracy when screening parties and payments for sanctions. These technologies can catch typos, transpositions, cultural name differences, and spacing issues in account or payment information, identifying previously missed matches, removing unnecessary noise and extracting only the most relevant data fields. Biometrics can also mitigate data inaccuracies with video profiles and facial images, reducing false positives and identifying sanctioned individuals earlier.
Predictive scoring – Helps FIs focus attention on the strongest screening hits by using historical outcomes and machine learning to triage screening matches based on the likelihood a match is a true hit.
Leverage technology to maintain compliance
In the current geopolitical climate, financial institutions need to re-evaluate their screening processes to ensure they comply with the latest sanctions and identify and stop all sanctioned individuals and entities from using their organisation for financial activities.
Given the complex, extraordinary nature of current sanctions, FIs might face challenges in accurately implementing controls to manage and monitor all sanctions. Advanced technologies exist that can streamline processes, bring organisations in line with requirements, and minimise the risk of violating sanctions. Check out this brochure to learn more about the latest screening technologies.