Contact details
Phone No: +91 98248 84900
Email Id: [email protected]
Sanctions Screening Process
Sanctions Screening Process
India’s anti-money laundering laws and related anti-financial crime regulations mandate that the regulated entities need to conduct sanctions screening to counter financing of proliferation of weapons of mass destruction and financing of terrorist risks. It ensures that the regulated entities don’t deal with any of the individuals and entities sanctioned under the list issued by the United Nations Security Council (UNSC), Ministry of Home Affairs (MHA), and other relevant sanctions regimes. The other relevant sanctions lists can be decided based on the firm’s risk-based approach.
In this infographic, we take you through the sanctions screening process that starts with the Know Your Customer (KYC) process. You need to collect the identity documents from the customer – a natural or legal person (along with the IDs of the beneficial owners).
Then, you conduct screening, where the person is screened against the aforementioned lists using sanctions screening software or manually through the lists available on the respective organization/authority’s website. It is essential to conduct screening before onboarding the customer and on an ongoing basis.
If the sanctions screening shows relevant results or indicates some matches, one needs to identify whether it’s a true match or a false match.
In case of a true match, the customer’s case must be forwarded to the Principal Officer, who is obliged to submit a report to the Nodal Officer capturing the details of the sanctions match and funds frozen. Further, in case of a match with a designated person, regulated entities must terminate the business relationship and not execute any transaction with such person or entity.
What is sanctions screening in AML?
Sanctions screening is the process of checking customers, beneficial owners, counterparties and transactions against domestic and international designated persons lists to prevent the entity from dealing with a sanctioned party.
A sanctions match blocks the relationship or transaction outright. It is not something that can be mitigated with enhanced due diligence. Screening runs at onboarding, on every list update, and on transactions. These are three separate trigger points that are commonly implemented.
Which sanctions lists apply in India?
Reporting entities in India screen against the UN Security Council consolidated lists, which take domestic effect through the UAPA Section 51A and WMD Act Section 12A, designation mechanism and orders issued by the Ministry of Home Affairs, together with any lists the entity’s own risk assessment requires. Many Indian entities also screen against OFAC, EU and UK lists, not because Indian law requires it but because correspondent banking relationships and USD clearing make it commercially necessary. That distinction should be stated explicitly in the policy. List coverage is a documented policy decision. Screening against more lists than required is defensible. Screening against fewer than your correspondent expects is a business risk.
What is the difference between sanctions screening and PEP screening?
Sanctions screening checks for prohibited parties and produces a block. PEP screening checks for higher-risk parties and produces an enhanced due diligence requirement. They use similar technology but have opposite outcomes.
Sanctions match stops the relationship. A PEP hit escalates it for senior management approval and source of funds work. Because both usually run through the same screening engine, entities often apply one workflow to both, which either overblocks PEPs or under-escalates sanctions matches.
What are the types of sanctions?
Sanctions can be broadly categorised into targeted financial sanctions, sectoral sanctions, comprehensive country-wide embargoes, and arms or dual-use export restrictions.
Targeted financial sanctions apply to designated individuals and entities and typically involve asset freezes and prohibitions on making funds available to them. Sectoral and export control sanctions restrict specified sectors, activities or types of transactions, while comprehensive sanctions impose broad restrictions on dealings with a particular country or territory. Arms and dual-use export controls restrict the transfer of specified goods, technology or equipment.
To catch the designated individuals and entities, name screening alone is not enough; it requires transaction, jurisdiction, activity and goods-based checks.
However, one must note that the job’s not done yet!
As mentioned above, it is essential for regulated entities to conduct sanctions screening regularly, preferably on a daily basis. It lets a regulated entity know immediately if any onboarded customers get added to the sanctions list. Then, they can immediately take the necessary action, such as to terminate the business relationship and file the report with the Nodal Officer.
We are committed to assisting proper enforcement of AML and CFT regulations to regulated entities in India by designing a personalised AML framework – policies, internal controls, and procedures – and ensuring effective implementation of the same.
Important Links
subscribe to newsletter
© AML India 2023 All Rights Reserved.
