A comprehensive guide to bank screening sanctions

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Last updated on November 30th, 2023 at 01:58 pm

Screening sanctions refer to the process of screening individuals, organizations, or countries against a list of sanctioned entities maintained by the US government. US banks are required to comply with these screening sanctions in order to prevent money laundering, terrorist financing, and other illegal activities.

The US government maintains several lists of sanctioned entities. These lists contain the names of individuals, entities, and countries that are subject to various US sanctions, such as asset freezes, travel restrictions, and trade embargoes.

US banks are required to screen their customers, transactions, and business partners against these lists on an ongoing basis. This involves using sophisticated screening tools and processes to detect potential matches between the names on the lists and the names of the bank’s customers or counterparties. If a potential match is detected, the bank may be required to investigate further and report the matter to the appropriate authorities.

What lists do banks check?

US banks are required to check several lists maintained by the US government in order to comply with screening sanctions requirements. The primary lists that US banks are required to check include:

Specially designated nationals and blocked persons (SDN) list:

An SDN (Specially Designated Nationals) Blocked Persons List is a list maintained by the Office of Foreign Assets Control (OFAC), which is part of the U.S. Department of the Treasury. This list includes individuals, organizations, and entities that are subject to economic sanctions imposed by the United States.

The purpose of the SDN list is to identify and restrict transactions or dealings with individuals or entities that are involved in activities that pose a threat to national security, foreign policy objectives, or international stability. These individuals or entities may include terrorists, narcotics traffickers, arms dealers, and individuals associated with prohibited regimes or activities.

When a person or entity is included on the SDN list, it means that their assets are blocked or frozen within U.S. jurisdiction, and U.S. persons and businesses are generally prohibited from engaging in financial or business transactions with them. This helps prevent the listed individuals or entities from accessing funds, resources, or support from U.S. sources.

The SDN list serves as a tool for compliance with U.S. sanctions laws and regulations. It is important for businesses, financial institutions, and individuals to check the SDN list regularly to ensure they are not engaging in prohibited activities or dealing with blocked persons.

You can search the list at any time here.

Foreign sanctions evaders (FSE) list:

The Specially Designated Nationals (SDN) list and the Foreign Sanctions Evaders (FSE) list are both maintained by the Office of Foreign Assets Control (OFAC) within the U.S. Department of the Treasury. However, they serve different purposes and target different types of individuals and entities.

The FSE list is a subset of the SDN list that specifically targets individuals and entities that have violated, attempted to violate, or facilitated deceptive practices to evade U.S. sanctions. The FSE list primarily focuses on individuals, entities, and vessels involved in activities aimed at circumventing U.S. sanctions on countries or entities subject to specific sanctions programs. These individuals and entities may have engaged in deceptive practices or illicit schemes to avoid sanctions enforcement.

So essentially, the FSE List is a list within a list, of individuals who have been caught trying to circumvent their inclusion on broader sanctions lists.

Sectoral sanctions identifications (SSI) list: 

The Sectoral Sanctions Identifications (SSI) List is another list maintained by the Office of Foreign Assets Control (OFAC) within the U.S. Department of the Treasury. It differs from the Specially Designated Nationals (SDN) list and the Foreign Sanctions Evaders (FSE) list in terms of its focus and application.

The Sectoral Sanctions List (SSI List) is designed to target specific sectors of the Russian economy. It identifies entities operating in certain sectors that are subject to restrictions due to their connection with the Russian government or involvement in financial services, defense contracting, or the Russian energy sector. These restrictions are imposed as part of U.S. sanctions measures in response to Russia’s actions in Ukraine and it’s annexation of Crimea.

Consolidated screening list (CSL): 

This list is maintained by the US government that includes a check against all of the above lists, in addition to several other lists maintained by various other government agencies, including:

Entity list

Maintained by the U.S. Department of Commerce, the Entity List identifies entities that are subject to export control restrictions due to involvement in activities related to national security, foreign policy, or nonproliferation concerns.

As an example, in May 2019, the U.S. Department of Commerce added Huawei and its affiliates to the Entity List due to concerns related to national security. This designation placed certain restrictions on U.S. companies’ ability to export or transfer technology, software, or components to Huawei without specific licenses. The Entity List inclusion for Huawei was based on allegations that the company’s activities posed a risk to U.S. national security and that it had violated U.S. laws and regulations. The specific restrictions imposed on Huawei were aimed at limiting its access to sensitive technology and products of U.S. origin.

Denied persons list

Also maintained by the U.S. Department of Commerce, the Denied Persons List consists of individuals and entities that are prohibited from participating in export activities due to violations of export control laws or other reasons.

As an example, Alexander Fishenko was a Russian-born naturalized U.S. citizen and the owner of an electronics company called Arc Electronics Inc. who was added to the Denied Persons list in 2012.

Alexander Fishenko and several other individuals associated with Arc Electronics were added to the Denied Persons List due to their involvement in illegal export activities. Fishenko and his company were accused of illegally exporting sensitive technology and dual-use items, including microelectronics, to Russia without the required export licenses. Fishenko is now essentially classified as a spy by the US government because of the severity of his activities.

The inclusion on the Denied Persons List imposed severe restrictions on Fishenko and his associates, prohibiting them from participating in any export activities involving items subject to U.S. export controls. It effectively barred them from engaging in future exports or re-exports of controlled goods, software, or technology.

Unverified list

The Unverified List is another list maintained by the U.S. Department of Commerce and includes entities that have been flagged as high-risk due to inadequate or unverifiable information about their activities.

The Unverified List serves as a tool for U.S. exporters and companies involved in international trade to exercise caution when engaging in business transactions with entities on the list. It indicates that the listed entities have been identified as lacking sufficient documentation or verification, which could raise concerns regarding their adherence to export control laws and regulations.

The primary purpose of including entities on the Unverified List is to encourage U.S. companies to conduct additional due diligence and obtain reliable information before proceeding with transactions involving entities listed. It is a precautionary measure to mitigate potential risks associated with inadequate documentation or unverified entities.

Many new businesses may appear on the Unverified List due to insufficient historical documentation, so this list is meant to serve as a yellow flag so that banks perform a deeper level of due diligence.

Nonproliferation sanctions

This category includes entities and individuals subject to U.S. sanctions related to the proliferation of weapons of mass destruction (WMD), such as nuclear, chemical, or biological weapons.

The specific individuals and entities included on the Nonproliferation Sanctions list can vary over time as new designations are made or existing designations are updated or removed. The list typically targets individuals, companies, organizations, and even entire countries that have been involved in activities related to WMD proliferation.

The sanctions imposed on individuals and entities listed on the Nonproliferation Sanctions list can include restrictions on trade, financial transactions, and other forms of engagement with the designated parties. These measures aim to deter and disrupt the proliferation of weapons of mass destruction and associated technologies.

It is worth noting that the CSL is primarily focused on U.S. export controls and sanctions. However, it can also be a useful resource for compliance with other international trade regulations. Considering the cumulative total across all these lists, it is reasonable to estimate that the number of individuals listed could range from several thousand to tens of thousands of individuals for whom KYC protocols dictate at minimum enhanced due diligence, if not outright prohibition of business interaction.

Penalties for noncompliance with sanctions screening

Non-compliance with screening sanctions can result in severe penalties for US banks, including fines, reputational damage, and loss of business. Therefore, it is essential for US banks to have robust compliance programs in place to ensure that they are effectively screening for sanctioned entities and complying with US sanctions requirements.

Civil monetary penalties

US banks that fail to comply with screening sanctions requirements may be subject to civil monetary penalties, which can range from thousands to millions of dollars depending on the severity of the violation. These penalties may be imposed by regulatory agencies such as the Office of the Comptroller of the Currency (OCC), the Federal Reserve, or the Financial Crimes Enforcement Network (FinCEN).

Criminal penalties

In cases of willful and deliberate noncompliance, US banks may be subject to criminal penalties, which can include fines and imprisonment for individuals involved in the violation. This is rare as most white collar financial crime is not prosecuted criminally.

Damage to reputation

Noncompliance can lead to significant reputational damage for US banks. This can include negative media coverage, loss of customer trust, and a decline in business.

How to automate sanctions screening

Screening sanctions and other forms of digital identity verification are imperative to prevent money laundering, terrorist financing, and other illicit activities, so it is important to use a robust screening service. The easiest method is to integrate with a provider who has pre-established access to all of these lists, and can perform checks across these lists quickly and efficiently. Integrating with each database individually is time consuming for any business, so we recommend using a single third party check which can do the heavy lifting of KYC/AML at once.

Additionally, you’ll want to integrate remote ID validation into your onboarding process at the outset in order to verify the customer’s identity up front, so that you can be sure you are checking a real person, and not an identity thief or fraudster against these lists.

Contact us to learn more and receive a free demo of our digital identity verification with sanctions screening.