Abbreviations:
- Money Laundering (ML), Terrorist Financing (TF), and Proliferation Financing (PF) are referred to collectively as “Money Laundering or ML” for brevity
- AML – Anti Money Laundering. AML, Combating the Financing of Terrorism (CFT), and Countering Proliferation Financing(CPF) are collectively referred to as ”Anti-Money Laundering or AML” for brevity
- RE(s) – Reporting Entity(s)
- UAPA – Unlawful Activities (Prevention) Act, 1967
- WMD – Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Act. 2005
Background:
Sanctions Screening gained heightened prominence after the horrific incidents on September 11, 2001. In the wake ofthose attacks, the United Nations Security Council (UNSC) adopted Resolution 1373 which is also known as the “Counter Terrorism Code” and created legal obligations for all UN member states. It established an international framework that underpins the body’s counter-terrorism activities. Sanctions measures under Article 41 encompass a broad range of enforcement options that do not involve the use of any armed force.
The Security Council sanctions have taken a number of different forms in pursuit of a variety of goals ranging from
comprehensive economic and trade sanctions to more targeted measures such as arms embargoes, travel bans, and
financial or commodity restrictions. These measures are aimed at maintaining or restoring international peace and
security when applied.
A CHAIN IS ONLY AS STRONG AS ITS WEAKEST LINK
‘Sanctions Screening’ is pivotal to any AML regime. It is the primary responsibility of any Reporting Entity to deny legitimate business services (financial & non-financial) to any person who has been sanctioned by a global authority or government. While there are many challenges in implementing a sanctions compliance regime, adherence to a well-documented and robust screening mechanism using the right mix of technology, information, human expertise, and governance driven by a culture of compliance can lead to an effective sanctions regime.
The UNSC publishes a consolidated list of all individuals and entities (referred to hereafter as “person/s” or “sanctioned persons”), subject to measures imposed by it. The list is updated each time the UNSC passes a resolution banning certain persons to provide a comprehensive list of sanctioned persons for member states for implementation. Akin to the UNSC banned persons list, various other international bodies/authorities such as OFAC, Interpol, Europol, European Union, HM – Treasury, FinCen, The World Bank Group, etc., announce their own such lists.
Collectively, all these sanctions lists provide the basis for a comprehensive sanctions regime that is followed by
governments, corporations, banks, and other financial institutions, besides any RE obliged to do so.
What are Sanctions
Sanctions are restrictive measures employed with the intent to prevent persons who have been banned by certain global and domestic authorities from accessing services, thereby protecting the integrity of the global financial system and other non-financial sectors.
The UN Security Council can take action to maintain or restore international peace and security under various Security Council sanctions that have different forms to achieve a variety of goals. These measures range from comprehensive economic and trade sanctions to more targeted measures such as arms embargoes, travel bans, and financial or commodity restrictions. The Security Council applies sanctions to support peaceful transitions, deter non-constitutional changes, constrain terrorism, protect human rights, and promote non-proliferation
These sanctions measures are most effective at maintaining or restoring international peace and security when applied as part of a comprehensive strategy encompassing peacekeeping, peacebuilding, and peacemaking.
What Is a Sanctions Screening Program
Anti-Money Laundering (AML) related sanctions screening refers to a process where an RE must complete certain
procedures to evaluate any money laundering-related risks. It is important to note that sanctions screening is one of the
earliest steps in the AML program while dealing with clients. It involves cross-checking client names against lists such as
sanctions lists, watchlists, PEP lists (politically exposed persons), etc. The ideal way to ensure compliance is to implement a
well-developed sanctions screening program to avoid regulatory non-compliance.
Fundamental pillars of a Financial Crime Compliance (FCC) program call for “Screening” to be implemented as a core compliance measure to assist with identifying sanctioned individuals /organizations to which RE’s may be exposed. Screening also helps RE’s to ascertain their reason for such sanctions and the sanctioning authority.
Indian Regulations on Sanctions
Pursuant to various obligations of India as a member state to various treaties and as signatories to international agreements, sanctions screening become obligatory and hence assumes importance.
Indian regulators prescribe the need to screen the names of sanctioned persons against the client databases on an ongoing basis, besides screening of clients at the time of establishing a business relationship with a new customer. These regulations are therefore expected to be put into practice by RE’s , either by maintaining such a database or by subscribing to publicly available sanctions databases, where a comprehensive set of such banned persons list is available.
The Indian regulators that require sanctions screening to be conducted are:-
- The Reserve Bank of India (RBI)
- Securities and Exchange Board of India (SEBI)
- International Financial Services Centres Authority (IFSCA)
- Pension Fund Regulatory and Development Authority (PFRDA)
- Insurance Regulatory and Development Authority of India (IRDAI)
Moreover, Indian government authorities such as the Ministry of Home Affairs (MHA), local police, the Enforcement Directorate (ED), Central Bureau of Investigation, Serious Fraud Investigation Office, etc., also publish their own list of persons wanted for various predicate offenses. These offenses are listed in the Schedule under 2 (1) (y) of the Prevention of Money Laundering Act, 2002. Hence, these lists also become obligatory to follow, to avoid non-compliance with regulations in both letter and spirit.
Obligations of Indian Reporting Entities
Indian banks, financial institutions, and other designated RE’s such as entities in the Gems and Jewellery sector, Designated Non- Financial Businesses and Professions (DNFBP’s), the casino sector, etc., are obligated to scan their client names for identifying any
sanctioned persons.
How to Set Up Effective Sanctions Screening Processes
Setting up a robust and functional sanctions screening process can be a daunting task for RE’s. The dynamism of a sanctions screening process demands a well-trained and skilled staff or professional services from experts who have experience in dealing with sanctions.
Process and Challenges in Sanctions Screening
Screening involves name matching of clients by scrubbing them against the designated sanctions lists.
The outcomes of a sanctions screening are varied and RE’s must exercise abundant caution while dealing with the results of sanctions screening.
Typically, there are three outcomes of sanctions screening (both at the onboarding stage and on a continuous basis) and they are as follows:
- No match (there was no matching name against the sanctions list(s) that was used for checking names)
- A near match (which means that some attributes of the sanctioned persons name and other parameters match in part or a combination of client attributes such as name and date of birth matched)
- A complete or exact match (where the client name and the name on a sanctions screening database, are matched)
There is more to mere screening and matching of names against sanctions databases. Ideally, a wider combination using the following parameters is recommended. They typically include :
- Full name, including known ‘aliases’
- Addresses – both residential and correspondence addresses
- Date of Birth
- Place of Birth (Country, City, etc.)
- Document Numbers (ex: Passport Number, PAN, Voter ID, Aadhaar, etc.)
- Place of Incorporation (for entities)
- Company Registration Number
- Any other reliable information that can be used for identification
The use of the above-mentioned combinations is helpful in eliminating false positives and arriving at a narrow list of likely true matches. These true matches require appropriately detailed scrutiny and further validation with the client’s updated profile to ensure that they are indeed the names that match with a designated sanctioned name.
Further Actions Upon Name Matches
Indian banks, financial institutions, and other designated RE’s such as entities in the Gems and Jewellery sector, Designated Non- Financial Businesses and Professions (DNFBPs), the casino sector, etc., are obligated to regularly scan their client names for identifying any sanctioned persons.
What Should a Reporting Entity Do Once a Client's Name Matches a Sanctions List?
RE’s have certain legal and regulatory obligations to follow when they find a true match with a sanctions persons list. These obligations depend on the underlying list where the name match was found. For example, if a match was established with any of the sanctioned lists (ex: the consolidated list of the UNSC), it is expected that the RE undertakes the following:
- Flag off the client as a high risk, if not already
- Immediately inform all Nodal Officers (State and Central) if so prescribed under Regulations
- Undertake detailed scrutiny of such a client vis-a-vis their transactions, other activities with the RE, all business correspondences, bank accounts used, contact details such as mobile number, email ID, etc., sources of funds, collective wealth known to the RE and collate this information.
- Prepare a detailed assessment report and establish any unusual transactions or patterns of transactions
- Identify any other client within the RE’s database, and if there were any linked commercial transactions, and undertake a similar client assessment as described in (2) and also (3) above
- Discuss with the Principal Officer (PO) and Designated Director (DD) in detail with all documentation
- Without any loss of time, prepare a detailed STR with proper grounds of suspicion and file it with FIU-IND
- Place the client under high scrutiny henceforth
- Close the account immediately only if so authorized by any designated authority
- Ensure that there is no tipping-off to anybody under any circumstances
Authorities have prescribed procedures and timelines to be followed in the event of true matches in the context of UAPA and WMD.
The links to these guidelines are as follows: –
REGULATORY BODIES
MASTER DIRECTIONS / CIRCULARS
Note:- Kindly refer to all amendments / circulars issued pursuant to the above guidelines /directionS
Conclusion
RE’s are also partners in nation-building by defending their institutions from being used and abused by these sanctioned persons. Following the prescribed regulatory obligations also sends out the right signal to these criminals that they cannot be part of the financial ecosystem and thus prevent and detect money laundering, terrorist financing, and proliferation financing.
Our Screening Solution
Screenzaa, our screening compliance solution is a comprehensive tool that uses a wide range of sanctions (a list of 95+ sanctions lists) to assist you. This solution is available both as a SaaS and as an on-premises option. Screenzaa can be easily integrated with your database and can be screened for a name match on a 24*7 basis. Using a combination of our other modules from TrackWizz viz. Risk Rating and Transaction Monitoring; identifying, tracking, and reporting of sanctioned persons becomes easy, where we handhold you throughout the compliance process.
Over 370+ clients use our solutions. Visit Screenzaa to learn more.
