Sanctions Screening & Sanctions

Testing

Samir El –Ouahabi, Commercial Manager, AML& Sanctions Solutions

A quick and easy route to transaction screening

Sanctions Screening

Why are Sanctions so complex?

3

40,000 names on lists

4 Billion fuzzy combinations

15.5 Billion $ fines levied on financial institutions for violation of sanctions regulations

1 Day

Average interval between sanctions list updates for banks active globally

-50%

Decrease in number of correspondent relationships from some US banks

+100%

Increase in alerts every 4 years due to increase in SDNs and transaction numbers

+20%

Yearly increase in names and aliases on US OFAC list

Context

• Regulatory scrutiny and

enforcement

of sanctions policies is increasing

• Available screening solutions

complex and costly to maintain

• Challenges for low-volume

financial institutions

SWIFT is

launching a

centralised

Sanctions

screening service

for low volume

clients

4

Your institution

• Screening engine & user interface

• Centrally hosted and operated by SWIFT

• No local software installation & integration

• Real-time

• Sanctions List update service

Sanctions screening over SWIFT

Your correspondents

5

Public Sanctions lists available

Country Description

Australia Department of Foreign Affairs and Trade

DFAT Iran Specified Entities List

DFAT Country List

Canada Office of the Superintendent of F.I.

OSFI - United Nations Act Sanctions

Department of Foreign Affairs and Trade

DFAIT Countries Embargoes

European Union

European Official Journal

EUROPE Countries Embargoes

EU Ukraine Restrictive Measures

France Journal Officiel français

Hong Kong

Hong Kong Monetary Authority

HKMA Countries Embargoes

Japan Ministry of Finance

Special Measures

Netherlands

Frozen Assets List - Dutch Government

New Zealand

New Zealand Police 6

Country Description

China Ministry of Public Security of the PRC

Singapore Monetary Authority of Singapore - Investor Alert List

Switzerland

Secrétariat d'Etat à l'Economie

SECO Countries Embargoes

United Kingdom

Her Majesty's Treasury

HMT Countries Embargoes

HMT Ukraine Restrictive Measures

United Nations

United Nations

UN Countries Embargoes

United States of America

Financial Crimes Enforcement Network

OFAC Embargoed Countries

OFAC Foreign Sanctions Evaders

OFAC Part 561

OFAC Palestinian Legislative Council

OFAC Specially Designated Nationals

OFAC Sectoral Sanctions Identifications

OFAC Non-SDN Iranian Sanctions Act

Public sanctions lists

updated by SWIFT daily

34

Private lists & Good-guys lists

managed by the users

Private Lists

7

Good Guys List

Single entries and bulk capability

Sanctions Screening- Additional Lists

8

Screening & Audit Report

Screening Report

Audit Report:

• Copy of each alerted transaction

• Hit details

• Comments and final status

• Audit log of all transactions screened

• Audit log of all operators activity

• Audit log of public, private and good-guys list selection and activity

Quality assurance Report

• Periodical quality assurance checks on effectiveness of the service

• Verifies that lists used mirror regulatory sources

• Measures exact and fuzzy matching capabilities

• Provides details on filter configuration and related impact

325 users

109 countries

16 central banks

18 branches

of Tier 1

9

10

• Easy to implement

• Simple to use

• Cost efficient

• Compliance

• Peace of mind

Benefits

Implementation options

Copy option

Transparent routing of FIN transactions

to the service using FIN-Copy

Few weeks

Zero

Limited

FIN Cat 1, 2, 4, 7

Connector option

Query/response of all transaction types

through API call to the service

Few Months

Limited

Unlimited

All transaction types

11

Your institution Your correspondent

1

2

3

Your institution Your correspondent

1 2

3

Scope

Flexibility

Footprint

Timeframe

Transactions

Screened

Granularity

on what is filtered

Installation &

integration

Time to

compliance

12

Fin Copy Option

SWIFT Network

FIN copy

Outgoing transaction

Screening engine

Transaction

is copied

Transaction is delivered

(no hit or false positive)

Decision to deliver (no hit / false positive)

or abort transaction (true hit)

Transaction abort notification (true hit)

1

2 4

5

5

3

Service

user

Sending bank Receiving bank

Sanctions Portal

Managed by SWIFT

Service overview - as sender

13

Service overview - as receiver

Service

user Managed by SWIFT

SWIFT Network

FIN copy

Outgoing transaction

Transaction

is copied

Transaction is delivered

as-is (no hit or false positive)

1

2

5

3

Sending bank Receiving bank

4 Instruction to deliver

transaction

5

Transaction is delivered

flagged (true hit)

Screening engine Sanctions Portal

14

15

Connector Option

Sanctions Screening: Connector based Option

Increasing demand for:

More flexibility to screen FIN

Ability to screen other formats

New

Connector

based option

to cover

additional

needs

16

– All SWIFT formats

– Local non-SWIFT formats (e.g. domestic RTGS/ACH)

– Internal formats

– ISO20022 MX messages, SEPA

– FileAct or other file transfer, sent through SWIFT or non-SWIFT channels

Connector based option: Enhanced Flexibility

Screening of all formats

17

FIN outgoing message

Managed by SWIFT

18

SAA

B.O CFS

Screening Engine Sanctions Portal

Case Management of Alerts 4

5a

FIN 1 ROUTING 2

3b

3b 5b 5a

5b

6a 3a

5b

Domestic 202 non USD message

International 103 sent for screening (false positive)

International 103 confirmed as true hit

FIN incoming message

Managed by SWIFT

19

SAA

B.O CFS

Screening Engine Sanctions Portal

Case Management of Alerts 4

ROUTING 2

3b

3b 5b 5a

FIN 1 3a

6a 6b

6a

Message from BO – doesn’t need to be screened

Domestic 103 in USD

Domestic 103 in USD confirmed as ‘true hit’

6b

20

Alliance

Access

Connector for

Sanctions

Back Office

Ref 23441 IBAN XX

Ref 23442 IBAN XX

Ref 23443 IBAN XX

Ref 23444 IBAN XX

Ref 23445 IBAN XX

Ref 23446 IBAN XX

Ref 23447 IBAN XX

Ref 23448 IBAN XX

Ref 23449 IBAN XX

Ref 23450 IBAN XX

Ref 23451 IBAN XX

Ref 23452 IBAN XX

Ref 23453 IBAN XX

Bulking

SWIFT

Expected Outgoing SEPA Flow

Ref 23441 Ref 23442 Ref 23443 Ref 23444 Ref 23445

Output repository

Ref 23441

Ref 23442

Ref 23442

Ref 23444 Ref 23445

Other

network

Sanctions

Screening

Decision

21

Alliance

Access

Connector

for

Sanctions

Back Office

Ref 23441 IBAN XX

Ref 23442 IBAN XX

Ref 23443 IBAN XX

Ref 23444 IBAN XX

Ref 23445 IBAN XX

Ref 23446 IBAN XX

Ref 23447 IBAN XX

Ref 23448 IBAN XX

Ref 23449 IBAN XX

Ref 23450 IBAN XX

Ref 23451 IBAN XX

Ref 23452 IBAN XX

Ref 23453 IBAN XX

SWIFT

Expected Incoming SEPA Flow

Output repository

Ref 23441

Ref 23442

Ref 23442

Ref 23444 Ref 23445

Sanctions

Screening

deb

ulk

Decision

DEMO

22

Your institution

Two alerts are created.

Messages resulting in

alerts are temporarily held

in the connector and a

notification sent to the bank

for investigation

Your correspondents

The Level 1 user logs-in to the

Sanctions portal to review the

alerts

L1 user

23

Usage

Your institution

Your correspondents

L1 user

The Level 1 user selects one

of the pending alerts to view

the details

24 24

Your institution

Your correspondents

Message content

Hits generated by

the message &

sanctions list

identifier

Sanctions list

record detail

Escalate to

Level 2

L2 user

25

Release the

message

Your institution

Your correspondents

L2 user

Stop or Flag

the message

26

L2 user

Release the

message

When the user confirms a true hit then:

• Sanctions Screening informs the Connector that the message

contains a true hit

• Depending on the configuration, the message is passed back to

the back-office flagged as true hit or moved to special queue

27

Your institution

Your correspondents

28

Q&A

?

Quality Assurance for Banks

Sanctions Testing

In a world of unprecedented complexity and change:

• How can I be sure my screening solution protects my institution?

• How can I demonstrate to regulators that I understand my solution

and how it mitigates risks?

• How can I make my screening solution more effective – and more

efficient?

Banks face a sanctions compliance challenge

Effectiveness

• Provide assurance that your filter works

• Measure system’s fuzzy

matching performance

• Assess coverage of sanctions lists

• Align screening system to your

risk appetite

Efficiency

• Reduce false positives

through iterative testing

• Build optimisation tests into

your processes

• Understand parameter changes

• Manage and tune rules and “good-guy” lists

Testing Meeting regulatory demands

Tuning Managing cost and resources

Sanctions compliance – balancing priorities

with

Sanctions Testing – 2014 –

Confidentiality: Public

Introducing

Sanctions Testing

from SWIFT

Sanctions Testing – 2015 – Confidentiality: Public

Common issues identified through testing

• Outdated lists

• Missing entry types

• Missing entries

• Language variants not screened correctly

• Deleted records still screened

Sanctions Lists

Quality

• List scope incorrect or not aligned with bank policy

• Inconsistent implementation across filters

• Entity and alias types screened unnecessarily

Screening

Policy

• Inconsistent screening performance across message types

• Message or file elements not screened properly

• Overreliance on specific fields (e.g. address or country)

Message

Types

• Poor fuzzy matching performance

• Line break, word order, sequences

• Poor performance against particular entries (short or long names, aliases)

• Character set matching issues

Filter

Weakness

Sanctions Testing – 2015 – Confidentiality: Public

34

Q&A

?