Managing the risk of global sanctions is becoming increasingly important for corporates. The landscape is becoming more complex and the regulators are placing non-financial organisations under the spotlight. Is it time to put a best in class sanctions screening programme in place?
Over the past decade, the global sanctions landscape has become increasingly complex as various countries and supranational bodies impose sanctions at an unprecedented rate – that very rarely align with each other. This has put all affected organisations in a difficult position, heightening the risk of them falling foul of sanctions somewhere in the world.
More than half of corporates, when polled during a recent webinar hosted by Treasury Today and Thomson Reuters, said they were either ‘not confident’ or ‘very unconfident’ about their knowledge of the current sanctions environment and the impact it is having on their organisation.
Given the complexity of the global sanctions landscape and how “narrative sanctions” are putting the onus on risk managers in the private sector to ensure companies are not falling foul of these rules, the results are unsurprising, said Jesse Spiro, Global Head of Threat Finance & Emerging Risk at Thomson Reuters.
Using sanctions placed on Russia and Iran as case studies, Spiro revealed the myriad complexity that risk managers face when trying to understand the sanctions that apply and whether their organisations and staff fall foul of these.
Indeed, complexity is the watchword when it comes to sanctions. Corporates, it seems, can no longer rely on their banks – and their outdated sanctions screening technology – to manage the risk. Bill North, Head of Global Sales at Pelican provided some practical guidance for corporates looking to put in place their own sanctions screening programme.
The ultimate goal of any sanctions screening programme is to prevent a company from undertaking any transaction, or working with any entity or individual, that would see it violate regulations. To that end, North believes that sanctions screening programmes must start with treasury determining precisely what it is going to scan – including customers, vendors, partners, and agents. Treasury will then need to decide what sanctions lists to scan these counterparties against, depending on the type of business it is and the geographies in which it operates.
The system must also do this in a streamlined and efficient manner so as not to create any extra work for the treasury team. For example, antiquated systems do not have the sufficient level of sophistication to recognise that a bank branch with the legitimate address of 128 Baghdadstrasse in Berlin is not the same as the sanctioned city of Baghdad in Iraq. The system will, therefore, generate an alert, stop the payment and create more work for the treasury.
Selecting a technology that can best meet these objectives in the most efficient manner is the next step. North suggested that picking a system that understands the context of the payment should be a key driver as this can eliminate the type of issues experienced when sending payments to the aforementioned Baghdadstrasse. Another way to reduce false positives is to leverage AI and machine learning so the system can learn from “clean” transactions and not flag the same data in context twice.
The technology also needs to detail clearly why it has created an alert. North explained that best in class technology should be able to offer a single view of the data or text that caused the alert and the source of conflict. This will dramatically shorten the time taken to start the remediation process.
Furthermore, North argued that treasurers need to think about adopting a system that integrates with existing systems and processes easily. He added that treasury should not have to change a payment file in any way to be able to scan it, and that the system should be flexible to enable users to choose at what point in the process they want to do the scanning.
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