Although most businesses focus on verifying identities, Tax IDs, and sources of funds as part of their standard Anti-Money Laundering (AML) compliance efforts, they often overlook a critical aspect—sanctions screenings. Let’s explore the role of sanctions screenings in mitigating risk, ensuring compliance with global and federal regulations, and protecting businesses from engaging with individuals or entities involved in illegal activities
What Are Sanctions Screenings, and Why Are They Important?
Sanctions screenings are designed to prevent businesses from engaging with individuals, companies, or entities involved in illegal activities like money laundering, terrorist financing, or drug trafficking. These checks compare potential customers, partners, or employees against global sanctions lists, such as the one maintained by the Office of Foreign Assets Control (OFAC) in the United States.
Regular sanctions checks are crucial for maintaining the integrity of a company’s operations and ensuring compliance with global AML regulations. Failing to conduct sanctions screenings can expose businesses to serious legal and financial risks including hefty penalties, fines, and damage to their reputation.
Which Industries Require Regular OFAC Screenings?
Industries such as banking, lending, insurance, e-commerce, retail, and government agencies are required to perform regular OFAC sanction screenings. Sanctions screening is a fundamental part of due diligence practices within these industries due to their exposure to financial transactions and high-risk activities.
Additionally, companies operating across borders face an increased risk of interacting with sanctioned entities. Therefore, any business involved in international trade or cross-border partnerships should prioritize regular sanction screenings.
How Often Should Companies Conduct Screen Against OFAC?
The frequency of OFAC sanction screenings depends on the risk profile of the individual or entity in question. For low-risk profiles, a single screening during the onboarding process may be sufficient. However, for high-risk engagements—such as transactions involving international clients, high-volume financial transfers, or industries prone to illegal activity—continuous monitoring and regular screenings are necessary.
Monitoring account activity and conducting ongoing OFAC checks provides businesses with an extra layer of protection against legal risks and financial penalties. Since the OFAC sanctions list is frequently updated with new entities, individuals, or countries under restriction, staying vigilant is key. Businesses should conduct screenings not only during onboarding, but also whenever new sanctions are released to avoid unintentional violations.
What to Do When You Detect a Match?
If a sanction screening indicates a match, the first step is to verify that it’s accurate. The Office of Foreign Assets Control (OFAC), part of the Department of the Treasury in the United States, provides instructions to validate a match. If the match is confirmed, immediately stop all business with the individual or entity to avoid violating sanctions regulations. Continuing business with these Specially Designated Nationals (SDNs) could lead to severe legal and financial consequences.
If you believe the match is incorrect, you can request a review from OFAC. However, until the matter is fully resolved, continuing to engage with the sanctioned party could still be considered a violation of AML compliance programs. To avoid this, it is essential to follow OFAC’s guidelines closely and suspend any business activity with the entity in question.
Additionally, businesses may need to file a Suspicious Activity Report (SAR) or notify the Financial Crimes Enforcement Network (FinCEN) if they suspect involvement in illegal activities. This is a critical part of the effort to prevent money laundering, protect the integrity of financial systems, and comply with global and U.S. regulations surrounding Specially Designated Nationals (SDNs).
How TINCheck Can Help with OFAC Monitoring
TINCheck simplifies the process of protecting your business from sanctions, penalties, and fraud by providing real-time access to the OFAC sanctions list and nearly 20 other watchlists, including the EU Sanctions List, the Arms Export Control Act, and FBI and Interpol wanted lists. Our tools are constantly updated to ensure you stay compliant with the latest changes.
Whether you need real-time screening or bulk re-screening, TINCheck can meet your needs. Click here for a complete list of verification services and global watchlists.