Sanctions Screening

Sanctions screening is the comparison of names in a firm's client files with the lists of persons and entities that are subject to sanctions. In the EU those lists come from decisions and regulations adopted by the Council. The EU publishes a consolidated list of the persons, groups and entities under its financial sanctions.

The Anti-Money Laundering Regulation (AMLR) calls these measures targeted financial sanctions. Article 2(1)(49) defines them as two things: asset freezing, and prohibitions on making funds or other assets available, directly or indirectly, for the benefit of designated persons and entities.

Screening does not create these duties. They come from the sanctions regulations themselves. The recitals of the AMLR describe the obligation to freeze as rule-based and as binding on all natural and legal persons in the Union. Screening is how a firm finds out whether that obligation applies to one of its clients.

Every obliged entity under the AMLR must carry it out as part of customer due diligence. Article 20(1)(d) requires the firm to verify whether the client or its beneficial owners are subject to targeted financial sanctions. Obliged entities include banks, auditors, external accountants and tax advisors. They include notaries and lawyers when they act in the transactions listed in Article 3.

The duty reaches into how the firm is run. Its internal policies, procedures and controls must manage the risk that sanctions are not applied or are evaded (Article 9(1)). Its business-wide risk assessment must cover that risk (Article 10(1)). The compliance officer's responsibilities include the implementation of targeted financial sanctions (Article 11(2)).

The AMLR applies from 10 July 2027 (Article 90). The sanctions regulations do not wait for that date. They are separate legal acts that already apply to everyone in the EU, whether or not the person is an obliged entity.

At the start of the relationship, and then regularly for as long as it lasts. The first check is one of the due diligence measures a firm applies when it establishes a business relationship (Article 19(1)).

The later checks are set by Article 26(4). A firm must regularly verify whether the client or its beneficial owners have become subject to sanctions. The frequency must match the firm's exposure, and that of the relationship, to the risk that sanctions are not applied or are evaded. Banks and other financial institutions must also repeat the check on any new designation.

Sanctions lists change, and a person who was not listed at onboarding can be listed later. A single check on the day the client was accepted therefore does not meet Article 26(4). The same paragraph adds that it does not replace stricter screening duties under other EU acts or national law.

United Nations listings need separate attention. They become EU sanctions through decisions and regulations of the Council. For the period between the UN's publication and the EU act, Article 27 requires firms to keep records of the funds or other assets they manage for a listed client, and of the transactions the client attempts or carries out.

It checks who owns and controls the client. Where the client is a legal entity, Article 20(1)(d) requires the firm to verify whether persons subject to sanctions control it, or hold more than 50% of its proprietary rights or a majority interest in it. The test applies to those persons individually or collectively. Two listed shareholders with 30% each are caught, although neither holds a majority alone.

A firm can only apply this test if it knows the ownership structure, which is why sanctions screening depends on identifying the beneficial owner first. For the assessment of ownership and control, the recitals of the AMLR point firms to the Council's guidelines and best practices on restrictive measures.

Names alone are an unreliable match. The same name can be spelled several ways after transliteration, and many people share a name. A possible match is checked against other details, such as date of birth, nationality or company registration number, before the firm treats it as real.

The firm first confirms that the match is the listed person, then applies the sanctions. In general terms that means freezing the assets it holds for that person, making no funds or other assets available to them, and informing the national authority responsible for sanctions. The exact steps come from the sanctions regulation concerned and from national law, not from the AMLR.

The AMLR adds consequences of its own. A firm may not apply simplified due diligence where it suspects that a client, or a person acting for the client, is trying to circumvent or evade sanctions (Article 33(5)). The firm also keeps a record of what it checked and what it decided, as it does for every due diligence measure (Article 21(3)).