MAJOR SANCTIONS REGIMES
| Authority | Scope | Key Lists |
|---|---|---|
| OFAC (USA) | Extraterritorial (USD transactions globally) | SDN List; Consolidated Sanctions List; OFAC Country Sanctions |
| OFSI / HMT (UK) | UK persons, UK-incorporated entities, UK territory | UK Consolidated Sanctions List |
| EU Council | EU persons, EU-incorporated entities, EU territory | EU Sanctions Map (CFSP) |
| UN Security Council | All UN member states | UN Consolidated List |
| AUSTRAC / DFAT (Australia) | Australian persons, Australian territory | DFAT Consolidated List |
OFAC SDN LIST — CRITICAL RULES
The OFAC Specially Designated Nationals (SDN) list is the most consequential sanctions list globally due to OFAC's extraterritorial enforcement of USD transactions.
Rule: Any transaction involving an SDN — directly OR through a non-US financial institution — is subject to US sanctions regardless of whether the transaction touches US persons, US territory, or US infrastructure.
"50% Rule": An entity owned 50% or more (directly or indirectly) by an SDN is itself treated as an SDN, even if the entity is not explicitly listed. This rule requires looking through corporate structures to identify SDN ownership.
Penalties for OFAC violations: Civil penalties up to $1M per violation (or twice the transaction amount, whichever is greater); criminal penalties for wilful violations; debarment from US financial system (the "death penalty" for banks).
UK SANCTIONS — OFSI / HMT
Office of Financial Sanctions Implementation (OFSI) administers UK sanctions. UK Consolidated Sanctions List: includes all UN lists + UK-specific designations. Post-Brexit: UK may designate individuals/entities not designated by EU (and vice versa). Always screen against BOTH UK and EU lists for UK-connected counterparties.
OFSI monetary penalty: Up to £1M or 50% of estimated value of sanctioned activity, whichever is greater. Strict liability (no intent required for civil penalty). Reporting: Banks must report known/suspected sanctions violations to OFSI promptly.
SCREENING PROCESS
What Must Be Screened
Customers (at onboarding and periodically) Beneficial owners and directors of corporate customers All payment counterparties (sender and receiver in wire transfers) Correspondent banks and their underlying customers (nested accounts) Securities issuers (bond and equity investments) Trade finance counterparties (importers, exporters, shipping companies)
Screening Methodology
- Name screening against all applicable lists
- Fuzzy matching (typos, transliterations, partial names — common Arabic, Russian, Chinese names)
- Date of birth, nationality, known aliases, passport numbers if available
- Entity: registration number, jurisdiction, SWIFT BIC, IBAN
False Positive Resolution
A false positive is a name match that is NOT actually a sanctioned individual/entity. Resolution process: a) Gather full identifying information from the match: DOB, nationality, address, ID b) Compare against listed person's identifying information in full c) Determine if match is the same person or a different person with similar name d) If DIFFERENT person: document resolution clearly with differentiating evidence e) If SAME or UNABLE TO DETERMINE: escalate to Sanctions Officer — do not release the transaction
Documentation: Every false positive resolution must be documented. Auditors will sample false positive resolutions — undocumented resolutions are a finding equivalent to a missed sanction.
SANCTIONS HIT — ESCALATION PROCEDURE
- STOP the transaction / freeze the funds immediately
- Notify the Sanctions Officer or MLRO immediately
- Do NOT inform the customer that a sanctions match has been detected (may constitute a warning offence under UK/US law)
- Gather all available information on the counterparty
- Consult legal counsel (sanctions analysis is a legal determination)
- If confirmed hit: freeze funds, report to OFAC/OFSI as required
- Regulatory reporting deadline: promptly (varies by jurisdiction — check overlay)
THE 50% RULE — OWNERSHIP SCREENING
Before clearing a counterparty that is NOT on a list: Check: Is this entity ≥ 50% owned directly or indirectly by an SDN or listed entity? If yes: treat as if the entity itself is listed. Corporate registries, beneficial ownership databases (Refinitiv/LSEG, Dow Jones, Moody's/Bureau van Dijk) support this analysis.
CORRESPONDENT BANKING — NESTED ACCOUNT RISK
Risk: The respondent bank (foreign correspondent) holds accounts for its own customers within the correspondent relationship. The host bank does not know who the underlying customers are — "nested accounts." Mitigation: FATF Recommendation 13 EDD for correspondent banking: a) Understand respondent's AML programme quality b) Assess respondent's sanctions compliance programme c) Obtain written agreement that respondent will not allow nested accounts without host bank's knowledge d) Satisfy that respondent is not a shell bank
DERISKING
Some banks have "derisk" certain respondent relationships (exit the relationship) rather than manage the risk of unknown underlying customers. FATF and the BCBS have issued guidance cautioning against blanket derisking on a country or regional basis — this undermines financial inclusion. Derisking should be: risk-based; documented; with individual assessment of specific relationships rather than blanket country exits.
NEVER DO THESE
- NEVER release a transaction without clearing a sanctions hit — even a probable false positive
- NEVER inform the customer about a sanctions screening (could be tip-off)
- NEVER rely solely on name matching without fuzzy-matching for transliterations
- NEVER omit the 50% ownership rule analysis for corporate counterparties
- NEVER assume a non-listed entity is clear without checking its ownership chain
ALL OUTPUTS REQUIRE REVIEW BY A QUALIFIED PROFESSIONAL BEFORE USE IN REGULATORY FILINGS OR BUSINESS DECISIONS.