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SANCTIONS RISK – WHAT’S THE PROBLEM?
WEBINAR
PRESENTERS:
Chris ParryStrategic Forecaster and Risk ExpertConsultant to Thomson Reuters
Andrew Simpson Chief Operating Officer CaseWare Analytics
SANCTIONS RISK – WHAT’S THE PROBLEM• Direct risk
• Indirect risk
• Multiple sanctions regimes
• Multi-national exposure
• Trading risk
• Links to other forms of crime
• Reputational risk
• Legality and legitimacy
• Predatory US enforcement
SANCTIONS REGIMES – THEIR CHARACTER AND EFFECTIVENESS
• Political purpose – financial and commercial means
• Rarely comprehensive
• Normally target regime is affected less than population
• Black economy
• Rarely more than a holding action
EVASION AND LOOPHOLES
• Partial regimes
• Barter
• Trafficking
• Opaque beneficiary and ownership chains
• Window-dressing, false accounting and shadow documentation
• Dual-use goods
IDENTIFYING THE CULPRITS
• The usual suspects – the state, state-based companies, intermediate facilitators and financial institutions
• Connections to other forms of financial crime – counterfeiting, money-laundering, terrorist financing
IDENTIFYING THE CULPRITS
• Trafficking
• Informal networks and money transfers
• Data-bases and watch-lists
• Interpretative analysis
• Insiders and whistleblowers
• Your own company’s deliberate policy?
THIRD PARTIES AND PROXIES
• Other states
• Shell companies
• Shell banks
• Legal entities – Panama Papers
• Legitimate entities
• Long-term agency
• Watch out for your partners –and their partners
RUSSIA
• Personal
• Sectoral
• State-based financial institutions
• State security and governmental institutions
• Diaspora risk
IRAN
• Current status of sanctions
• Power in Iran
• Relationship with China
• Offshore and onshore risk
• Links to terrorism
• Diaspora risk
IMPLEMENTING A COMPREHENSIVE SANCTIONS RISK APPROACH
• Continuous process
• Understanding the context –intelligence and interpretations
• Reducing false positives –optimum data points
• Network analysis –individuals and companies
IMPLEMENTING A COMPREHENSIVE SANCTIONS RISK APPROACH
• Data-sets for screening risk
• End-to-End screening of networks and supply chains
• Enhanced Due Diligence
• Outsourcing screening?
• Shared risk – Cooperation and collaboration
IMPLEMENTING A COMPREHENSIVE SANCTIONS RISK APPROACH
• Relationship with OFAC, regulators and enforcers
• Everybody’s Business
• Dealing with Vulnerabilities
THREATS TO THE EFFECTIVENESS OF FUTURE REGIMES• Partial regimes
• Failing and flailing states
• Regulatory and legal complexity
• Synthetic currencies and block chain technologies
• Alternative SWIFT system
• Shadow financial processes
• Beyond-third-party agents
INNOVATION THAT WILL HELP
• Big data applications – multi-sector analysis and bio-recognition
• Regulatory and legal algorithms
• Artificial intelligence
• Machine learning
• Block chain (again)
• Regulatory kitemarks
SANCTIONS SCREENING AUTOMATION• Automation Options
• Use cases across industries:• Banking Scenario• Money Services Business• Fintech• Gaming• Supplier/Vendor Risks
• Enrolling the entire business
AUTOMATION OPTIONSAd-hoc searches
Seco
ndar
y Id
entif
iers
Prim
ary
Iden
tifie
rs LAST NAME
LOW QUALITY ALIASESFIRST NAME
ALIASES
E/I
ALTERNATIVE SPELLING
AGE
PLACE OF BIRTH
DOB
DOBS
DECEASED
IDENTIFICATION NUMBERS
PASSPORTS
SSN
LOCATIONS
CITIZENSHIP
COUNTRIES
AGE DATE (AS OF DATE)
AUTOMATION OPTIONS
AUTOMATION OPTIONSPeriodic/Continuous Screening
• Why?• Customer information may have changed• Watch-list data may also have changed
• Frequency?• Depends on what other risk management exists• Most companies do monthly or quarterly
AUTOMATION OPTIONSReal Time Screening
MANAGING FALSE POSITIVES• Use best data available
o Countryo Date of birth/Age
• Not all sanction lists may be relevant • Exclude parts of world that are not applicable• Use native character sets• Use case management with machine learning
HANDLING NATIVE CHARACTER SETS
MACHINE LEARNING
Screen Customers
Potential Hits
Users Take Actions (e.g.
Flag False Positives)
Machine Learning Applied
Refine Matching
Algorithms and Case
Management
Case Management Learning
BANKING
• Screen during on-boarding:o Consider interfacing with a screening API
• Periodic screening:o Apply customer segmentation
• Real-time for cross-border transactions
MONEY SERVICES BUSINESSES
• Not always required
• Profile customers that you may need to screen. High risk customers that are involved in:o Structuringo Smurfingo Flipping
• Use the country risk as well to narrow the focus
FINTECH• Integrate with a screening API
Infographic prepared by Let’s Talk Payments
GAMING
• Screen at onboarding
• Periodic Screening of Patrons
• Use risk profiling to narrow focus
• May screen gaming to bank account transfers in real time
END TO END SCREENING FOR SUPPLY CHAIN• Segment suppliers by risk profile:
o Locationo Items being suppliedo Dependencyo Volume of business
• Screen at onboarding
• Periodic screening to assess any changes in risk
• Correlate to transaction monitoring
ENROLLING EVERYONEWorkflow and Case Management
