Sanctions Testing Service & Sanctions Screening Service

SWIFT Sanctions Solutions

Thomas Preston

24 November 2014

Sanction Fines

• Key takeaways

– Importance of Sanctions Controls

– Complexity of Sanctions Compliance

– Building a Quality Assurance Program

Sanctions Testing – 2014 – Confidentiality: Public 2

Sanction Fines

• Transactions to Sudan (as well as Cuba and Iran) enabled via Data Stripping (2014) – OFAC –French Bank

• Transaction to Iran and Sudan by replacing the BIC with the name of the bank (2013) – OFAC – UK Bank

• Lack of verification on name of beneficial owner against EU list (2013) – Finansinspektionen – Nordic bank

• Data stripping on payments to Iran and Cuba, to hide the origin of the funds (2012) – OFAC – Dutch Bank

Sanctions Testing – 2014 – Confidentiality: Public 3

Sanctions Impact / Risks

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Global review of

banking relationships

both on profitability and

on compliance

The pressure to adhere to

anti-money laundering

standards, has resulted ‘in

higher operational costs for

trade and export finance

business’ (ICC)

Why is sanctions compliance so complex?

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40,000

4 billion + Names and aliases on lists

Correspondent relationship

terminated over the past

year by just one US Bank

Possible fuzzy logic combinations

3,000 New aliases in a single EU

update on 19 July 2011

500

40,000 Names and aliases

on EU/OFAC/UN lists

1 day Average interval of

list updates

4 billion + Possible fuzzy logic

combinations

The Opening at SIBOS..

Comments from Adam Szubin (Director OFAC);

• ‘..to be compliant, you must start with transparency, and you must know your customers (customer)..’

• ‘..awareness re sanctions is at an all time high, screening is central to a good compliance program..’

• ‘..it is felt that sanctions are proportionate and targeted..’

• ‘..queries to the agency are more sophisticated, showing an increased level of understanding..’

• ‘..must remember that enforcements that are seen today, reflect conduct 5-10 years old, and doesn’t

necessarily reflect current behaviour..‘

• ‘..de-risking that is proportionate, is not a concern, extreme de-risking that is not proportionate is an

issue..’

Sanctions Testing – 2014 – Confidentiality: Public 6

Key Trends at SIBOS..

Financial Times, Barclays, Citi, HSBC, RBC representatives;

• ‘..increased expectation that we must know our customers customer wasn’t there 5

years ago..‘

• ‘..beyond enforcement fines, the issue is reputational..’

• ‘..high risk is not bad, its inadequately managed risk that is the issue..’

• ‘..operational excellence is key, but there is a brain drain, with a war for talent and

increased cost..’

• ‘..clearer standards are essential for business understanding, a government utility could

be an interesting, but potentially contentious outcome for sanctions management..’

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Sanctions Testing

How do you build in

A Quality Assurance Program?

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Effectiveness

• Provide assurance that your filter works

• Measure system’s fuzzy

matching performance

• Assess coverage of sanctions lists

• Align screening system to your

risk appetite

Efficiency

• Reduce false positives

through iterative testing

• Build optimisation tests into

your processes

• Understand parameter changes

• Manage and tune rules and “good-guy” lists

Testing Meeting regulatory demands

Tuning Managing cost and resources

with

Banks face a sanctions compliance challenge

In a world of unprecedented complexity and change:

• How can I be sure my screening solution protects my institution?

• How can I demonstrate to regulators that I understand my solution and how it

mitigates risks?

• How can I make my screening solution more effective – and more efficient?

Sanctions Testing – 2014 – Confidentiality: Public 10

• Outdated lists

• Missing entry types

• Missing entries

• Language variants not screened correctly

• Deleted records still screened

Sanctions Lists

Quality

• List scope incorrect or not aligned with bank policy

• Inconsistent implementation across filters

• Entity and alias types screened unnecessarily

Screening

Policy

• Inconsistent screening performance across message types

• Message or file elements not screened properly

• Overreliance on specific fields (e.g. address or country)

Message

Types

• Poor fuzzy matching performance

• Line break, word order, sequences

• Poor performance against particular entries (short or long names, aliases)

• Character set matching issues

Filter

Weakness

Common issues identified through testing

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Sanctions Screening Service

Introducing a new Sanctions Screening option

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Jan

2015

Your institution Your correspondent

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Based

on

Copy

Based

on

Connector

Questions?

14

THANK

YOU

Thank you

Guide to your next Speed Briefing session

16

SPEED BRIEFING ROOM and NUMBER

The Return of Madame Fortuna – the SWIFT Timeline CHAGALL - 1

Why AMH shines in your infrastructure landscape VAN DONGEN - 2

The Know your Customer Registry PICASSO - 3

Sanctions Compliance HEMINGWAY - 4

Compliance Analytics CENDRARS - 5

MT to ISO – Adoption of European RTGS MILLER - 6