Screening Processes & Compliance Systems Flashcards
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Under OFAC regulations, what is the difference between a 'blocked' transaction and a 'rejected' transaction?
Answer: Blocked transactions involve SDNs and funds are frozen; rejected transactions involve prohibited countries and are returned to sender
OFAC distinguishes between blocking (freezing funds of SDNs) and rejecting (returning transactions involving sanctioned jurisdictions where no property interest exists).
A compliance officer discovers that their screening system has not been updated with the latest OFAC SDN list for 45 days due to a technical failure. What is the PRIMARY risk this creates?
Answer: The institution may have processed transactions with newly designated persons without detection
A stale sanctions list means newly designated individuals or entities may have transacted undetected, creating potential OFAC violations and enforcement exposure.
What is 'straight-through processing' (STP) in the context of sanctions screening?
Answer: A method where transactions that clear screening automatically process without human intervention
STP allows transactions that do not generate alerts to pass through automatically, reserving human review only for flagged items to improve operational efficiency.
Which scenario best illustrates a 'false positive' in sanctions screening?
Answer: A transaction by a legitimate customer with a name similar to an SDN that is flagged but ultimately cleared after review
A false positive occurs when a legitimate, non-sanctioned individual triggers an alert due to a name similarity with a listed person, requiring analyst review before clearance.
What is the significance of SWIFT's Sanctions Screening service for correspondent banks?
Answer: It provides a centralized screening service that checks messages against major sanctions lists before transmission
SWIFT's Sanctions Screening service checks financial messages against multiple watchlists before or after transmission, helping banks identify potential sanctions hits in payment traffic.
When screening a corporate customer, which additional step is required beyond screening the entity name itself?
Answer: Screen all beneficial owners, directors, and key principals against sanctions lists
Sanctions compliance requires screening not just the entity name but also its beneficial owners, directors, and key controllers to identify any sanctioned individuals with ownership or control.
What does 'list proliferation' mean in the context of sanctions screening challenges?
Answer: The exponential growth in the number of sanctions lists that institutions must screen against simultaneously
List proliferation refers to the growing number of sanctions lists from multiple jurisdictions (OFAC, EU, UN, UK, etc.) that institutions must simultaneously screen against to achieve global compliance.