Sanctions Screening

Question 1

Why is it necessary for a financial institution to review its whitelists regularly?

Answer 1

A staffer may intentionally add a sanctioned individual or institution.

Question 2

What are the three types of SWIFT messages?

Answer 2

”* MT103 - Goes to the beneficiary bank, giving instructions to the receiver of the transferred funds.
* MT202 - Does not have fields to include the originator and beneficiary information (sequence B), leaving intermediary banks blind to the details behind the transaction.
* MT202COV - Required since 2009. it contains a sequence B field. Sequence B information must be identical to the same fields of 59 and 59a of the underlying MT103 to allow for the identification and screening of the underlying parties.”

Question 3

Which types of SWIFT messages do banks usually send together?

Answer 3

MT103 and MT202COV

Question 4

Which occurs as a part of name screening?

Answer 4

A firm’s entire customer database is screened by automatic screening tools on a periodic basis.

Question 5

Automated screening tools need to be configured correctly and then updated regularly to reflect:

Answer 5

new types of sanctions and revised regulations.

Question 6

Which of the following represents a cost of automated screening when compared with manual screening?

Answer 6

Model validation

Question 7

The techniques of fuzzy logic and partial mapping are used to overcome the problem of:

Answer 7

flawed records and databases.

Question 8

Which of the following statements describes threshold calibration in the context of AST software used for sanctions compliance?

Answer 8

Threshold calibration fine-tunes the percentage threshold for determining which alerts to generate.

Question 9

Scenarios are used in sanctions screening to:

Answer 9

use known typologies to enhance an AST’s ability to detect possible sanctions violations specific to an organization.

Question 10

There are many sanctions lists, so it is important for a financial institution to:

Answer 10

identify which lists relate to its customers and the jurisdiction/geography of its business.

Question 11

Which of the following would constitute a screening software or filtering deficiency that weakens a firm’s compliance program?

Answer 11

The organization fails to include pertinent identifiers in the SSI list for designated, blocked, or sanctioned financial institutions.

Question 12

Which of the following is a common identifier of a legal entity?

Answer 12

Registered or any known operating address of a target

Question 13

Which of the following is an acceptable strategy used by financial institutions to manage the volume of hits and alerts generated by their ASTs?

Answer 13

Use whitelists and create more specific scenarios and rules.

Question 14

In sanctions payment screening, the Society for the Worldwide Interbank Financial Telecommunications (SWIFT) code is:

Answer 14

a reliable provider of financial messaging services.

Question 15

How are SWIFT payment messages predefined?

Answer 15

By format for type of commercial activity and numbered, set fields

Question 16

Which of the following describes a strategy to help overcome the challenges posed by naming conventions, transliteration, and romanization?

Answer 16

Screening analysts should receive name matching training on the cultural naming conventions of global names.

Question 17

Which of the following is an identifier on the Denied Persons List of individuals and entities whose export privileges have been denied by the BIS?

Answer 17

Types of goods

Question 18

One of the challenges of trade-related screening related to documentation is:

Answer 18

it can be provided in formats that require manual review.

Question 19

You are onboarding a customer from a low-risk jurisdiction whom you have been told does extensive business in the former Soviet Union. You screen the customer against the sanctions lists and do not find the customer to be listed by OFAC or any other sanctions regimes. Which of the following would be the most appropriate action to take?

Answer 19

Ask the customer to provide the names of those entities that it expects to transact with, and screen those entities for sanctions.

Question 20

Which scenario commonly triggers a sanctions investigation?

Answer 20

Your screening tool discovers a possible name match between the customer and a sanctions target.

Question 21

Which of the following may preclude further investigation?

Answer 21

Simple checks to discount the match

Question 22

Which of the following is a key identifier for an individual?

Answer 22

Date of birth

Question 23

Which of the following is a key identifier for a legal entity?

Answer 23

The legal entity’s registered or corporate name and registration number

Question 24

In assessing the appropriate response to sanctions alerts, investigators commonly use which of the following tools?

Answer 24

Five-step decision tree

Question 25

Which action is part of an appropriate response to sanctions alerts?

Answer 25

Determining the types of sanctions that are applicable to the activity

Question 26

When is it important to record and document the findings of an investigation?

Answer 26

Always; every step of every investigation must be recorded and documented.

Question 27

Which statement is true of sanctions lists?

Answer 27

More than one sanctions list might pertain to one individual or legal entity.

Question 28

In general, what is the role of screening in an effective sanctions compliance program?

Answer 28

Screening involves checking information obtained about a person, entity, goods, or services against sanctions lists that prohibit making funds or financial services available and/ or restrict or prohibit trade in certain goods or services.

Question 29

What are alerts within Know Your Customer procedures?

Answer 29

Within Know Your Customer procedures, alerts are potential discrepancies that are flagged, either manually or through an automated system, based on defined red flags and underlying typologies.

Question 30

What is the significance of a hit within the sanctions screening process?

Answer 30

Hits (potential matches or names that indicate possible sanctioned persons) may be consolidated into alerts.

Question 31

Who and what are the targets of sanctions screening?

Answer 31

The types of different business activities/parties that should be screened include, but are not limited to, brokers, agents, vendors and other intermediaries, trade finance and export-related activities, purchasing, order processing, distribution, and payment management and beneficial owners.

Question 32

What is a target match?

Answer 32

A target match, or true match, occurs when the name/identification of a party is the same as that of one named on a sanctions list.

Question 33

Describe the process of name screening.

Answer 33

The process of name screening occurs in real-time during the onboarding of new customers and prior to accepting a new customer relationship. Internal records (i.e., customer, counterparty, or related account party) are matched against a sanctioned list record, either manually or through an automated screening tool.

Question 34

How is payment screening different from name screening?

Answer 34

Payment screening is different than name screening (screening internal records against sanctioned list records) in that payment screening takes place with current customers and is performed before a payment or message is processed.

Question 35

What is an inequalities list?

Answer 35

An inequalities list is a list of words or names that automated screening tools often mistake as matches (such as Andrew and Andrea), thereby creating potential matches to targets named on sanctions lists.

Question 36

What is fuzzy logic?

Answer 36

Fuzzy logic is a matching technique that employs algorithms to increase the effectiveness of screening by overcoming problems such as similar, misspelled, or incomplete names and flawed records and databases.

Question 37

What is a partial match?

Answer 37

A partial match is a result generated by an automated screening tool, indicating the entity being screened is similar enough to the sanctioned entity based on fuzzy logic and potentially other identifying factors, such as date of birth.

Question 38

What are the two causes of a false negative screening result?

Answer 38

False negatives can be: 1. A hit that is identified during the screening process as a possible alert, but is dismissed, when in fact there is a match to a target named on a sanctions list. 2. Screened activity that would have generated a hit if the screening process had been calibrated to catch such activity, such as a target match that is unidentified because thresholds are too high.

Question 39

What causes a false positive screening result?

Answer 39

False positive screening results often result when the threshold percentage of the automated screening tool is set too low.

Question 40

What is threshold calibration?

Answer 40

Threshold calibration is a method of adjusting the thresholds within the algorithms in an automated screening tool to match a financial institution’s greatest areas of sanctions risk.

Question 41

How do scenarios help a firm detect sanctions violations?

Answer 41

Scenarios enhance an automatic screening tool’s ability to detect possible sanctions violations specific to an organization and detect red flags.

Question 42

Why is it important for a firm’s automated screening tool (AST) to be correctly and appropriately “mapped” to the firm?

Answer 42

ASTs may require mapping from the message to the AST to ensure it uses the proper screening methods. Conversely, if a field from SWIFT was incorrectly mapped, the result could be severe under-screening of the message.

Question 43

What should sanctions compliance team members know about a firm’s data, data flows, and data validation?

Answer 43

Compliance teams should work with IT to properly understand how data works within the firm, where data is stored, what data is available and the quality of the data. It is also important for team members to understand how data is being extracted (i.e., taken from one system, transformed or modified, and loaded or ingested between systems) to avoid a compliance breach due to lost or modified data.

Question 44

Give at least 4 examples of common identifiers for sanctions targets for individuals.

Answer 44

For individuals, the most common identifier is the name or names of a sanctions target. Other identifiers include date of birth, passports and national identification numbers, nationality, place of birth, country of residence, names of any entities or individuals with whom a target has been associated or linked, and other sanctions or penalties previously imposed against a target.

Question 45

List at least five mandatory sanctions lists that must be screened against.

Answer 45

Mandatory sanctions lists include: * Targets designated by the United Nations Security Council Resolutions (UNSCR). * Local sanctions regimes (depending on the country). * EU lists (if the firm is in Europe). * US lists, host country’s lists, lists of the financial institution’s parent company’s country (if the firm is a branch or subsidiary of an organization outside of the host country) * Lists of major jurisdictions with which the organization trades. * Lists of other neighboring countries, especially if the financial institution uses their currency.

Question 46

What is string matching?

Answer 46

String matching, or pattern matching, is an algorithm for efficient searching that involves finding occurrence(s) of a pattern string within another string or body of text.

Question 47

What is the difference between static and unstructured data in relation to a firm’s use of automated screening tools (ASTs)?

Answer 47

When using ASTs with static customer data, dual controls ensure that one person enters the name correctly and the other person checks it for accuracy. Thresholds may be higher when screening static data. When using ASTs with unstructured data, the messages can contain names and places with typographical errors and other mistakes because they were entered and sent from an outside institution.

Question 48

What is event-triggered monitoring?

Answer 48

Event-triggered monitoring is an internal control used to mitigate sanctions risks.

Question 49

What are the possible outcomes of assessing a hit?

Answer 49

An analyst’s review of a hit will result in one of the following outcomes: a target match, escalate to a case investigation or a false positive or a false negative.

Question 50

What is transliteration?

Answer 50

Transliteration is the conversion of text from one script into another—for example, a document written in Arabic characters that is converted into Cyrillic script.

Question 51

Define the process of romanization.

Answer 51

Romanization is the process of taking a different writing system (i.e., one that often does not use the Latin A–Z alphabet) and converting it into Latin script—that is, converting writing into the script that languages, such as English, are written in today.

Question 52

What does the Bank Secrecy Act’s (BSA’s) Travel specify regarding data transfer?

Answer 52

The Travel Rule requires the transmitting institution to include specific information in a transmittal order (e.g., name of transmitter, identity of recipient’s financial institution, etc.).

Question 53

What is the Denied Persons List (DPL)?

Answer 53

The DPL is a list, published by the Bureau of Industry and Security (BIS), of individuals, entities, and companies that have been denied export privileges, most commonly because they have violated the Export Administration Act.

Question 54

With regard to trade activities, what are the regulatory expectations regarding the parties screened?

Answer 54

With regard to trade activities, regulators require sanctions screening to be comprehensive and performed on all the parties involved in a trade transaction. Importantly, screening should not be limited to individuals or legal entities.

Question 55

Define dual-use goods.

Answer 55

Dual-use goods are the products or technology that can be used for both military and civilian purposes (e.g., missile technology, which can be used for both scientific research and military action).

Question 56

What are alerts within sanctions screening?

Answer 56

Within sanctions screening, an alert is a hit, or multiple hits, of an internal record checked against sanctions screening lists.

Question 57

What are some common fuzzy logic algorithms?

Answer 57

Fuzzy logic uses several common algorithms, including: * Phonetic: Reducing names to a key or code based on their pronunciation, so that similar-sounding names share the same key. * Edit Distance or Levenshtein: Examining how many character changes it takes to get from one name to another. * Equivalence and Non-Equivalence: Teaching the system through human feedback which similarities are equivalent and non-equivalent.

Question 58

How does threshold calibration relate to false negative and false positive results?

Answer 58

If threshold calibration (typically described as a percentage) is set too high, only a few names will match, and the potential occurrence of false negatives increases. If the threshold percentage is too low, the tool will produce an excess of results, many of which will be false positives.

Question 59

Give at least 4 examples of common identifiers for sanctions targets for legal entities.

Answer 59

For legal entities, common identifiers include registered or corporation name, registration number, registered or legal address or any known operating address, jurisdiction associated with the entity and/or its activities, names of associated entities or individuals, and website, email, telephone, and fax details.

Question 60

When does event-triggered monitoring occur?

Answer 60

Event-triggered monitoring occurs whenever relevant information about an existing customer (e.g., its jurisdiction of operation) changes, therefore requiring an interim review of information prior to a scheduled review.

Question 61

What does Financial Action Task Force (FATF) Recommendation 16 specify regarding data transfer?

Answer 61

FATF Recommendation 16 specifies the need for financial institutions to provide information about the originator of a payment, as well as the beneficiary. Under this recommendation, banks have a more explicit obligation to monitor the quality of data in the transactions they receive.