Sanctions Screening vs OFAC Screening
The interconnectedness of the global economy means that risks arising in one jurisdiction instantly spread throughout the entire financial system. Companies striving for international growth face an increasingly complex web of regulatory requirements. At the center of this web is sanctions screening—a process often misunderstood, reduced to just one, albeit the most influential, regulator.
Many executives use the terms “sanctions screening” and “OFAC screening” interchangeably. This is a fundamental mistake. OFAC screening is a check for compliance with lists administered by the U.S. Office of Foreign Assets Control. Sanctions screening, in general, is a comprehensive, global discipline that encompasses multiple jurisdictions. Understanding this difference determines a company’s ability to conduct business internationally without facing multi-billion-dollar fines or irreversible reputational damage.
What is sanctions screening?
Sanctions screening is a set of procedures that an organization uses to detect, prevent, and manage risks associated with violations of economic and trade sanctions. It is not a one-time action but a continuous process integrated into daily operations. Sanctions are, in essence, foreign policy tools used by governments and international organizations to exert pressure on states, groups, or individuals to change their behavior. These measures can range from comprehensive embargoes (e.g., against North Korea) to targeted actions (freezing the assets of specific individuals accused of terrorism or human rights violations).
The screening process is the operational core of a broader concept — the Sanctions Compliance Program. It permeates various stages of the client and transaction lifecycle.
Key areas of screening application:
- Clients (KYC/KYB): Screening is conducted when establishing relationships with a new client (individual or legal entity) to ensure that they are not listed in sanction lists. This does not end at onboarding; constant monitoring is required as the lists are updated daily.
- Transactions: Each financial transaction (for example, a bank transfer) or trade operation (shipment of goods) is checked in real-time. Screening analyzes all parties involved in the transaction (sender, recipient, intermediary banks), as well as any textual information in the payment order (for example, mention of a sanctioned city, port, or vessel).
- Suppliers and partners: Companies must verify their suppliers, distributors, and other third parties to avoid indirect sanctions violations through their supply chain.
The effectiveness of this process depends on the so-called risk-oriented approach. The organization must first assess its unique risks: in which countries it operates, what products it sells, who its clients are, and through which financial channels it conducts operations. A company exporting software to the EU has a completely different risk profile than a logistics firm managing vessels in Southeast Asia.
OFAC Screening: American Standard and Its Global Influence
When it comes to sanctions, the dominant force is OFAC (Office of Foreign Assets Control) — a division of the U.S. Department of the Treasury. OFAC screening is the process of checking counterparties and transactions against the lists maintained by OFAC.
The central element of this regime is the Specially Designated Nationals and Blocked Persons List (SDN List). This is a dynamic list that includes thousands of individuals, companies, organizations, and even maritime vessels associated with regimes targeted by U.S. sanctions, terrorism, drug trafficking, or other threats to U.S. national security. Any assets of these persons under U.S. jurisdiction are blocked, and U.S. persons are strictly prohibited from conducting business with them.
The key question: why should a company located, for example, in Singapore or Frankfurt, worry about the lists of the U.S. Treasury? The answer lies in the extraterritorial reach of U.S. laws.
The jurisdiction of OFAC extends to:
- U.S. Persons: U.S. citizens (including dual citizens), permanent residents (Green Card holders), American companies and their foreign branches.
- Transactions in US dollars: Any payment passing through the US financial system (even if it is clearing between two non-American banks) falls under OFAC jurisdiction. Considering the dominance of the dollar in global trade, this affects almost any international business.
- Goods of American origin: Use or re-export of certain goods and technologies produced in the USA.
Moreover, OFAC applies so-called secondary sanctions. They target non-American individuals and companies for conducting business with entities under primary U.S. sanctions (for example, with key sectors of the economies of Iran or Russia). Essentially, OFAC forces non-American companies to choose between doing business with a sanctioned party or retaining access to the American financial system.
Two aspects make OFAC screening particularly challenging:
- OFAC’s 50 Percent Rule: This policy, outlined by OFAC, states that if one or more blocked persons (from the SDN list) own 50% or more of a company’s shares (directly or indirectly), that company is also considered blocked. Most importantly, such a company may not be on the SDN list. This requires businesses to conduct a thorough Know Your Business (KYB) ownership structure check rather than simply matching names.
- Sectoral sanctions: In addition to full blocking (SDN List), OFAC uses sectoral sanctions, mainly against Russia. They do not completely block companies but impose restrictions on certain types of activities, most often related to new debt or equity financing. This requires compliance systems not just to provide a yes/no answer but to understand the type of transaction.
Violations of OFAC lead to colossal fines. The U.S. Department of the Treasury regularly publishes data on enforcement actions. Historical fines against banks such as BNP Paribas (nearly $9 billion in 2014) or Standard Chartered ($1.1 billion in 2019) serve as a powerful deterrent for the entire world.
EU, UK, UN, and other regimes
Focusing exclusively on OFAC leaves the company dangerously vulnerable. Comprehensive sanctions screening should take into account many other regimes that may not align with U.S. policy.
Geopolitical disagreements often lead to conflicts of laws. For example, after the United States withdrew from the Iran nuclear deal in 2018, the U.S. reimposed sanctions against Iran. In response, the European Union activated its Blocking Statute, which prohibits European companies from complying with certain extraterritorial U.S. sanctions and does not recognize foreign court rulings based on them. This put European companies in a deadlock: violating U.S. sanctions risks losing access to the American market, while compliance results in fines within the EU.
Understanding the basic non-American regimes is crucial. For effective multi-regional compliance, companies must analyze and compare several key lists administered by various authorities.
Here is a brief overview of the main sanctions regimes, apart from OFAC:
| United Nations (UN) | European Union (EU) | United Kingdom (UK) | |
| Source | Resolutions of the UN Security Council (UNSC) | Decisions of the EU Council, implemented through EU Regulations, which have direct effect in all 27 member states. | After Brexit, the United Kingdom introduced its own autonomous sanctions regime, administered by the Office of Financial Sanctions Implementation (OFSI) under His Majesty’s Treasury. |
| Reach | UN sanctions are mandatory for all UN member states. They represent the global minimum of compliance. | Apply to all EU citizens and companies, to transactions in euros (even outside the EU), and to any activity within the territory of the EU. | London is a global financial center, which gives OFSI sanctions significant weight. |
| Focus | Usually aimed at specific threats to international peace and security (for example, lists on Al-Qaeda, ISIS, Taliban) or specific countries (for example, North Korea, Libya). | The EU has a wide range of autonomous sanctions (in addition to implementing UN sanctions) concerning Russia, Belarus, Myanmar, Syria, and other countries. | The regime of the United Kingdom largely coincides with the regimes of the EU and the USA but has its own characteristics. OFSI is actively increasing its enforcement potential. |
| List | UN Consolidated List. | EU Consolidated Financial Sanctions List (CFSP). | UK Consolidated List. |
Other national regimes:
Countries such as Canada (GAC), Australia (DFAT), and Switzerland (SECO) have their own lists. Companies operating in these jurisdictions or using their currencies are required to conduct screening against these lists as well.
How companies merge databases
It is obvious that manually tracking and checking dozens of lists, updated daily in various formats (XML, CSV, PDF) and in different languages, is impossible. This is a technological and operational task.
Companies solve this problem by aggregating data. They either acquire specialized software for sanctions screening or subscribe to the services of data providers (such as Refinitiv, Dow Jones, LexisNexis Risk Solutions, or ComplyAdvantage).
This process includes:
- Aggregation and normalization: The data provider collects all the aforementioned lists (OFAC, EU, UK, UN, SECO, etc.) and converts them into a unified, machine-readable format.
- Data enrichment: Data is supplemented with metadata, such as aliases, dates of birth, identification numbers, and information about the 50% Rule (ownership structure data).
- Integration: This consolidated database is loaded into the company’s screening engine.
- Matching: The engine uses algorithms to compare client data and transactions with a consolidated list.
The key technology here is fuzzy logic. Sanction lists are full of inaccuracies, different variations of name spellings (for example, Mohammed, Mohamed, Muhamad), and deliberate attempts to conceal identity. A simple exact match search is useless. Fuzzy logic searches for probabilistic matches, taking into account typos, phonetic similarities, missing letters, and rearranged words.
However, this creates the main operational problem of screening — false positives. These are alerts (hits) generated by the system, but upon human verification turn out to be unrelated to a sanctioned person (for example, your client John Smith from Chicago is not the same John Smith who is included in the SDN list).
Managing these alerts requires a structured escalation process. Typically, this is a two-level process: L1 analysts filter out obvious false positives, while more complex cases are passed on to senior compliance specialists (L2) for in-depth investigation (due diligence).
Why multi-regional compliance is not a choice but a necessity
Organizations that limit their screening to only one mode (for example, conducting only csi OFAC screening) are making a strategic mistake. International business does not operate in the vacuum of a single jurisdiction.
Firstly, this is the risk of law enforcement. Violating EU or UK sanctions, even with full compliance with OFAC requirements, will lead to fines, asset freezes, and possible criminal prosecution by European or British authorities.
Secondly, this is a risk for correspondent relationships. Global trade is conducted through a network of correspondent banks. A major bank in New York or Frankfurt providing clearing services for dollars or euros expects its client banks (respondents) in other countries to have reliable compliance programs. If a respondent bank is caught with weak screening (for example, missing an individual from the EU list), the correspondent bank will most likely sever ties with it (de-risking) to protect itself. Losing access to dollar or euro clearing is equivalent to ceasing international business.
Thirdly, it is reputational damage. News about sanctions violations (any, not just OFAC) instantly undermines the trust of investors, partners, and clients. Reputation is built over years but can be destroyed by a single headline about facilitating money laundering or financing prohibited regimes.
Need help? Contact us
Sanction screening is a comprehensive, technologically complex, and dynamic risk management process covering all jurisdictions where a company operates. OFAC screening is its vital, but not the only component. Its dominance is due to the extraterritorial reach of U.S. laws and the power of the dollar.
However, in the modern multipolar world, where the sanction regimes of the EU, the UK, and the UN have their own power and often diverge in goals from the USA, relying solely on OFAC is shortsighted. An effective Sanctions Compliance Program must be multi-regional, using consolidated databases and intelligent screening technologies to navigate the full spectrum of global risks.
Does your compliance system only consider the OFAC Sanctions List? Global regulators are not waiting. Ensure that your sanctions screening program is ready for the challenges of multi-regional compliance.
Contact our experts today to conduct an audit of your current screening system and develop a reliable strategy to protect your business from the risks of violating EU, UK, UN, and OFAC sanctions.
