What is sanctions screening, and how do banks check names?

#What are financial sanctions?

Sanctions are restrictions that governments or international bodies place on specific countries, organisations or individuals. The Council of the EU describes them as a tool to prevent conflict or respond to crises and to promote peace, democracy, the rule of law and human rights, and says they are meant to change the behaviour of those targeted rather than to punish⁠^[1]. EU measures can include asset freezes, travel bans and economic and diplomatic measures, and they are adopted by unanimity in the Council⁠^[1].

The most important measure for finance is the asset freeze. In the US, the Office of Foreign Assets Control (OFAC), part of the Treasury, administers and enforces sanctions. When a person is blocked, any of their property in the US or held by US persons must be blocked, meaning frozen, not seized, and may not be transferred⁠^[2]. A bank that let money flow to a blocked person would be breaking the law, which is why it screens.

#Which lists do banks screen against?

OFAC also keeps other lists besides the SDN List. Its free online search tool covers the SDN List plus, among others, the Foreign Sanctions Evaders List and the Sectoral Sanctions Identifications List⁠^[5]. In the UK, the Office of Financial Sanctions Implementation (OFSI), part of HM Treasury, works to improve understanding, implementation and enforcement of financial sanctions⁠^[3].

#How does name screening actually work?

Screening software takes a name, from a new customer, a payment's sender or receiver, or a company in a trade deal, and compares it with every name on the relevant lists. Exact matching is not enough, because names are transliterated from other alphabets, misspelled or reordered. So tools use fuzzy matching, also called approximate string matching. OFAC's own search tool works this way: it returns near matches based on a confidence rating that the user sets with a slider, and OFAC does not recommend any particular rating⁠^[5].

Fuzziness is a trade-off. A loose setting catches more spelling variants but floods analysts with alerts about people who merely share a common name. A strict setting cuts the noise but risks missing a real target. OFAC's compliance framework lists screening failures among the root causes of past violations: firms that did not update their software with SDN List changes, did not include identifiers such as SWIFT Business Identifier Codes for sanctioned banks, or did not account for alternative spellings of prohibited countries or parties⁠^[6].

#Why are most screening alerts false positives?

Because a name alone identifies very few people uniquely. OFAC says plainly that many potential matches identified through screening are false positives⁠^[7]. Its guidance tells firms to compare the full list entry with the details they hold, such as name, date of birth, nationality and address, before deciding⁠^[7]. OFAC does not confirm potential matches for firms; it expects them to make risk-based determinations⁠^[7].

#What is OFAC's 50 percent rule?

Screening names on the list is not enough, because sanctioned people often hold assets through companies. Under OFAC's 50 percent rule, entities owned 50 percent or more in the aggregate by one or more blocked persons are themselves blocked, whether or not they appear on the SDN List⁠^[8]. Stakes held by different blocked persons are added together, and ownership counts both directly and indirectly through other companies⁠^[8]. The rule is about ownership, not control: a company controlled but not 50%-owned by blocked persons is not automatically blocked, although OFAC may designate it separately⁠^[8].

#What happens after a real match?

These steps follow OFAC's own FAQ on potential matches, which states that if you block property or reject transactions because of OFAC sanctions, you must report the action to OFAC within 10 business days⁠^[7]. Blocking is not the same as seizing: the money stays in a blocked account and cannot be moved without OFAC authorisation⁠^[2].

#What does a good sanctions compliance programme include?

In May 2019 OFAC published A Framework for OFAC Compliance Commitments⁠^[10]. It describes five essential components: management commitment, risk assessment, internal controls, testing and auditing, and training⁠^[6]. Screening tools sit inside internal controls, but they only work if lists are updated, the data fed into them is complete and staff know how to judge an alert.

#How does screening fit with KYC and AML?

Sanctions screening sits next to KYC and anti-money laundering in a firm's financial-crime controls. KYC tells the firm who the customer is; screening checks whether that person, or someone they pay, is a sanctions target; AML monitoring looks for suspicious patterns over time. International transfers face the most checks, which is one reason they can be slower; see cross-border payments explained.