Sanctions screening is the process of verifying individuals, entities, or transactions against global sanctions lists to ensure compliance with international regulations and prevent dealings with restricted parties.
During the Cold War, the UN Security Council imposed economic sanctions only twice. In the past three decades, however, it has established 28 sanction regimes.
Sanctions have evolved from broad, indiscriminate measures – such as those on Iraq, Yugoslavia, and Haiti in the 1990s – to targeted “smart” sanctions focused on specific individuals, entities, sectors, or regions. Despite this shift, the core objective remains unchanged: to influence behaviour to align with international law and ethics.
Sanctions can impose travel bans, asset freezes, and trade restrictions on high-value commodities. However, the effectiveness of these sanctions depends on robust enforcement.
Given that over 90% of global trade occurs at sea, such enforcement is most impactful when applied in the maritime domain. With this in mind, under Chapter VII of the UN Charter, the Security Council authorises member states to conduct maritime interdictions on vessels suspected of carrying sanctioned cargo.
Aligned with the Security Council’s objectives, this article by Pole Star Global explores best practices for sanctions screening, with a particular focus on the maritime industry and its unique challenges. Learn how to use sanctions screening software and automation to streamline your processes while recognising and addressing the limitations of these tools. The article concludes with expert tips to help you stay compliant at all times, with proactive safeguards firmly in place.
○ What is a Sanction List?
○ What is sanctions screening?
○ Who Enforces Sanctions (Relevant Sanctioning Bodies)
- Simplifying Sanction Compliance in an Increasingly Complex World
- How Sanctions Screening Software Works
- The Role of Sanctions Screening Software in Strengthening Maritime Compliance
- Challenges with Sanctions Screening Software
- Unlock the Full Potential of Sanctions Screening Software with Pole Star Global
- Top Tips for Sanctions Screening
The Fundamentals of Sanctions Screening
What is a Sanction?
Sanctions are restrictive measures imposed by governments, regulatory bodies, or international organisations to influence or penalise individuals, entities, or countries involved in illegal, unethical, or harmful activities. These sanctions are applied in different forms, including:
In the maritime industry, sanctions screening reduces risk by enabling shipping companies to identify and address potential violations before they occur. This protects your company from legal and reputational risks and ensures it does not inadvertently support illegal activities at sea.
What is a Sanction List?
A sanction list is a roster of individuals, organisations, entities, or countries that face economic penalties imposed by governments or international bodies. These sanctions are typically enforced to limit interactions with parties involved in activities deemed illegal, unethical, or harmful (e.g. breaches of international law, human rights violations, or nuclear proliferation). Listed parties may be subjected to restrictions, such as being barred from accessing financial systems or engaging in certain business transactions.
Sanction lists are typically compiled and updated by regulatory bodies such as the United Nations, the European Union, or national governments. These lists are continually reviewed to ensure they reflect the latest regulations. In some cases, specialised vendors also manage and update these lists to ensure their accuracy and comprehensiveness.
What is Sanctions Screening?
Sanctions screening is the process of checking individuals, entities, or transactions against official government sanction lists. This practice helps organisations minimise financial, reputational, and legal risks by avoiding dealings with restricted parties.
Organisations rely on sanctions screening to assess the risk of engaging with potentially sanctioned individuals or entities. There are various types of screening processes, including:
- Customer Screening: Verifies whether a customer or their representatives (e.g. beneficial owners) appear on sanction lists during onboarding or throughout the relationship.
- Transaction Screening: Monitors transactions for potential matches with sanctioned individuals or entities. This includes reviewing cross-border payments, trade finance activities, and other high-risk transactions.
- Supplier Screening: Focuses on evaluating suppliers, vendors, and third-party partners to ensure they are not listed on any sanction lists.
To maintain compliance, organisations must also consider factors such as the nature of an entities’ activities, the volume of transactions with that entity, and the type of products and services offered. For instance, certain activities, like cross-border transactions or trade-related services, may carry higher exposure risks to sanction violations.
Who Enforces Sanctions (Relevant Sanctioning Bodies)
The sanctioning bodies you need to consider depends on your operational territories and the currencies you deal with. Key sanctioning bodies include:
United Nations (UN): United Nations Security Council (UNSC).
- Application: All UN member states.
- Purpose: The UN enforces sanctions to uphold international peace, prevent terrorism, and address human rights violations.
- Types of Sanctions: Arms embargoes, asset freezes, travel bans, and trade restrictions.
- Example: Sanctions against North Korea for nuclear proliferation
United States (U.S.).
United States (U.S.): Office of Foreign Assets Control (OFAC) – U.S. Department of the Treasury.
- Application: All U.S. citizens globally, U.S.-based companies, and any organisation that: conducts transactions in U.S. dollars; uses U.S.-made products or components; is linked to a U.S. parent company or affiliate, and operates via a partner, agent, or supplier with U.S. ties.
- Purpose: Enforces U.S. economic and trade sanctions against countries, entities, and individuals involved in terrorism, drug trafficking, and human rights violations.
- Example: The Specially Designated Nationals (SDN) List, which blocks assets and restricts transactions with sanctioned parties.
United States (U.S.): Bureau of Industry and Security (BIS) – U.S. Department of Commerce.
- Purpose: Regulates trade restrictions on exports, especially dual-use goods (those with both civilian and military applications).
- Example: Entity List, which bans trade with organisations linked to security threats.
European Union (EU):European Commission and European External Action Service (EEAS)
- Application:All EU citizens globally, plus companies registered in any EU member state.
- Purpose: Implements EU-wide sanctions, including asset freezes, trade restrictions, and financial prohibitions.
- Example: EU sanctions on Russia in response to the Ukraine conflict.
United Kingdom (UK): Office of Financial Sanctions Implementation (OFSI) – HM Treasury.
- Application: Individuals and businesses operating within the UK or engaging in activities within its borders, plus all UK nationals and organisations registered under UK law, regardless of where they conduct business.
- Purpose: Enforces UK sanctions to combat financial crime, terrorism financing, and human rights abuses.
- Example: UK Sanctions List, which typically aligns with UN and EU sanctions.
All businesses, regardless of sector, must comply with the relevant sanctions. Failure to do so can lead to significant penalties. For example, in 2022, U.S. OFAC imposed over $42.7 million in fines.
Simplifying Sanction Compliance in an Increasingly Complex World
Sanction compliance has become increasingly complex. For example, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has introduced several sanctions against Russian entities and individuals since the Ukraine-Russia conflict began in February 2022. Key updates include:
- February 24, 2022 (Initial Response to Russia’s Invasion of Ukraine): OFAC sanctioned major Russian financial institutions, such as Vnesheconombank (VEB) and Promsvyazbank (PSB).
- February 22, 2022 (Full-Scale Invasion): OFAC imposed sweeping sanctions on Russian banks, including Sberbank and VTB Bank, freezing their assets in the U.S., and sanctioned additional oligarchs, government officials, and state-owned enterprises.
- December 22, 2022: Export controls expanded, limiting Russia’s access to Western technology.
- January 10, 2025: The U.S. imposed its most extensive sanctions on Russia to date, targeting 183 vessels, 41 individuals, and 75 companies.
With frequent regulatory changes, businesses face significant challenges in maintaining up-to-date and flexible compliance programmes. To manage this complexity, organisations are turning to digital technology, specifically regulatory technology (RegTech). RegTech is a broad category encompassing various tools designed to help manage regulatory compliance. Sanctions screening software is a specific tool within that category focused on identifying and monitoring entities on sanction lists. Its primary goal is to streamline the management of evolving compliance requirements and address key challenges such as:
- Under or Over-Screening: Insufficient screening can miss sanctioned entities, while over-screening leads to false positives, wasting time and resources. Sanctions screening software refines the screening process by leveraging machine learning to reduce false positives, thereby enhancing data accuracy and lowering risk exposure.
- Equivalence: Relying solely on third-party screening is no longer sufficient. Sanctions screening software enables businesses to conduct primary screening, ensuring greater control and efficiency.
- Divergence: Different sanction bodies, such as the UN and the EU, may issue conflicting lists. Sanctions screening software consolidates data from multiple sources, offering additional safeguards when discrepancies arise.
- Evolving Sanctions: Sanction lists are constantly updated, with new entities added or removed. Screening software solutions stay current by continuously updating lists to reflect these changes.
- Increasing Complexity of Sanction Targets: Sanctions now extend beyond specific entities to whole sectors and activities, which can make the interpretation of regulations difficult. Sanctions screening software automates the monitoring and interpretation of these more complex restrictions.
- Indirect Links: Sanctions affect not just the sanctioned entities themselves but also their subsidiaries and customers. Sanctions screening software automates the identification of these indirect links, ensuring compliance and effective risk management.
Outlining the benefits specifically, sanctions screening software is stated to enhance the compliance by:
- Boosting Efficiency: Automated screening reduces the need for manual intervention, speeding up the process.
- Improving Accuracy: By minimising false positives, screening software enables compliance teams to focus on high-risk cases, optimising resource allocation.
- Reducing Costs: Automated decision-making accelerates processes, lowering operational expenses.
- Leveraging Advanced Data Analytics: By aggregating data from diverse sources, screening software offers deeper insights into compliance.
Further research supports these findings, stating that AI used in sanctions screening software reduces human intervention, cutting operational costs and minimising errors, and enhances compliance consistency by helping companies manage large data volumes and quickly adapt to regulatory changes.
How Sanctions Screening Software Works
Most sanctions screening software employs Automated Decision-Making (ADM) systems, which use algorithms to analyse data, make decisions, and minimise human intervention. By leveraging predefined rules, machine learning models, or artificial intelligence (AI), sanctions screening software efficiently processes large datasets to ensure compliance.
Types of Algorithms Used in Sanctions Screening Software
Sanctions screening solutions typically employ two key types of algorithms:
- Rules-Based Algorithms: These follow a structured “if-then” logic. For example, if a customer’s date of birth does not match that of a sanctioned individual, the system marks the data point as a false positive. However, these rules require manual updates to remain effective.
- Machine Learning Algorithms: These self-learning systems detect patterns in data without requiring predefined rules. They improve accuracy by recognising name variations, incorporating real-time updates, and reducing false positives based on historical compliance decisions.
Key Features of Automated Sanctions Screening
To streamline the screening process, sanctions screening software integrates several advanced techniques, including:
- Fuzzy Logic Matching: This method identifies potential matches even when there are slight variations, errors, or inconsistencies in data. Instead of relying on exact matches, it assigns similarity scores, reducing false positives caused by minor spelling differences, formatting discrepancies, or data entry mistakes.
- Accept List: Once an entity is cleared, this feature prevents repeated screening unless its information changes. This is particularly useful when handling large volumes of data, saving both time and resources.
- Data Stamp: This function generates an audit trail of searches, serving as documented proof that screening procedures have been properly followed. It provides transparency for regulators and internal compliance teams.
The Role of Sanctions Screening Software in Strengthening Maritime Compliance
To comply with Know-Your-Vessel (KYV) guidelines, the maritime industry must use sanctions screening software to conduct thorough background checks on vessels and crew. Key investigative factors include:
- Complete shipping routes
- Vessel flag state and port
- Origin and destination of shipped goods
- Verification that sanctioned individuals or entities will not receive shipments
- Access to end-user certification
Staying current with global sanctions is particularly difficult in the maritime industry, where ships and crews operate across multiple jurisdictions and must adhere to Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) regulations.
Sanctions screening software streamlines this process in three key ways:
- First, it enables the analysis of leading data sources and real-time behavioural data to identify potential risks.
- Second, it flags potential sanctions violations, allowing you to take immediate action.
- Third, it cross-checks vessels and companies against major sanctions lists, including those from OFAC, OFSI, the UN, and the EU, providing detailed reports on restrictions, compliance issues, and prior dealings with sanctioned countries.
Challenges with Sanctions Screening Software
While sanctions screening solutions can aid compliance, they may also introduce legal and regulatory risks if they do not align with compliance requirements. For such tools to be truly effective, there needs to be a balance between the technical rules embedded in algorithms and the broader regulatory objectives.
That is, merely following the encoded algorithms is not enough. Regulators are focused on the bigger picture, which means that companies can technically adhere to the law but still miss its true intent. This is known as “creative compliance”. That is, businesses follow the letter of the law but not its spirit.
With this in mind, when evaluating the effectiveness of sanctions screening software, it’s essential you ask:
- Does the software follow legal rules? (Is it accurately checking transactions against sanctions lists?)
- Does the software support the broader purpose of the law? (Is it genuinely preventing crime or simply ticking the boxes for compliance?)
Both aspects are critical. If sanctions screening solutions only follow the rules without understanding the underlying goals, businesses may still face compliance risks.
The Cost of Failures: A Real-World Example
A financial services company experienced a significant compliance failure when its sanctions screening algorithms overlooked 2,260 violations, allowing prohibited transactions to go through. Some of these transactions were linked to weapons of mass destruction, highlighting critical gaps in the company’s compliance system. This case serves as a stark reminder of the potential risks of ineffective screening systems and the importance of strong compliance measures to prevent financial crime and regulatory violations.
Dealing with Vague Legal Terms
Determining the exact sanctions applicable to a given entity is not always straightforward. For instance, the UN Security Council has evolved its language over time when authorising maritime interdiction operations.
Initially, Resolution 665 (1990) authorised ship inspections with the phrase: “To halt all inward and outward maritime shipping, in order to inspect and verify their cargoes and destinations.”
Later resolutions, such as Resolution 875 (1993), modified this wording by removing “inward” and “outward”.
Over the past decade, the Security Council further refined the language used to emphasise inspections within national waters. Resolution 1929 (2010) introduced the following phrasing: “Calls upon Member States to inspect, in accordance with their national authorities and legislation and consistent with international law, all cargo to [the target state], in their territory, including seaports and airports.”
Notably, the addition of “in particular the law of the sea” in this resolution seems to limit interdiction in cases such as innocent or transit passage.
For high-seas interdictions, a different standard phrase is used, typically outlining conditions and timeframes. For example, resolutions such as 22182 (2014) on Somalia, 2240 (2015), and 2292 (2016) on Libya included this wording: “Authorises/decides to authorise, in these exceptional circumstances, for a period of 12 months, Member States…to inspect, without undue delay, on the high seas off the coast of [target state], vessels bound to or from [target state] which they have reasonable grounds to believe are carrying prohibited items.“
These examples illustrate how shifting terminology can create ambiguity, making it challenging to determine the legal scope of inspections. Plus, the use of vague reference to international law can make it harder to determine when and where inspections can legally occur, potentially allowing sanctioned entities to exploit legal loopholes. And, even advanced sanctions screening tools can struggle with this uncertainty. Unlike humans, automated systems may:
- Have difficulty interpreting vague legal terms like “reasonable precautions” or “due diligence.”
- Misclassify transactions due to rigid rule-based logic.
- Lack self-auditing, making errors harder to detect.
The “black-box” problem further increases such risks. Opaque AI decisions mean companies cannot understand how an algorithm arrives at its conclusions, making it difficult to identify errors or biases. This, in turn, can result in flawed compliance outcomes.
To address these challenges, businesses must combine technology with human oversight. Sanctions screening software alone does not ensure compliance – ongoing monitoring and adjustments are essential to prevent errors and enhance accuracy.
Specifically, key actions you must take to mitigate the limitations of sanctions screening software include:
- Encouraging staff to critically evaluate system-generated decisions, helping to prevent automation bias, particularly when employees blindly trust automated results without questioning potential errors.
Ensuring ongoing system monitoring and calibration to minimise misconfiguration risks, as poor system setup can lead to repeated violations.
- Embedding a strong compliance culture within the organisation, with senior management setting the tone. A robust compliance culture will ensure employees:
- Understand and apply regulatory requirements.
- Continuously review and enhance compliance technology.
- Maintain human oversight of automated decisions.
Unlock the Full Potential of Sanctions Screening Software with Pole Star Global
On 10 January 2025, the United States introduced its most extensive sanctions against Russia to date, targeting 183 vessels, 41 individuals, and 75 companies, with the aim of undermining Russia’s financial capacity to sustain its war in Ukraine.
Sanctioned vessels primarily belong to a “dark fleet,” flagged under jurisdictions such as Panama, Vietnam, Gabon, Antigua and Barbuda, Sierra Leone, Barbados, the Cook Islands, Liberia, San Marino, and Belize. A full list of these sanctioned vessels can be found here.
Engaging with vessels tied to the Dark Fleet presents significant compliance and reputational risks. However, many dark fleet vessels remain unsanctioned, exposing businesses to regulatory scrutiny and financial risk. This highlights a key challenge for sanction compliance solutions. While sanctions screening software can identify vessels that are already on sanction lists, such software often fails to flag high-risk vessels that have not yet been sanctioned but are engaging in suspicious activity or operating in grey areas of the law.
To address this, businesses must uphold the spirit of the law by proactively identifying such high-risk vessels. Pole Star Global’s PurpleTRAC solution offers this capability. Actively used by OFAC, PurpleTRAC ensures you stay ahead of emerging compliance risks by providing:
- Instant alerts when newly sanctioned vessels are screened.
- Continuous vessel tracking and monitoring, with automatic email alerts.
Additionally, Pole Star Global collaborates with Blackstone Compliance Services’ Deep Blue Intelligence (DBI) to further enhance compliance risk management. DBI provides:
- Proactive Risk Identification: DBI identifies high-risk Dark Fleet vessels months before they are added to sanctions lists, leveraging proprietary research from:
- Business and flag registries;
- Multiple vessel tracking and maritime data sources;
- Satellite imagery and Earth observation data;
- Proprietary DBI Watchlist: Gain access to the curated DBI watchlist, which flags high-risk vessels identified through extensive analysis and predictive indicators of illicit activity.
- Enhanced Due Diligence: Equip your compliance teams with actionable intelligence to avoid vessels exhibiting red flags, such as concealed ownership, deceptive practices, and irregular flagging patterns.
- Future-Proof Compliance: Reduce exposure to regulatory actions by avoiding transactions with vessels likely to be sanctioned by OFAC or other authorities in the future.
Furthermore, the combined expertise of the teams at Pole Star Global and Blackstone Compliance Services helps mitigate the risks associated with automated compliance screening software, as outlined above, through continuous data monitoring and human oversight. Data is routinely audited, and sanctions screening algorithms are consistently reviewed.
Top Tips for Sanctions Screening
Refer to the checklist and mark off each tip once you have implemented it.
Sanctions Screening Tip 1: Prepare Your Data
Sanctions Screening Tip 2: Use Proven, Reliable Technology to Support Screening
Sanctions Screening Tip 3: Enhance Your Screening Process with Complete, High-Quality Data
Sanctions Screening Tip 4: Know Your Complete Supply Chain
Sanctions Screening Tip 5: Scan the Grey Lists
Sanctions Screening Tip 6: Understand the 50% Rule
Sanctions Screening Tip 1: Prepare Your Data
Invest time upfront to cleanse and prepare your data. Ensuring that your data is complete and accurate helps reduce the risk of false positives. Utilise data enrichment software to add additional details that aid the screening process, helping to narrow down results and potentially reduce unnecessary remediation.
For example, consider Pole Star Global’s PurpleTRAC. PurpleTRAC matches a ship’s IMO number with other data points, such as the ship’s management company, P&O provider, flag, and movement history. By incorporating multiple data points for a single vessel, the data is enriched, ensuring more accurate identification.
Sanctions Screening Tip 2: Use Proven, Reliable Technology to Support Screening
As discussed earlier, it’s important to select sanctions screening software that addresses the common issues associated with this technology. Solutions to these challenges have been covered above.
In addition, ensure that your software solution:
- Can handle large data sets to scale with business growth: Choose a provider that can screen a high volume of entities and transactions.
- Offers user-friendly and customisable settings: The platform should be intuitive and offer configurable, risk-based settings to avoid over-screening. It should allow you to adjust screening criteria to match your organisation’s risk appetite. Look for workflow tools to manage the remediation of sanctions matches efficiently.
- Uses automation: Automating screening tasks makes the process both efficient and effortless. Automation relies on inbuilt algorithms, as discussed above. By combining automation with actions to address common issues (e.g., the black-box problem and creative compliance), businesses can enhance accuracy and reduce risk.
Sanctions Screening Tip 3: Enhance Your Screening Process with Complete, High-Quality Data
The data used for screening must be both comprehensive and up-to-date. Multiple data points need to be consolidated in a single location, bringing together various watchlist databases.
Relying on search engines to access this information can be inefficient, potentially exposing your organisation to sanctions breaches and reputational risk. For full compliance, ensure your data sources are:
- Curated by a global network of experts: You need full global coverage with information being collated around the clock. While sanctions listing information must be returned exactly as published, the best software solutions will enhance data value by adding extra context.
- Consolidated: Entities appearing on one sanction list may also appear on others. Select sanctions screening software that consolidates related sanction listings into a single view, improving efficiency and reducing the risk of missing sanctions.
- Optimised: Sanction lists come in a variety of formats and sizes. It is critical to view this data from in a single, standardised format, while retaining the original published data.
- Regularly updated: Sanction listings are always changing, with new sanctions being added and existing ones amended or removed. Ensure you are aware of these changes as soon as possible after a sanction notice is issued.
Sanctions Screening Tip 4: Know Your Complete Supply Chain
This includes knowing your customers, as well as your customer’s customers. Due diligence is required to investigate third-party relationships and check if alerts are triggered throughout your entire supply chain, from shipping and delivery to suppliers and manufacturers. Sanction checks must be performed on all entities.
Sanctions Screening Tip 5: Scan the Grey Lists
This involves investigating the “grey areas” of sanction compliance. Grey lists are publicly accessible records of ships and shipping companies that have been indirectly linked to maritime sanctions violations. While these entities may not be directly sanctioned, their past activities, ownership structures, or associations may raise compliance concerns.
This process helps identify vessels and companies that have engaged in questionable practices, such as operating in high-risk regions, conducting transactions with sanctioned entities, or frequently changing ownership to avoid scrutiny.
Use AI-powered tools to cross-check vessels against grey list criteria. For instance, Pole Star Global’s sanctions screening software provides real-time insights into ship movements, historical affiliations, and potential red flags. In doing, Pole Star Global flags vessels linked to suspicious activity.
Sanctions Screening Tip 6: Understand the 50% Rule
The OFAC 50 Percent Rule restricts access to property and financial interests when a sanctioned individual or entity owns, either directly or indirectly, at least 50% of a company. This rule also applies when multiple sanctioned parties collectively hold a 50% or greater stake.
For example, if two individuals on a sanctions list each own 25% of a business, that entity is subject to restrictions. To prevent violations, shippers must conduct thorough due diligence, examining a company’s ownership structure and partnerships to ensure compliance with sanctions regulations.
Sanctions Screening Optimisation Requires a Balance Between Human Oversight and Automation
Sanctions screening is essential for ensuring compliance with legal regulations, mitigating financial and reputational risks, and preventing engagement with prohibited individuals, entities, or vessels linked to illegal activities.
As the risk landscape becomes more complex, the pressure on maritime industry players to screen across their entire supply chain is growing. To help navigate this increasingly intricate compliance environment, sanctions screening software offers automated solutions that enhance efficiency, improve accuracy, and reduce screening operational costs.
However, such software should be used with an understanding of its limitations. For instance, human oversight is vital to avoid false positives and negatives caused by vague compliance terms. Additionally, regularly reviewing screening algorithms is necessary to ensure users comprehend how such software reaches its conclusions.
This article by Pole Star Global provides the insights needed to maximise the potential of sanctions screening software while overcoming its challenges. To learn more or speak with a member the Pole Star team, please get in touch at [email protected].