Imagine sending money overseas, whether to purchase real estate or as a company making payments to overseas vendors. It involves completing a wire transfer application at the bank, which, upon processing the request, will send the funds.
It looks pretty straightforward, doesn’t it? But the reality is quite different.
While you are in the process of completing the transaction by clicking on “send”, a lot happens behind the scenes. Between initiating the transaction and completing the transfer, your name, the recipient’s name, and all transaction details would have passed through one of the most sophisticated security systems worldwide. Not looking for hackers or checking for balance, but comparing the information against the list of terrorists, drug lords, arms dealers, and corrupt politicians.
The system is called sanctions screening, and that is how the world tries to stop “bad money” from moving through “good banks”. It affects every international transaction you will undertake.
Every country in the world has a “do not do business with” list. The United States, the United Kingdom, and the European Union have one, and so does the United Nations. These aren’t casual suggestions—they’re legal orders. If you are a bank or business and you send money to someone on that list, you will be in deep legal trouble. We’re talking millions in fines, executives going to jail, and your business reputation destroyed.
Sanctions screening is the process of verifying all customers and transactions against lists of “no business” entities prior to transferring funds. This practice has become difficult because of the increasing size of these lists, which can include hundreds of thousands of names or entities (such as people, organizations, vessels, or even countries). Additionally, the regulations around sanctions differ between regions/countries and may be affected by variables such as the nature of a specific business and/or its location. A bank in London has to check against UK lists, US lists (because they use US dollars), EU lists, and UN lists—all at the same time, for every single transaction.
How This All Started?
To understand why this system exists, we need to go back. Way before computers, before global banking, to when “international finance” meant letters of credit on ships.
The Early Days
When countries went to war, they’d block trade with their enemies. However, the modern system began to take shape after World War II. The United States created the Office of Foreign Assets Control (OFAC) in 1950, but its powers came from laws dating back to World War I.
Chronicles of the Changing Times September 11, 2001
The attack on September 11, 2001, has transformed how we think about threats. Any nation that engages in support for terrorism is to be banned from engaging with financial institutions. However, terrorist groups do not operate in embassies, and they do not have central banks.
Instead, they operate as loose associations of individuals who hide in plain sight and transfer funds through illegal means, using the global financial networks of their foreign partners.
For that, the lists exploded. Instead of just country names, lists now contain:
- Individual names (with multiple spellings)
- Known aliases
- Birth dates
- Passport numbers
- Addresses
- Known associates
The US Treasury’s OFAC list has expanded from a relatively concise list to one containing thousands of specially designated nationals and blocked persons.
Now, the screening isn’t about geography anymore. It was about identity. And that changed everything.
The Manual Era
Before the development and implementation of software processes, let us understand how sanctions screening worked in practice. Because in many small banks and businesses, this is still how it works today.
Picture a compliance officer at a regional bank in 2003. Their job includes sanctions screening. Here’s their process:
Every morning, they check for updates. They might visit the OFAC website, the UK Treasury site, and print out new listings. These come as PDFs, Excel files, and sometimes even faxes. Their first job is to update the bank’s “master list”—a spreadsheet or database that contains all the sanctioned parties.
This is where human error enters. They’re typing in Arabic names with English spellings. “Mohammed al-Qadhafi” might be listed, but what if the transaction comes through as “Muammar Qaddafi”? Different spelling, same person. If the typist makes a mistake, the entire system fails.
The Customer Onboarding Check
A new customer walks in. They want to open an account. They’re from the Middle East and have a common name. The banker receives the application and forwards it to the compliance department.
The compliance officer doesn’t have a search function. They have to visually scan their master list. They’re looking at thousands of names, trying to see if “Ahmed Hassan” matches any “Ahmed Hassan” on the list.
The problem? There might be twenty Ahmed Hassans on the sanction list. But this customer has a different birth date, different middle name. Or maybe they don’t. The officer has to decide based on limited information.
The Payment Check
Now imagine it is 2:30 PM. The wire transfer department is busy. A payment order comes in from a corporate client: “Send $500,000 to Abdullah Shipping Co. in Dubai, for vessel parts.”
The wire operator has to:
- Check the payer (their existing customer)
- Check the payee (Abdullah Shipping Co.)
- Check any intermediary banks
- Check the vessel name if mentioned
Against that same master list, manually for every transaction.
What happens when they see “Abdullah Shipping” but the list has “Abdullah Maritime Services”? Are they the same? Maybe. Maybe not. The wire operator is not a detective—they’re following a process that leads to flagging it for further investigation.
The compliance officer has to investigate with:
- The original account opening documents
- Maybe a Google search
- Possibly calling the client for more information
Why Manual Screening Failed?
As transaction volumes increased and sanctions lists expanded, this approach quickly became unworkable.
The problems were obvious:
- Volume: Too many transactions, too many names
- Human error: Fatigue, distraction, simple mistakes
- Pressure: Commercial teams wanting fast service vs compliance wanting careful checks
- Complexity: Names in different languages, transliteration issues
- Speed: Manual checks slow everything down
Banks and financial institutions faced a choice: whether to be careful and lose business, or be fast and risk massive fines. This tension was the primary reason for the development of today’s automated systems.
How Screening Actually Works Today
Modern sanctions screening is not one system; it is layers of technology, people, and processes. In this article, we will explain the procedures step by step.
Step 1: The List Management
This is where it all starts. A bank or financial institution subscribes to data providers that aggregate all sanction lists, including OFAC, UN, EU, UK, and dozens of others. But these providers don’t just sell raw data—they clean it.
“Cleaning” refers to:
- All punctuation removed, like “Al-Qaeda” is “Al Qaeda”
- Spelling standardized, for example, Mohamed and Mohammed are linked together
- Characters translated, Cyrillic characters and, key data extracted such as birth dates, passport numbers and addresses, put into separate fields
This process happens on a daily, and sometimes even hourly basis as the lists are constantly being updated with new names added, for example such as a new name that is submitted at 10 am in Washington DC which should be available to all major banks around the world by noon that same day.
Step 2: Where Screening Takes Place
Screening takes place at several points throughout the customer relationship:
1) At onboarding, when you first become a customer, your name, date of birth and address will all be screened.
2) Periodic review of existing customers; customers will be rescreened once a year and during any time there are updates to the lists.
Step 3: The Matching Game
This is the heart of technology. When you process a payment, here’s what occurs:
For example, your payment instruction would say: “To pay Mohammed Al-Sayed – born on the 15th of March 1975 and resident in Dubai”.
To find the relevant match, the system does not strictly look for an exact match in name and date of birth. Instead, it uses fuzzy logic, which enables the system to use algorithms for searching that incorporates:
- Name misspellings.
- Name order variations (Order of names for the Western world vs the order used by the Eastern world).
- Various ways of spelling the same name (Mohamed vs Muhammad).
- Missing components of the person’s name.
To find the best result, the system breaks the name down into its components and compares it against the relevant components of the sanctioned individual’s name and provides a match score, which is the percentage of certainty that your Mohammed Al-Sayed is, in fact, the same Mohammed Al-Sayed on the sanction list.
If that score is equal to or greater than a predetermined threshold (say, 85%), that triggers the creation of an alert.
Step 4: Alert Investigation
When technology cannot give the answer, human intelligence must be used. Simply, an alert is not a definitive match but rather a “maybe” match. Many banks on a daily basis generate thousands of similar problems in the form of “false positive” alerts.
When an alert is generated, it is forwarded to a sanctions investigator, whose responsibility is to determine whether the individual in question is the same person as our customer, or whether there is another person with a similar name.
The most critical is transaction screening because that’s where money actually moves.
They look at:
- Full customer profile (everything the bank knows)
- Transaction history
- Geographic information
- Public records
- News sources
Step 5: The Decision and Consequences
If it is a false alarm (95%+ are), they document why and let the payment proceed.
If it is a true match, protocols activate:
- Freeze: Any assets are immediately frozen
- Report: Regulators must be notified within strict timelines (10 business days for OFAC)
- Investigate: How did this happen? Was the customer always sanctioned? Were they sanctioned later?
- Penalties: Fines can be enormous—millions or even billions
How Different Industries Handle Screening
It is not just banks. Every business moving money internationally faces this.
Money Services Businesses
They face the most challenging task: walk-in customers, often sending small amounts, with limited identification. Their systems must screen in real-time at the counter. A missed match means a sanctioned person gets funded instantly.
Fintech and Crypto
This is the new frontier. Crypto exchanges face the same requirements as banks but with added complexity: pseudonymous accounts, instant cross-border movement, and evolving regulations. Many are building screening directly into their blockchains.
International Trade
Imagine you are shipping electronics from China to Germany via a French shipping line. Your screening must check:
- The manufacturer
- The buyer
- The shipping company
- The vessel
- The ports involved
- The banks financing it
A sanctioned vessel carrying legitimate goods creates problems for everyone.
Insurance Companies
They can’t insure sanctioned entities or activities. So, they screen policy applicants, beneficiaries, and even the assets being insured.
The Human Element Behind Sanctions Screening
Despite increasingly sophisticated technology, sanctions screening ultimately depends on human judgment. Behind every alert is an investigator making real-time decisions that can stop illicit networks—or delay entirely legitimate transactions.
One sanctions investigator described a case that highlights the system at its best.
A payment arrived for a company called “Abdul’s Import Export.” The automated system flagged the transaction. On the surface, it appeared routine. But a deeper review raised concerns. The listed address pointed to a warehouse in a free zone. The company’s director was another corporate entity, and the beneficial ownership structure was opaque.
Further investigation revealed media reports linking the warehouse to the movement of dual-use goods—civilian products that can also have military applications. Additional connections emerged, tying the business to a broader network operating in high-risk jurisdictions.
The payment was blocked. The client challenged the decision aggressively. Legal threats followed. But the bank held its position.
Six months later, the network was formally designated under international sanctions.
Cases like this demonstrate why human analysis remains essential. Investigators are often required to act before official listings catch up with emerging risks, relying on context, pattern recognition, and professional judgment rather than names alone.
But this is only one side of reality.
On most days, sanctions teams face a different challenge: volume and repetition. A customer named Li Chen sends money regularly to a family member. The transaction is modest, consistent, and well-documented. Yet the system flags it repeatedly because the name matches an unrelated sanctioned individual elsewhere in the world.
Each alert requires review. Each decision must be documented. The payment is eventually cleared—again and again.
This is the daily tension of sanctions compliance. Investigators must remain alert enough to catch genuine threats while navigating thousands of false positives that drain time, resources, and attention. It is a system that relies not only on rules and algorithms but also on people making difficult decisions under constant pressure.
The Cost of Getting It Wrong
The fines are public news, reporting banks paying hundreds of millions. But the real costs are deeper:
- Reputational Damage: Being named as the bank that funded terrorists
- Loss of Correspondent Relationships: Other banks won’t work with you
- Increased Scrutiny: Regulators breathing down your neck forever
- Personal Liability: Compliance officers facing fines or jail
I’ve seen careers end over a single missed screening. Not because of malice, but because of overload. Too many alerts, too little time, too much pressure.
The Future: Where This Is Heading
The current system is breaking under its own weight. The future is moving toward:
Artificial Intelligence
Not just fuzzy matching, but understanding context. If “Ahmed” sends money to a high-risk country he’s never dealt with before, for an unusual amount, to a new recipient—that’s suspicious even if no names match sanction lists.
Information Sharing
Banks hate sharing information (competition, privacy). But imagine if Bank A could anonymously tell Bank B: “We investigated this pattern and found it clean.” Bank B wouldn’t have to re-investigate. This is happening slowly through utilities and platforms.
Identity verification is the fundamental issue at hand. Having a verifiable identity (not just a name) for each person would make screening much easier. Digital passports, ID verification via blockchain, and biometrics will help provide the basis for that verifiable identity.
Regulatory Technology (RegTech)
Many specialized companies are now providing “screening as a service”. Companies with limited resources will have access to sophisticated systems that they would not otherwise be able to afford. This provides some degree of equal opportunity by leveling the playing field in compliance, but it also creates a degree of dependence on the service provider.
If your business operates internationally, here are five practical tips to assist you in managing compliance:
- Know your obligations – Which jurisdictions require you to screen?
- Adopt a risk-based approach – Every transaction does not have the same risk, so you need to screen every transaction based on risk.
- Technology is a must – If you use a manual screening process, you won’t be able to scale/expand.
- Document every process used. If regulatory agencies conduct an audit of your organization, this will help you demonstrate that you followed your processes.
- If you are ever in doubt about whether a transaction is legitimate, don’t process it – better to delay a legitimate payment than to process an illicit transaction.
Sanctions screening forms a part of the defence mechanism of the world’s financial systems. When a country fails to implement sanctions screening, it allows the movement of illegally obtained funds throughout the country. Conversely, when countries are excessively rigorous in their sanctions screening, it hampers the operation of legitimate businesses.
The sanctions screening process must strike a balance. The sanctions screening process will not be perfect, but the system serves as a buffer between legitimate economic activity and those wishing to use it for nefarious purposes.
When you wire money internationally, settlement can take a bit longer. Between the time the transaction is executed and the funds are received by the recipient, the actual sanctions screening process is likely carried out to ensure that the funds are not going to individuals or entities that could use them to cause harm.
The sanctions screening process is both a compliance requirement and a pillar of security for the global economy in the age of digitization. Imperfect, expensive, and frustrating, but imperative to its success. Understanding the sanctions screening process is the first step toward complying with it as a banking institution, corporation, or individual initiating a wire transfer.
