Compliance, AML/CFT and Sanctions Screening
Compliance, AML/CFT and sanctions screening tests the risk-based approach in operation: customer due diligence, ownership look-through, screening mechanics and trade-based money-laundering red flags.
Core obligations
The FATF 40 Recommendations set the standard: risk-based CDD, identification of beneficial owners, understanding purpose and expected activity, enhanced due diligence for PEPs and higher-risk relationships, ongoing monitoring, five-year record retention, and reporting suspicious activity to the FIU. The 25% ownership threshold is common (EU, UK, US Corporate Transparency Act) but is a disclosure proxy, not a definition of control.
Screening
Lists to know: OFAC SDN and consolidated lists, the EU consolidated list, UN Security Council lists, UK OFSI. Under OFAC's 50% rule, an entity is blocked if one or more blocked persons own it, directly or indirectly, 50% or more in aggregate. Screening runs exact plus fuzzy; transliteration variants drive false positives, and every hit needs a documented disposition. Re-screen on list changes, not only at onboarding.
Worked example
Alpha Trading Ltd has three shareholders: two individuals on the SDN list at 25% each, and a family trust at 50%. Neither SDN reaches 50% alone, but the rule aggregates, so blocked ownership is 50% and Alpha is blocked. Its USD payment must be rejected and frozen, not held pending review.
Traps
- Forgetting aggregation: two blocked persons at 25% each block the company.
- Treating a fuzzy match as a false positive without documented evidence.
- Screening only at onboarding rather than on every list update.
- TBML red flags: invoice price far from market, phantom or misdescribed goods, payment from unrelated third parties, round amounts, unusual routing through free-trade zones.