How to Prevent Financial Criminals from Evading Sanctions Detection


It would be a mistake to think that financial crimes only affect financial institutions. Contrary to what some might believe, these crimes actually have far-reaching effects on the daily lives of ordinary people. What’s more, these crimes also harm different communities by discouraging investment and diverting resources away from legitimate economies.

Governments and financial institutions (FIs) are ultimately in the best position to curb these events. To prevent cybercriminals and rogue states from committing or profiting from financial crimes, an ever-evolving array of anti-money laundering (AML) tools and techniques are constantly being developed and fielded.

One of the most effective AML solutions thus far is computer-aided sanctions screening systems. Sanction screening solutions are used by governments and financial institutions to effectively cross-reference potentially billions of data points that could be used to connect transaction patterns to malicious actors. Once potential criminal patterns are identified, a freeze on targeted accounts or assets can be implemented to prevent a crime or severely limit its scope.

These solutions have been so effective that they’ve become primary anti-money laundering tools at every legitimate bank and financial institution in the world. Current generations even harness advanced artificial intelligence and machine learning capabilities to reduce the human labor needed to identify and stop potential crimes as they happen.

However, present-day financial criminals are extraordinarily innovative and motivated. Sanction screening software alone is now not enough to stop the most determined malicious actors. Thus, these advanced tools need to be used with a proper foundation in AML techniques. 

Important AML best practices include the following:

1.) Considering the Nature of Different Transactions

Financial institutions have to consider the profiles of individual customers and note if they perform transactions that are out of the ordinary. For instance, a bank should look more closely if a customer makes a purchase that doesn’t follow their usual buying pattern—and particularly if the purchase is currently flagged as a sensitive item. Banks and other financial institutions that facilitate purchases should have an understanding of the specific nature of different products and services that may be a risk, given a certain customer profile and history.

While matching and screening used to be a labor-intensive process, modern iterations of sanction screening software can automatically flag these kinds of suspicious activities for manual review. Provided they are set up properly, these systems can quickly display potential sanction evasions in progress or even automatically freeze movements on the accounts involved, without affecting services to other customers.

2.) Harnessing Predictive Analytics

Predictive analytics or cognitive intelligence uses AI to suggest or directly implement optimized solutions, drawing all the data available to a bank. Predictive analytics is now disrupting how banks of all kinds do their operations, particularly in customer relationship management (CRM). However, the same cognitive intelligence that allows an AI algorithm to optimize product offers for individual banking customers can also be used to flag suspicious activities. These systems can also accurately identify shell businesses, potential true owners, and a host of red flags that may indicate a financial crime. Such common techniques used by sanctions evaders like improper invoicing, unusual logistics choices, as well as unusual purchases can even be flagged, provided the FI or government agency using the software configures it correctly.

3.) Understanding Common KYC Issues

Given time, most know your customer (KYC) processes could be circumvented in some way. This is particularly true of automated KYC steps, as the specifics of these are eventually known to criminals and rogue states, thus ultimately compromising these steps. 

But for all the innovations used by these malicious actors, it is virtually impossible for them to consistently avoid detection if their transactions are scrutinized by trained human experts who are looking for things typical of sanctions evaders and financial criminals. This is particularly true when these experts are aided by advanced sanction screening software.

Thus, FIs should diligently follow standard KYC procedures, as criminals will almost always slip up. For example, FIs should check correspondent banking clients more closely to ensure that they are not handling money for potential malicious parties. They can also employ recognized detection methods to reveal shell corporations and other entities that may be used by financial criminals. Scrutiny of geographic locations should also be enforced to further minimize the potential odds that sanctions evaders can profit from their crimes. 

4.) Being Wary of Collusion

Unfortunately, criminals attempting to escape sanctions screening often escape notice thanks to collusion with parties that are officially privy to sensitive financial matters. For this reason, FIs and government agencies need to remain vigilant of potential threats from within.

Signs of collusion involve such things as unusual manual entries in finance systems, frequent visits to sites on the dark web, using anonymous email servers, or travel to countries where they may contact transnational financial criminals. Fortunately, confirming collusion may be less difficult than before, thanks to sanctions detection tools that also check for suspicious activity within the FI or government agency.

Sanction screening methods and tools are now so effective that sustained criminal operations that involve just one type of method are usually uncovered right away. However, this does not mean that financial institutions and government agencies should just rely on these tools. Leveraging these technologies properly requires a significant investment in human resources as well, as these tools are often only as good as the human AML experts configuring them.

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