Inability to pinpoint ‘true hits’ among huge alert volumes
To fully appreciate the new levels of sanctions screening and alert review volumes required in recent years, one should not overlook the flip side of detecting financial crimes – the need to allow the continuous flow of legitimate transactions.
With thousands of new sanctions added since early 2022, compliance analysts have had to scrutinize legitimate transactions and properly resolve the false-positive alerts surrounding them. These false positives represent 95–99% of sanctions screening alerts and can be painstakingly slow for a person to resolve. Often, the differences between legitimate and illegal transaction characteristics can be miniscule, making them difficult for a person to identify.
Here are a few examples of legitimate transaction characteristics that may initially appear to be red flags, thus causing an alert to be issued:
Transactions involving non-Russian domiciled entities doing primary business in Russia or owned by Russian persons
Entities not having greater than 50% ownership or material control by sanctioned persons
Family members or close associates of sanctioned persons
Non-sanctioned persons tied to sanctioned persons
Sanctions screening solutions would normally flag all of the above for closer review by a FinCrime compliance team. According to Grant Vickers, WorkFusion’s Head of Financial Crimes Strategy, “At the time that a slew of new sanctions were being issued in 2022, examiners were handing out a lot of matters requiring attention (MRAs) citing bad alert quality and inadequate staffing in this area.”
ACI Worldwide Real-Time Payments Report
RTP drives expanded sanctions risks
Even if the Russia-Ukraine war were to end tomorrow, the landscape of sanctions risks will likely continue to expand, with real-time payments (RTP) serving as a significant new risk driver. Looming on the horizon is a market boom around RTP, making the everyday sanctions risk volume even higher as time goes by.
According to ACI Worldwide’s Real-Time Payments Report, RTP transactions account for just 0.9% of total transaction volume in the U.S., with only 1.8 billion real-time transactions taking place in 2022. Yet, RTP transaction volume is projected to hit 8.9 billion in the U.S. by 2026.
To put the risk of RTP into context, it’s important to consider that successful RTP means that FIs need to process each payment in seconds rather than days. Not only does that represent a game-changing service that offers many benefits to consumers and businesses alike, it also adds incredible time pressure to compliance teams that must determine the sanctions risk of each payment. The speed required to make alert decisions seems untenable for typical analyst teams.
Nevertheless, FIs must soon prepare their compliance teams to handle RTP or lose out on vast revenue potential. Ken Montgomery, Federal Reserve Bank of Boston first vice president and FedNow Service program executive, said this in a recent press release around RTP, “The benefits of instant payments are increasingly important to consumers and businesses, and the ability to provide this service will be critical for financial institutions to remain competitive.”
