Understanding Global Watch Lists

Regulating banking operations is an ever-changing landscape, especially for cross-border transactions. Luckily, global watch lists can help ensure compliance for financial institutions.

In 2023, the value of cross-border transactions worldwide hit over $190 trillion, and forecasts predict that they will grow twice as much by 2030. As the world embraces technological advancements, the number of people opting to transact online continues to grow because of its convenience and accessibility. This allows anyone to send and receive payments through financial institutions worldwide, making it increasingly important for financial institutions to enhance compliance measures.

Discover how global watchlists play a factor in keeping your business compliant when it comes to cross-border transactions.

‍

What is a global watch list?

A global watch list is essentially a comprehensive database used for identity verification. This type of resource is used for watchlist screening to create a robust compliance framework. It can effectively map out vital information on individuals and entities who may be involved with various illegal or high-risk issues, such as money laundering, fraud, and adverse media.

A global watch list has many uses and can be accessed by different organizations in various industries. Here are some of the more common purposes of these databases.

• Ensuring compliance with international law enforcement agencies
• Financial crime prevention against money laundering, fraud, and other crimes
• Security screening to ensure travelers are not threats
• Tracking customers who have sanctions violations
• Ensuring company security against terrorism

‍

Types of global watchlists

There are many types of global watchlists. Each differs based on the kind of risk an individual or entity poses to the government, financial institution, or business they are involved with. Let's take a look at how they can be categorized.

‍

Suspected terrorists

This database considers individuals and groups of people who are determined to be involved and possibly support illegal terrorist activities. Those on this list must be closely monitored and tracked for preventive measures that can help prevent potential terrorist threats.

Some examples of those in these suspected terrorist lists include Al-Qaeda and ISIS mb

Sanctioned individuals and organizations

Persons and organizations that face economic or trade sanctions for illegal activities, such as human rights abuse or internationally recognized crime, are classified as sanctioned individuals, businesses, and countries.

Significant groups that fall under international sanctions are North Korean entities involved in missile development and some Iranian companies.

Money launderers and fraudsters

Financial institutions must observe regulatory compliance, including laws on anti-money laundering (AML) and counter-terrorism financing (CTF). This means individuals and entities who have been involved with money laundering, fraud, cyber crimes, and other serious financial crimes are listed.

Politically Exposed Persons (PEPs)

There are differing risk levels for Politically Exposed Persons. Every type of PEP is considered on a global watchlist check, most especially government officials accused of corruption or authoritarian regimes.

Human rights violators

On the more extreme end of the global watchlist categories are human rights violators. These include individuals and groups accused of committing severe human rights abuses like war crimes and genocide.

‍

What it means to be on a global watchlist

Individuals, entities, and countries can be added to a global watch list. This means they are seen as a potential threat to authorities worldwide. The reasons for such include any reason in the lists above.

If a person, company, or nation is on a watchlist, the following measures must be taken.

• Heightened surveillance
  For proper risk management, increased monitoring and surveillance will be enforced according to international regulations. This means tracking all movement, communication, and financial transactions made by those on the list.
• Asset freezing
  Those on a global watch list with foreign-held assets may incur banking restrictions and limitations on financial transactions.
• Travel bans
  Being on an international watchlist can restrict travel to specific countries. If not, it may be more complex to get through border crossings when entering foreign land.
• Embargoes
  Specific business industries and products are barred from transactions. Therefore, goods and services meant for import and export to a target country are prohibited.
• Business operation restrictions
  International organizations on the list that have multiple overseas branches may have restrictions on business operations in other countries.
• Collaboration across agencies
  Multiple agencies worldwide maintain internationally accessible watchlists. This means all organizations involved must coordinate to consistently monitor and manage threats posed by those on the database.

‍

Who conducts a global watchlist search?

Global watchlist searches apply to various industries that seek to ensure compliance with legal and regulatory requirements, as these can help mitigate risks that those on the list pose. This means organizations that conduct a global watchlist search include the following.

‍

Financial institutions

Banks must comply with AML regulations and combat CTF while enforcing sanctions laws. Due to the continuously growing number of customers, conducting watchlist screening on customers, transactions, and other counterparties is vital. This can help limit the chance of banking with high-risk individuals.

‍

Government agencies

Law enforcement agencies, including the FBI, Interpol, and national police forces, use watchlist screening to identify and locate individuals who may be involved in criminal activities. This can help in screening travelers passing through different countries so that identified individuals are located and the necessary actions are done.

‍

International organizations

Many international organizations with global influence use global watchlist searches. For instance, the United Nations (UN) conducts screening, while the European Union maintains its own watchlist.

‍

Corporations

Multinational companies must conduct the necessary screening process to avoid conducting business with high-risk entities, whether for collaboration or employment.

‍

Global watchlists

Governments, financial institutions, and businesses use global watch lists to streamline compliance efforts and ensure they do not engage in prohibited activities or transactions. This can also strengthen national security for the organization's locale.

Here are some international watchlists used globally.

• United Nations Security Council Sanctions List
• Australia's Department of Foreign Affairs and Trade (DFTA) Consolidated List
• Canada's Consolidated Canadian Autonomus Sanctions List
• The US Office of Foreign Assets Control (OFAC) Specially Designated Nationals (SDN) List
• Interpol's Most Wanted List
• The UK Office of Financial Sanctions Implementation (OFSI) UK Sanctions List
• The EU Consolidated List

Additionally, there are laws that necessitate global watchlist checks. This includes the US Patriot Act for terrorist attacks and the Fair Credit Reporting Act (FCRA) to ensure employers run the necessary background checks before accepting a new applicant for work.

‍

The global watch list screening process

Consulting a global watchlist throughout a financial institution's verification process in the KYC and KYB stages can eliminate the chance of false positives and indicate whether or not enhanced due diligence is necessary.

Let's take a closer look at the watchlist screening process.

‍

Database gathering

Collecting data on the individuals and entities that need to be screened is the starting point for the entire global watchlist screening process. Throughout customer onboarding, individuals and entities names, addresses, and other identification numbers and documents are pooled for verification.

‍

Automated screening

Global transactions happen in real time with varying degrees of complexity. This makes automated screening a necessity as it can speed up processes. Some businesses opt to use a KYB verification software or a sanctions screening solution to employ algorithms that can cross-check the validity of customer information and inspect the risks posed by customers. A good tool can also match differences in spelling, transliterations, and other discrepancies to confirm the legitimacy of data as well.

‍

Authentication with algorithm

In the event that there is customer data flagged for further investigation, also commonly known as "hits", the verification software can categorize whether the individual or entity poses as a low, medium, or high risk to the business.

‍

Risk management

Once the customer's risk levels are determined, a report is delivered to the business. Should they be considered high-risk, escalation should be done with additional investigation and legal consultation.

The appropriate action can also be taken such as freezing assets, blocking transactions, and filing Suspicious Activity Reports (SARs). Monitoring the individual or entity with ongoing compliance can also be applied to protect the organization from being affected by criminal or illegal activities.

‍

Finding the right global watchlist screening solution

As the number of cross-border transactions continues to grow with technology, it's become increasingly important for financial institutions, governments, and international organizations to keep track of global watch lists. These databases can help businesses verify customers and ensure compliance.

Vespia understands the need to streamline the onboarding process. That's why our KYB verification solution provides access to the most relevant global watchlists to accurately discover UBOs and conduct efficient monitoring. Book a demo today and find out how you can conduct a seamless global watchlist screening.

‍