Circumventing sanctions prohibitions is a criminal offence, yet many designated persons and sanctioned entities attempt to hide or retain their assets by exploiting weaknesses in financial systems. As financial institutions serve as conduits for illicit transactions, sanctioned entities are constantly evolving their tactics to bypass existing compliance frameworks.

To mitigate this risk, financial institutions must enhance their ability to detect and prevent sanctions circumvention. A key component of this is identifying and blocking resubmitted rejected payments, where crucial information may have been deliberately altered to evade sanctions screening.

Our Client

Our client, a global financial institution, had previously faced a record-breaking fine from US authorities due to compliance failures, including money laundering and facilitating transactions with sanctioned entities. As part of their regulatory settlement, they committed to strengthening their financial crime compliance (FCC) function and improving their internal controls.

Since then, they have implemented global standards for anti-money laundering (AML) and sanctions compliance, upgraded their IT systems for enhanced transaction monitoring, and reinforced their regulatory compliance framework. However, detecting and preventing resubmitted payments with altered details remained a critical challenge.

The Challenge

Our client needed a robust mechanism to screen and block payments linked to sanctioned individuals, entities, and jurisdictions. Whilst automated sanctions screening software was already in place, it was not fully effective in detecting resubmitted payments where key details such as customer names, bank details, or addresses had been deliberately removed or modified to evade detection.

Failure to address this issue exposed our client to significant financial penalties and reputational damage. Furthermore, facilitating or overlooking such payments could lead to regulatory actions and potential criminal liability for senior executives.

Beyond implementing the correct technology, the client also needed to demonstrate clear and documented evidence of ongoing monitoring and testing of its resubmitted payments process to satisfy regulatory requirements.

Our Approach

Our client engaged us to conduct an independent assessment of their existing processes for identifying and blocking resubmitted payments and to design a robust compliance monitoring framework. This framework needed to operate independently within the second line of defence.

Our approach included:

• Policy & Process Review: We began by conducting an in-depth review of our client’s existing policies, procedures, and operational controls related to the identification and blocking of resubmitted payments. This involved:

  • Analysing the documented sanctions compliance framework to understand existing mechanisms for screening payments.

  • Reviewing the effectiveness of automated sanctions screening software in identifying payments linked to designated persons, entities, or jurisdictions.

  • Examining how payment data was captured, processed, and stored within our client’s financial systems to identify vulnerabilities in payment integrity.

• Stakeholder Engagement & Process Walkthroughs: To bridge the gap between policy and practice, we engaged with key stakeholders across the global payments and compliance teams. This phase involved:

  • Conducting structured interviews with payment processing teams, compliance officers, and risk management personnel to gain insights into the day-to-day handling of sanctions screening.

  • Mapping end-to-end payment workflows to identify potential weak points where payment details could be manipulated to evade detection.

  • Observing how payment screening tools were used in real-time to assess whether staff were correctly following established procedures.

This approach helped us determine whether employees had the necessary training and awareness to spot red flags associated with sanctions circumvention tactics.

• Compliance Testing Development: To ensure our client could systematically identify and prevent resubmitted payments that had been manipulated, we designed a structured compliance testing process. This included:

  • Developing a risk-based test plan outlining how the compliance team should select a sample of transactions for periodic review.

  • Building repeatable test scripts and standardising the methodology used to assess whether payments had been altered to bypass sanctions screening.

  • Identifying key payment data attributes such as beneficiary names, account numbers, vessel names, and bank details, which are most likely to be stripped or modified in resubmitted transactions.

By establishing a structured compliance testing regime, our client could systematically assess the effectiveness of their controls and take corrective action where necessary.

• Operational Effectiveness Testing: To validate the integrity of the client’s existing processes, we implemented an independent review of actual payment transactions. This involved:

  • Running sample-based testing to assess whether resubmitted payments had been successfully blocked or had bypassed controls.

  • Performing gap analysis on failed sanctions screening alerts to understand why certain payments were not flagged.

  • Identifying common circumvention techniques, such as slight misspellings of names, removal of key identifiers, or use of intermediaries to disguise payment origins.

Our findings enabled our client to fine-tune their automated screening parameters and strengthen internal procedures for identifying suspicious payment activity.

• Monitoring & Reporting Framework Design: A crucial element of our approach was the creation of a continuous monitoring process to ensure long-term compliance. This included:

  • Defining key performance indicators (KPIs) and risk indicators (KRIs) to track the number of resubmitted payments flagged, the frequency of alerts, and the percentage of rejected payments that had been resubmitted with altered details.

  • Developing monthly management information (MI) reports to provide senior leadership with real-time insights into emerging compliance risks and potential process failures.

  • Establishing an escalation framework to ensure that compliance teams had a clear process for investigating and reporting sanctions breaches to regulators if required.

By embedding these monitoring and reporting mechanisms within the compliance function, our client was able to move from a reactive to a proactive approach in identifying sanctions circumvention attempts.

Key Benefits & Measurable Outcomes

As a result of our work, the client now has a robust and transparent monitoring framework for resubmitted payments, delivering multiple benefits:

• Early Detection of Compliance Risks: The new process acts as an early warning system, enabling senior management to identify compliance issues proactively.

  
  

• Regulatory Assurance: The structured compliance testing and monitoring framework provides clear evidence of due diligence and regulatory adherence.

  
  

• Improved Operational Effectiveness: The testing and monitoring processes ensure that compliance teams can effectively identify and block high-risk payments.

  
  

• Enhanced Reputation Management: By demonstrating a proactive approach to sanctions compliance, the client has strengthened its reputation with regulators and stakeholders.

Our structured approach provided our client with the necessary tools to detect, monitor, and prevent the circumvention of sanctions screening, ensuring regulatory compliance and reducing financial crime risks.

Is Your Organisation Equipped to Detect & Prevent Sanctions Circumvention?

If your organisation requires expert guidance in enhancing its sanctions compliance and monitoring framework, contact us today to discuss how we can help.