When it comes to AML compliance, knowing the difference between transaction screening and transaction monitoring will help your operations immensely. Transaction screening happens before a transaction is done. The screening checks sender, receiver details and payment information against sanctions lists, PEP databases and watchlist to make sure you’re not letting suspicious activity go through. Transaction monitoring, however, is conducted after the transaction is done. The monitoring analyses customer behaviour continuously to be able to notice if something shifts like structuring and layering, suspicious activies occur, or money laundering is taking place. In this blog post, we’ll be talking about the similarities, differences, and the power of using both of these features for the well-being of your company.
What Is Transaction Screening?
The transaction screening process is used to control the high-risk payments before they are finalised. When conducting transaction screening, the sender, receiver, and payment details are collected and then checked against international sanctions lists, politically exposed persons (PEP) databases and watchlists. Taking this step before something suspicious occurs will help you preven sanctions violations and keep your company safer.
What Are the Key Features of Transaction Screening?
If you’re interested in conducting transaction screenings, you should be more knowledgeable about the key points of it. The first feature is the in-time check, it takes place right before the payment is done. This feature makes sure no flagged transaction goes through. Moreover, the screening supports sanctions compliance. It achieves this by scanning against sanctions lists from OFAC, UN, and the EU, and PEP databases as well as internal watchlists. The screening uses real-time matching technologies which use exact, fuzzy, and phonetic algorithms, to help reduce false positives and still catch the suspicious activity even if the person uses variations of their name. According to our Sanction Scanner experts, AI powered transaction screening has cut false positives by 52% in 2024.
Examples of Screening Lists
We’ve mentioned above that international watchlists and sanctions lists are used during transaction screening. The first example we can give is the OFAC SDN list. This list is published by the U.S. Department of the Treasury, Office of Foreign Assets Control (OFAC). When it comes to the EU and the UK, the UN Consolidated List and sanctions lists maintained by these regions are prime focus points. PEP databases and adverse media lists also work wonderfully against high-risk individuals who might be mentioned in negative news.
Transaction Screening: Process and Key Steps
Let’s say you’ve decided to conduct transaction screening for your company and would like to know the steps of the process. The first action you should take is data extraction. This step involves getting important details like names, account numbers, and transaction references. The data you’ve collected now needs to be scanned against sanctions lists, PEP databases, and watchlists. These systems also use matching algorithms like fuzzy, phonetic, and exact matching to make sure you miss no details because of spelling variations, aliases, and transliterations. Once a risk is caught, the system then alerts you and flags the transaction for more detailed inspection. Afterwards, either an analyst reviews the transaction or an automated decision is made by the system. The transaction is either matched as a real alert or a false positive. Your company needs to log every action you take during this process for audit trails, and as compliance evidence, if ever needed.
What Is Transaction Monitoring?
The transaction monitoring process is used in AML complaince to analyse the transaction made after it is completed. Different than screening, monitoring focuses more on odd patterns and behaviour anomalies that may come up. The volume of transaction, structuring, constantly moving funds, and inconsistent behaviour from the customer may be red flags. Transaction monitoring helps your company fight against fraud, money laundering, and terrorist financing.
What Are the Key Features of Transaction Monitoring?
One of the key features of transaction monitoring is the ongoing analysis it provides. The process will either keep an eye out on your transactions in real time, or will do so in batch reviews. These systems are able to operate using rule-based thresholds. In Sanction Scanner, these can be set according to international regulations or customised specifically for your company. AI and machine learning models are really helpful when it comes to learning and noticing patterns, the system can adapt thanks to AI powered tools. The monitoring focuses more on behavioural anomaly detection. For these anomalies to be successfully detected, the customer’s activities should be continuously monitored.
Common Red Flags
Well, what does transaction monitoring focus on? The first category this process is heavily checking against is structuring, also known as smurfing. This is when large amounts of money is sent in pieces to avoid passing the reporting thresholds. One other example is rapid transfers to high-risk jurisdictions. This act is most likely realted to money laundering or terrorist financing; so, the system is checking continuously against it. Since every customer’s patterns and behavioural analytics are fleshed out using transaction monitoring, the system uses this information to look for activity that doesn’t align with the customer’s profile. Anomalies are likely detected using this technique. The system also pays attention to dormant accounts. When these accounts suddenly start showing frequent activity, you can be suspicious of fraud or other crimes.
1,750,940 reports on financial transactions subject to monitoring were submitted to the State Financial Monitoring Service in Ukraine in 2024. 82% of them involved threshold transactions. Banks accounted for 99% of the reports.
Transaction Monitoring Process and Key Steps
When it comes to transaction monitoring, following the right steps is really important. The first step our readers should complete is data collection. You get transaction details from accounts to later analyse them. Your company then should define rules or models to check against. These rules can be about fixed thresholds, or you can use a model with advanced AI detection. This is the time to decide according to your company’s needs.
Afterwards, the transaction details you’ve previously collected are put into behavioural analysis. Every customer’s patterns and behaviours are fleshed out during this step. If rules are then breached or the specific transaction is unusual for that customer, alerts are triggered. The alerts then need to be reviewed by analysts and escalated if needed. If the alert is escalated, the analysts will then need to file a Suspicious Transaction Report (STR) or Suspicious Activity Report (SAR). The finding and reports are then sent to the relevant Financial Intelligence Units (FIUs), one example is FinCEN in the U.S. Your company should then refine your rules and models according to updates of regulations, crimes and techniques used.
SkyCity Adelaide, an Australian casino, faced a penalty of AUD 67 million (US$41.5 million) in June 2024. This was given since they failed to properly monitor their high-risk customers. This example shows the importance of transaction monitoring and some consequences for failing to do so.
Key Differences Between Transaction Screening and Monitoring
Let’s compare the two processes. Transaction screening is done before a transaction is completed, whereas monitoring is after the transaction is finished. Screening checks the sender, receiver, and transaction details against sanctions lists, PEP databases and watchlists to find sanctioned entities. Monitoring monitors transactions and user behaviours as a whole and looks for suspicious behaviour.
Screening is mostly interested in the names of the people involved in the transactions and the countries involved in the transaction. The process needs to make sure none of the parties are sanctioned. Monitoring deals with transaction amounts and patterns. The customer’s changed behaviour that seems suspicious will be the most important factor for the monitoring process.
Screening uses technologies like fuzzy and phonetic matching to ensure the tool misses nothing when it comes to name aliases, transliterations, and variations. Monitoring uses rules either decided by international regulations or ones that are more specific to your company. AI also immensely helps since monitoring heavily involves checking pattern anomalies and behavioural analytics. Screening alerts compliance teams when a sanctioned party is detected, whereas monitoring is reporting behavioural anomaly shown by customers. Both systems are heavily regulated; screening uses regulatory bodies like OFAC, the UN lists, and AMLD 4-5-6 as guidance, monitoring is abiding to Financial Action Task Force (FATF), the Bank Secrecy Act (BSA), and AML laws.
Why Organizations Need Both?
If you’re looking for AML compliance, you should be implementing both transaction monitoring and transaction screening measures. Transaction screening is the first step to protection and AML compliance. This process block blacklisted or sanctioned parties before a transaction is done. But, when it comes to criminals who use seemingly innocent entities for their illegal activities, transaction monitoring is needed. The process is done to detect evolving or unusual behaviour over time.
To give an example, a criminal might use a “clean” entity in a layering scheme. The layering scheme is executed to hide the origin of funds. The criminal moves money through different entities to hide the real owner. Screening by itself can’t do anything about this since clean entities are used during the process; but, monitoring would realise the unusual pattern of these transactions and alert authorities accordingly. When used together, these two processes will ensure you’re reducing financial crime risks.
Global Regulatory Expectations for Screening and Monitoring
All the major regulatory bodies around the world expect companies to both implement transaction monitoring and transaction screening. In the U.S., the BSA and OFAC sanctions are tasked with making sure companies are in compliance according to screening and monitoring rules. In the EU, the Sixth Anti-Money Laundering Directive (6AMLD) is used for regulations with EU sanctions requirements supporting. In the UK, the FCA’s Money Laundering Regulations (MLRs) are responsible for both processes’ regulations.
Australia’s AML/CFT Act, and India’s the Prevention of Money Laundering Act (PMLA) and RBI guidelines are what sets the regulations for those countries. One thing is agreed upon, all of these countries are enforcing the usage of both transaction monitoring and transaction screening together. J-Dee Remittance Services was fined $170,000 in 2023 for failing to perform adequate screening of customers, related parties, and beneficial owners before onboarding and during relationships. This shows the severity of regulations set forth by regulatory bodies.
How Sanction Scanner Assists with Screening and Monitoring
Sanction Scanner’s offering of 3000+ sanctions and watchlists coverage via API is immensely helpful when it comes to transaction screening. Out team also offers fuzzy and phonetic matching to make sure you miss no sanctioned party because of variations. Real-time alerts with risk scoring will ensure that compliance teams are taking action immediately on high-risk transactions thanks to this feature.
Our Sanction Scanner tool uses rule based and AI powered engines to help you analyse customer activities for transaction monitoring. You can customise rules according to your liking and test them with our advanced sandbox test environment. You can create scorecards and assign different scores according to risk levels you decide. Our AI based features will ensure you’re getting the most efficient service. Other helpful features for transaction monitoring offered by Sanction Scanner is smart alerts and case workflows, both powered by AI to help compliance teams investigate efficiently. Customer behaviour profiling is another feature of our tool that will help immensely for transaction monitoring. This way, you can easily detect anomalies is customer behaviour. With 96.99% reduced false positives and 80% reduced workload, Sanction Scanner is the right option for your company.
