Sanctions Screening for Firm-Wide Compliance & Due Diligence

Sanctions screening is a core element of due diligence for law firms - especially those advising regulated clients - because sanctions touch every area of practice and can make otherwise routine work unlawful.

Firms generally cannot act for a designated “Target” (e.g. a person, aircraft, large boat, or country) unless they obtain a licence from the relevant regulator (for financial sanctions, OFSI; for trade sanctions, OTSI). Yet, so many firms will often decline instructions rather than attempt licensed exemptions. Failure to spot a Target on a matter can give rise to exposure to criminal penalties, particularly in asset transactions such as conveyancing, where making or facilitating payments to a designated person is an offence. Law firms, therefore, need robust screening, counterparty checks, and escalation tools to protect themselves. 

In the sections that follow, we’ll drill into why sanctions affect every practice area, some of the legal risks around transactional work, and the practical tools and workflows firms might use to identify, verify and manage sanctions risk.

What Is a Sanction?

A sanction is a legally imposed restriction used by governments or international bodies to change behaviour or penalise wrongdoing - for example, by freezing assets, banning travel, or prohibiting certain trades or services with specified states, organisations, or individuals. Sanctions can be applied directly (where a person or entity is explicitly named) or indirectly (where measures target a sector or network and thereby capture linked parties).

What Are the Different Types of Sanctions?

Sanctions typically operate at two complementary levels: 

• Explicit sanctions apply where an individual, organisation, or country is specifically named on an official list - the restriction is direct and unambiguous. 
• Narrative (or implicit) sanctions don’t name a person or entity but capture them through their relationship to a named party, sector, or activity (for example, affiliates of a designated company, or entities operating within a prohibited industry).

Sanctions also differ by scope and intent:

• Comprehensive Sanctions: Wide-ranging measures that prohibit most economic, financial, and trade activity with an entire country or territory.
• Targeted Sanctions: Focused measures aimed at specific people, companies, groups, or countries named on the UK Sanctions List, such as Russian groups.
• Sectoral Sanctions: Restrictions that affect particular industries or segments of an economy (e.g. energy, finance, defence), limiting certain transactions, investments, or exports to those sectors.

What Is Sanctions Screening & How Does it Work?

Typically, sanctions screening involves three initial stages, followed by further steps if they are flagged as being “high risk”. Here’s what the sanctions screening process typically involves:

1. Identification

Collect the basic facts needed to screen: full names, dates of birth, company names, registration numbers, addresses, Ultimate Beneficial Owner (UBO) and Persons of Significant Control (PSC) details, and the nature of the matter/transaction. Good identification data reduces false positives and supports later verification.

2. Authentication

Verify the identity and documentation provided (ID documents, corporate documents, proof of address, UBO/PSC registers). Authentication reduces the risk of mis-identification and helps confirm whether a match is a true positive or a coincidental name match. 

3. Screening

Check the identified parties and relevant transaction details against official sanctions lists and watchlists, and against internal deny lists. Automated checks, known as “Electronic ID Verification” (EID/V), perform name-matching, alias detection, and cross-jurisdiction checks; every potential match must be manually reviewed to confirm whether it is a true hit. 

Please Note: EID/V checks are not infallible, and they cannot usually be used for checks on the client on the other side of a transaction.

4. Escalation (If a Match/High Risk Is Found)

Compliance officers review the hit, assess context (location, role, beneficial ownership, etc.), and determine whether it’s a false positive or not. Firms must not proceed unless a relevant license is obtained; in most cases, the instruction will be declined and authorities notified. 

If an individual/entity is high risk but not sanctioned, such as if they are a Politically Exposed Person (PEP), firms should apply Enhanced Due Diligence (EDD). This involves more thorough identity checks, Source of Funds (SoF) / Source of Wealth (SoW) verification, senior-level approvals, regular reviews, and stricter transaction controls.

Please Note: Although PEP screening and sanctions screening often take place at the same time, they are distinct processes in their own right. 

5. Monitoring

Continuous monitoring is crucial because sanctions and risk profiles change - for example, persons and entities can be added to lists, and PEP status can change. Monitoring should cover transactions, changes in client structure, and new public information. Your firm must ensure thorough record-keeping and audit trails for regulatory and internal governance needs. 

Sanctions Screening vs AML Checks

While sanctions screening is commonly carried out alongside Anti-Money Laundering (AML) checks, the two are different:

• AML checks focus on preventing financial crime, such as money laundering and terrorist financing, across all customers and transactions.
• Sanction checks are targeted public law prohibitions grounded in foreign policy or security objectives. 

Practically, firms usually screen for both together because the processes overlap, but sanctions can create absolute legal bars (or require specialist licences) that make their consequences and handling different from routine AML risk measures.

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PDF chart describing the differences between the Sanctions and AML regimes

The Impact of Adverse Media on Sanctions Screening

Adverse media - negative press or credible allegations surfaced about a person or organisation - can materially change a client’s risk profile, even when no formal sanctions listing exists. In practice, adverse media often triggers EDD, deeper ownership and Source of Wealth (SoW) checks, closer transaction monitoring, and in the most serious cases, the submission of SARs or refusal to act.

What Key Sanctions Lists Does the UK Use?

UK sanctions regimes took full effect under the Sanctions and Anti-Money Laundering Act 2018 and apply across the whole UK (including Northern Ireland). Some regimes impose measures, such as travel bans, on designated persons or ships. The government has established a searchable database for the UK sanctions list. However, this list does not remove your obligation to undertake thorough due diligence.

Other notable lists to be aware of include:

• The United Nations (UN): The United Nations Security Council has formed a consolidated list of individuals, entities, and other groups. This list includes information such as names, aliases, dates of birth, and reasoning for the sanction. 
• The Financial Action Task Force (FATF): The FATF publishes “black and grey” lists of high-risk jurisdictions (and those under increased monitoring). While FATF lists are not sanctions lists per se, they flag jurisdictions with strategic AML/CTF deficiencies. 

Why Is Sanctions Screening Crucial for the Legal Sector?

There are several reasons why sanctions screening is a key part of due diligence before, during, and after a business relationship:

• Regulatory Compliance: Helps firms meet AML, sanctions, and professional obligations so they don’t breach statutory duties or regulator guidance.
• Risk Mitigation: Stops firms from unknowingly facilitating transactions or relationships with sanctioned or high-risk parties.
• Reputational Protection: Prevents client or matter-level associations that could damage a firm’s standing with clients, markets, and the public.
• Avoidance of Legal Penalties: Reduces the chance of fines, criminal exposure, or disciplinary action that can follow breaches of sanctions law.
• Ongoing Monitoring: Because designations and risk profiles change, continuous checks let firms spot new listings or adverse information and act before exposure grows.

How Do Firms Use Sanction Screening Software?

Sanctions screening platforms let firms move from manual checks to a repeatable, auditable compliance workflow. By automating list updates, name-matching, and alerting, software reduces manual effort and false positives, enforces consistent risk thresholds, and creates the audit trail regulators expect.

Advanced solutions also support PEP and adverse media checks, rule-based EDD triggers, role-based approvals, and configurable exportable reports - all of which strengthen a firm’s AML/CTF posture and make it easier to demonstrate compliance.

10 Key Steps to Using Advanced Screening Software

1. Collect Data: Capture structured client and transaction details, such as names, addresses, UBOs, payment parties, and matter type. 
2. Validate Identity: Verify IDs, corporate records and UBOs to reduce false positives.
3. Screen Lists: Run automated checks across sanctions lists and internal deny-lists.
4. Score & Prioritise: Auto-rank hits by similarity, role, and exposure so teams tackle the highest risk first.
5. Investigate: Manually review matches to confirm identities, ownership, adverse media, and context. 
6. Apply EDD: Trigger EDD checks for PEPs or other high-risk matters, clients or circumstances. 
7. Make external reports: Compile and submit Suspicious Activity Reports (for AML) or reporting to the appropriate sanctions oversight authority, as appropriate, when investigations indicate criminality or reasonable suspicion. 
8. Monitor Continuously: Enable real-time alerts for list updates, adverse media, or changes in client structure. 
9. Audit & Metrics: Keep logs and dashboards for monitoring efficacy of controls,, reviews, and regulator requests. 
10. Integrate & Train: Embed screening in client intake/matter systems, define escalation procedures, and train staff.

What Are the Main Sanction Screening Challenges?

Sanctions screening poses a mix of legal, operational and technical challenges for law firms. These include: 

• Rapidly Changing Regimes: Lists, measures, and licence rules change quickly after geopolitical events; keeping policies and systems synced can be resource-intensive. 
• High Volumes & Variety: Multiple sanction lists (e.g. UK, UN, FATF, etc.) and diverse sanction types make comprehensive coverage more difficult to maintain. 
• Overreliance on Software: Automated matching can miss complex evasion (e.g. shell companies) or generate false positives; skilled human review is still essential. 
• Adverse-Media Scale & Disambiguation: Vast media streams, translations, and name ambiguities create attribution problems; manual checks are slow but often necessary. 
• Divergence Between Nations: Different countries designate different targets and apply measures inconsistently, complicating cross-border matters and creating compliance gaps.
• Equivalence Issues: Similar or equivalent restrictions can be labelled differently, making it hard to map legal effect across lists and decide correct operational responses.
• Under-Screening vs Over-Screening: Insufficient screening risks illicit exposure; excessive screening produces excessive false positives and delays matters.

Best Practices for Thorough Sanctions Screening

To help your firm stay on top of its sanctions screening knowledge, here are some best practices to keep in mind: 

• Adopt A Risk-Based Framework: Tailor screening intensity to client, matter, and jurisdiction risk; prioritise resources where exposure is highest.
• Use Reputable Screening Platforms: Consider well-established providers, and conduct checks on their sources and reporting before selecting which one might be best suited to your firm and its clients.
• Involve High-Quality Sanctions Data: To identify sanctions from all relevant authorities, client data should be screened against sources that are comprehensive, up-to-date, and, ideally, consolidated in one place.
• Embed Screening In Intake & Matter Workflows: Screen at onboarding, key transaction stages, and before payments/settlements - don’t treat it as a one-off check.
• Implement Structured Workflows & Escalation Paths: Use clear alert thresholds, senior approvals, and defined steps for reporting and refusals.
• Apply Enhanced Due Diligence (EDD) Where Needed: For PEPs, complex ownership, or high-value cross-border matters, implement SoF checks, extra documentation, and senior sign-off.
• Maintain Continuous Monitoring: Enable real-time alerts for list updates, adverse media, or changes in client structure, and act promptly on new information.
• Be robust about record keeping & Audit Trails: Document screenings, decisions, investigations, licences, and SARs to demonstrate compliance to regulators. 
• Train Staff & Test Systems Regularly: Provide practical training - refreshed annually - for fee-earners and compliance teams; run audits, scenario tests and periodic reviews of false-positive rates.

Tailored, Fixed-Fee Training for Your Firm

Give your team the practical skills to spot, assess and manage sanctions risk with confidence. PDA Legal’s live online or in-person fixed-fee training is tailored to your practice’s needs, using real-world scenarios and clear, compliance-focused guidance, all with transparent pricing.

If you’d like a free quote for your team or to talk through specific requirements, please get in touch, and we’ll arrange a short call to discuss the right training package for you.

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