Leveraging Intelligent Automation to Ensure OFAC Sanctions Compliance for Real-Time Payments

Last month, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) published “Sanctions Compliance Guidance for Instant Payment Systems.” In its latest guidance, OFAC has reaffirmed that financial institutions should take a risk-based approach to manage sanctions risks; and encourages the development and deployment of innovative sanctions compliance approaches and technologies to address the risks.

Real-time payments (RTP) are still lagging in the U.S. compared to much of the world, with their true potential remaining largely untapped. According to ACI Worldwide’s Real-Time Payments Report, today, these payments account for just 0.9% of total transaction volume in the U.S., with only 1.8 billion real-time transactions taking place. However, real-time transaction volume is expected to significantly accelerate and hit 8.9 billion by 2026.


As a matter of fact, the U.S. Federal government is spurring this adoption of real-time payments with its instant payments service, FedNow Service. The rollout of FedNow is expected in the summer of 2023.

In a press release, Ken Montgomery, Federal Reserve Bank of Boston first vice president and FedNow Service program executive, said, “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. Next year, financial institutions will be able to use the FedNow Service as a springboard to provide innovative solutions to their customers.”

According to Deloitte, “the full-scale adoption of real-time payments is only a matter of time, and the real question facing FIs is what this means for their product strategy and, ultimately, their customers. Customer expectations around speed, ease, convenience, and security of payments are increasing, despite or even stimulated by the COVID-19 crisis, meaning FIs must either deliver on real-time or risk damaging both their revenues and reputation.”

There’s no doubt that the ability to process payments in seconds rather than days is a game-changer that offers many benefits to consumers and businesses alike. However, the ability to move money fast and avoid traditional banking bottlenecks also presents a huge vector for financial criminals to exploit. Much like bad actors in cybersecurity, financial criminals seek out vulnerabilities and are quite innovative with their methods to stay one step ahead.

So, as RTP gains traction, how do financial institutions manage sanctions risk in real-time for instant payments without compromising customer experience?

Intelligent Automation is the answer.

The Benefits of Intelligent Automation for Sanctions Screening of Real-Time Payments

The debate over whether banks and other financial institutions should pursue advanced technologies — including Intelligent Automation, artificial intelligence, and machine learning — to drive sanctions compliance has shifted from “if” to “when, how, and on what scale?”

OFAC specifically calls out the availability and use of emerging sanctions compliance technologies and solutions in its guidance document. It states, “Technology solutions for sanctions compliance, which have advanced significantly in recent years and become more scalable and accessible, can be leveraged to help mitigate a financial institution’s sanctions risk, including with respect to instant payment systems.”

Additionally, FATF, the global money laundering and terrorist financing watchdog recently published, “Opportunities and Challenges of New Technologies for AML/CFT” which cites, “the enhanced use of technologies, for client screening and matching, holds great potential to improve the compliance processes.”

Ensuring Customer Experience

Both businesses and consumers have a need for speed when it comes to real-time payments.

For businesses, the value is in speeding up the time frame for improving cash flow management, increasing liquidity, and offering better back-office efficiencies. For consumers, it offers a fast, frictionless way to pay and receive payments between friends, family, or even vendors, regardless of time or distance.

However, as the volume of RTP grows, the time it takes to review sanctions exceptions also increases exponentially — creating a potential bottleneck. RTP‘s real-time exception processing is no longer real-time if it‘s done by a person. On average, it takes 3–5 minutes of a human reviewer’s time.

Intelligent Automation can instantaneously resolve exceptions (sanctions alerts) and allow the payment to progress with no effect on the customer.

Reducing Alerts/Exceptions

Exception (or alert) fatigue is draining on compliance teams and adds time to the sanctions screening process. Rules-based sanctions screening software generates many sanctions alerts, and, unfortunately, 99.99% of those alerts are false positives. For each exception, payment is held up pending review. This means real-time isn’t near real-time anymore, it just becomes a wait.

In response, banks directly employ or contract out dozens or hundreds of people to manually review these alerts. It is not uncommon that alert review teams (sanctions and anti–money laundering combined) make up 75% of a bank’s compliance staff.

Using time and money to review thousands of false positives is an efficiency problem that can lead to missing the “needle in the haystack,” that rare true positive, due to resource strain from reviewing thousands of false positives.

OFAC’s guidance states, ”Instant payment systems that allow for exception processing — i.e., allowing a transaction to be removed from the automated process to provide sufficient time for a financial institution to investigate potential sanctions concerns — also help their participants mitigate sanctions risks. Exception processing can help enable screening and review of payments that may involve a sanctions nexus.”

Intelligent Automation can accelerate exception processing to near real-time, thereby mitigating sanctions risk and maintaining speed-of-transaction.

Nature and Value of Payment

OFAC’s guidance states, “While a payment of any amount could result in a violation of OFAC regulations, the nature and value of a payment may be relevant in assessing the relative sanctions risks of payments made via an instant payment system.”

Intelligent Automation can determine that payments consistent with past customer behavior, which a financial institution has previously vetted and cleared for potential sanctions implications, generally pose lower sanctions risk. Therefore, the exception can be reviewed and processed in real time.

Domestic vs. Cross-Border Payment Systems

OFAC expects that U.S. banks, which are subject to stringent regulatory requirements, are already performing risk-based due diligence on their customers. As a result, they pose a lower sanctions risk than those involving accounts maintained by non-U.S. banks.

However, cross-border payments are projected to reach $39 trillion by the end of 2022. Earlier this month, EBA CLEARING, The Clearing House (TCH), and SWIFT announced the delivery of the Immediate Cross-Border Payments (IXB) pilot, leveraging the existing real-time payment services in the U.S.

Cross-border payments generate far more alerts than domestic payments. It’s easy to see why. The Federal Reserve recently wrote, “Compliance with anti–money laundering and anti-terrorism financing regulation is often cited as one of the most persistent challenges in cross-border payments. High cost and complexity related to complying with regulatory standards for various global jurisdictions have reduced correspondent banking relationships that, as a result, erodes access to services.”

As SWIFT noted, poor data quality in cross-border payment messages is often the culprit that makes compliance difficult. “Banks that receive suspicious payments must often follow a trail of breadcrumbs across time zones to find missing data. Simply misspelling a name can quickly result in higher costs, missed shipments, idle factories, and empty shop floors.”

Intelligent Automation can overcome this issue by leveraging AI and IDP to evaluate data fields in the payment messages associated with exceptions, eliminating the false positives and escalating only potentially true positives to compliance teams.

Innovative Solutions Meets Legacy Systems

As RTP gains traction, financial institutions (FIs) with legacy technology systems might struggle to upgrade their infrastructure to accommodate the speed of sanctions screening for instant payments. Legacy sanctions screening software for both customers and payments typically encounters an overwhelming volume of alerts and poor matching logic. Yet it’s too expensive to replace.

WorkFusion has a solution. Our AI-powered Digital Workers are Intelligent Automation personified. They complement and integrate with leading legacy sanctions screening software.

Our Digital Worker, Tara, is a Transaction Sanctions Screening Analyst. Tara reviews sanctions alerts in real time, protecting organizations from processing payments from sanctioned organizations and individuals. “She” also ensures fast and accurate processing of all transactions in order to provide a high standard of customer service.

Tara adjudicates L1 alerts with greater efficiency, better accuracy, and with a more comprehensive audit trail than teams of people.

And “she” will also review payment messages and associated screening alerts and hits before auto-dispositioning them as either false positives or potential escalations. Tara automatically conducts research to justify decision-making and drafts human-readable justifications that are ultimately entered into your screening software’s case management workflow to provide an audit trail. Tara can also integrate with internal databases and external data providers to increase the alert review automation rate.

As your organization navigates OFAC compliance for RTP, Tara is a solution that works in real time, around the clock, without vacations or sick days to:

  • Ensure speed of transaction and customer experience
  • Mitigate sanctions risk
  • Adjudicate L1 alerts
  • Determine payments consistent with past behavior
  • Complements and integrates with legacy technology

To learn more about Tara, please schedule a demo.

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