1. What is Screening?

Sanctions Screening = compare customer and transaction data against lists:

• OFAC SDN List [US]
• EU Consolidated List
• UN List
• HM Treasury UK
• SEPBLAC Spanish list under Ley 10/2010

Process per OFAC Guidance and FCA:

1. Collect Key Identifiers - Full name, DOB, Place of Birth, Nationality, Address, ID
2. System Hit - Fuzzy matching generates alert [e.g. 85%+ similarity]
3. Disambiguation - Analyst compares identifiers
4. Decision:
   • True Match -> Block/Reject + File OFAC report / STR to SEPBLAC
   • False Positive -> Clear alert, process transaction, maintain audit trail
   • Uncertain -> Escalate to L2/L3
5. Documentation

2. Regulatory Expectations for Closure - The New Standard

Regulators no longer accept "black box" or one-click closure.

A. FCA UK - Review of 90+ Firms - Sept 2023
FCA identified 3 problems:

• Improperly calibrated tools which produced too many false positives or were not sensitive enough when tested
• Systems producing too many false positives were ignored - leading to analyst fatigue and auto-closure
• Failure to evidence calibration

FCA expectation: Evidence your transaction monitoring calibration and per-alert explainability.

B. OFAC - US
OFAC Guidance: Determine: True Match (block/reject) or False Positive (clear/process); document decision rationale; escalate uncertain cases.
True Match: Block assets, file OFAC report; False Positive: Clear alert, process transaction; maintain audit trail.
Penalty under IEEPA: Greater of $377,700 per violation or twice transaction value.

C. EU AMLA - Launching July 2026 + EBA + EU AI Act
AMLA will directly supervise major institutions and scrutinise adjudication quality. Adjudication decisions must be consistent, traceable, and evidenced by authoritative data. Per-alert explainability is mandatory.

Golden Rule per ACAMS / Wolfsberg:

The decision record should state which identifiers were compared and which evidence supported clearance. That makes repeated alerts easier to suppress safely and helps quality reviewers distinguish reasoned clearance from reflexive closure.

3. Legally Compliant Closure Procedure - 5 Pillars

Pillar 1: Identifier Comparison Checklist - Must Document All:

• Name vs Name [including alias, transliteration]
• DOB mismatch
• Nationality / Citizenship mismatch
• ID / Passport No.
• Address / Location
• List-specific data [e.g. OFAC SDN vessel IMO, EU passport]

Closure Reason Taxonomy - Use Standard Codes:

• FP-01: Name similar, DOB mismatch [with source]
• FP-02: Name similar, Nationality mismatch
• FP-03: Common name, no other identifiers match
• FP-04: Entity vs Individual [e.g. John Smith Ltd vs John Smith SDN]
• FP-05: Deceased/Expired list entry

Never use: "Not a match" without evidence.

Pillar 2: Authoritative Data Source:
You must use independent source to disambiguate - not just internal KYC. e.g. Passport copy, Commercial register, World-Check source note, Swift KYC Registry.

Pillar 3: 4-Eyes Principle:
L1 analyst closes false positive, L2 Quality Assurance samples 10-15%. For PEP/Adverse Media, L2 mandatory.

Pillar 4: White-listing / Suppression:
After closure, if same customer hits same list entry repeatedly, you can suppress for X months ONLY if:

• You documented FP reason
• Customer identifiers stable
• List entry not changed
• Suppression approved by MLRO/Representative to SEPBLAC in Spain
• Auto-expiry date set

Permanent white-listing without review = violation.

Pillar 5: Audit Trail Retention:
Per Ley 10/2010 Art 28 and OFAC: 5-10 years retention. Must include: who closed, when, what data compared, which list version used.

4. Case Laws - What Goes Wrong When Closure is Wrong

A. False Negative Due to Poor Closure - Massive Fines

1. HSBC Holdings - US $1.9 Billion - 2012 - OFAC + DOJ + FinCEN
Violation: Payment stripping to hide sanctioned parties (Iran, Cuba, Sudan). Screening system deliberately tuned to generate false negatives. Compliance team closed alerts as false positives without investigation. HSBC Bank USA N.A. fined $375M by OFAC alone.

Lesson: If you tune system to reduce false positives aggressively, you create false negatives = criminal liability.

2. Standard Chartered Bank - $667M (2012) + $639M (2019) - OFAC
Same pattern: $132M OFAC penalty for stripping payment messages, then $657M in 2019 for apparent violations of multiple sanctions programs (Iran). Standard Chartered had closed alerts where Iranian entity used alias.

3. Nationwide Building Society - £44.1M - Dec 2025 - FCA - UK
Inadequate AML systems and controls; governance failures 2016-2021. Sanctions and watchlist screening against customer base not effective. FCA found firm produced too many false positives and then staff bulk-closed without proper adjudication.

4. FCA Sanctions Review 2023 - 90+ Firms
FCA published outcome: Many firms' systems were producing too many false positives. Firms responded by informally increasing thresholds without validation, leading to missed true matches. FCA required remediation plans.

B. Spain / EU Proportionality Cases Applicable to Closure Workload

5. Banca March - SEPBLAC €605,424 - Feb 2025
Two infractions of €302,712 each. Bank had high false positive volume and failed to document closure rationale. SEPBLAC held this as deficiency in internal controls - Art 51 Ley 10/2010.

6. Santander Openbank - >€40M - 2024/2025 - SEPBLAC
Digital subsidiary onboarded thousands per day, screening engine generated massive false positives. Compliance team applied auto-closure rules without L2 review. SEPBLAC deemed internal process failures.

7. CJEU C-190/17 - Lu Zheng v Spain (31 May 2018)
Spanish penalties for infringement of AML are not proportionate. Court held combating money laundering is legitimate aim but penalty must be proportionate. Used by defense lawyers to argue that fine for isolated false positive closure error should be reduced if overall system effective.

8. CJEU C-212/11 - Jyske Bank Gibraltar v Spain (25 April 2013)
Spanish law can require reporting to SEPBLAC even if entity reports in home country. Means foreign bank operating in Spain cannot use home-country false positive closure to excuse Spanish STR obligation.

5. Best Practice Template for Closure Note - What Regulators Want to See

Bad Closure: "Reviewed, not a match. Closed."

Good Closure - Compliant with AMLA/FCA/SEPBLAC:

Alert ID: 2026-12345
Customer: Juan García López, DOB 14/03/1985, Spanish, DNI XXX, Madrid
List Hit: Juan Garcia Lopez, DOB 12/07/1972, Venezuelan, SDN List, reason: narcotics
Comparison: Name 92% match, DOB mismatch 13 years, Nationality mismatch, ID mismatch, Photo mismatch (if available)
Source: DNI copy on file + OFAC SDN entry detail + Commercial registry
Decision: False Positive FP-01 - DOB and Nationality mismatch
Reviewer: L1 Ana M. - 04/11/2026 14:30 CET
QA: L2 Carlos R. - 05/11/2026
Suppression: Approved for 12 months for this list entry, expiry 05/11/2027
List Version: OFAC SDN 04/11/2026 08:00 UTC

6. Liability If You Get It Wrong

• Closing True Match as False Positive: Sanctions violation - strict liability in US, criminal liability under Art 301 Spanish Penal Code + fine up to 3x asset value
• Keeping False Positive Open Indefinitely: Customer complaint for blocking funds - liability for damages, violation of payment services law (PSD2 in Spain - Royal Decree-Law 19/2018)
• Bulk Closure Without Documentation: Considered lack of internal controls - Very Serious infringement under Ley 10/2010

Spanish Specific: Under Art 51 Ley 10/2010, failure to report suspicious transaction due to incorrect false positive closure = fine EUR 150,000 minimum, up to EUR 10M, plus public reprimand and possible disqualification of directors.