Anti-Money Laundering Council (AMLC) Guidance on Sanctions Screening

OFFICE OF THE DEPUTY GOVERNOR I FINANCIAL SUPERVISION SECTOR 030 CIRCULAR LETTER NO. CL-2023-___ To : All BSP-Supervised Financial Institutions (BSFIs) Subject : Anti-Money Laundering Council (AMLC) Guidance on Sanctions Screening This is to disseminate the AMLC Guidance on Sanctions Screening – 2022-2023 Thematic Review of the Effectiveness of Customer and Transaction Screening Systems of Covered Persons in Targeted Financial Sanctions (TFS) Implementation 1 (Annex A). The Guidance presents the results of the thematic review conducted on select covered persons to determine the effectiveness of their customer and transaction sanction screening systems in the implementation of TFS. It highlights the common trends and observations as well as supervisory expectations relating to TFS on key areas of (i) senior management oversight and commitment; (ii) risk assessment; (iii) ownership, skills and training; (iv) policies and procedures; (v) technology; (vi) sanctions data; and (vii) testing and audit. For information/guidance and implementation. Digitally signed by Chuchi G. Fonacier Date: 2023.05.18 18:25:05 +08'00' CHUCHI G. FONACIER Deputy Governor 18 __ May 2023 Att: a/s 1 http://www.amlc.gov.ph/images/PDFs/Main/AMLC%20Guidance%20on%20Sanctions%20Screening.pdf Page

ANNEX A Republic of the Philippines ANTI-MONEY!LAUNDERING!COUNCIL! GUIDANCE ON SANCTIONS SCREENING 2022-2023 Thema!c Review of the Effec!veness of Customer and Transac!on Screening Systems of Covered Persons in Targeted Financial Sanc!ons Implementa!on 1. Introduc!on 1.1 Background The An!-Money Laundering Council (AMLC) applies a risk-based approach in performing its overarching role as the primary an!-money laundering/counter-terrorism financing (AML/CTF) supervisor and enforcer to ensure compliance of all covered persons, including designated non- financial businesses and professions (DNFBPs), with the An!-Money Laundering Act of 2001, as amended; the Terrorism Financing Preven!on and Suppression Act of 2012; their respec!ve Implemen!ng Rules and Regula!ons; and other issuances of the AMLC. This approach includes the conduct of risk-based supervision of targeted financial sanc!ons (TFS) on all covered persons. The Philippines has been included in the Financial Ac!on Task Force List of Jurisdic!ons under Increased Monitoring or the “grey list”, indica!ng that the country must improve its AML/CTF regime. Removal from such list requires accomplishing the country’s ac!on plan within the prescribed !meline. The said ac!on plan includes enhancing the effec!veness of the TFS framework for terrorism financing (TF) and prolifera!on financing (PF) of weapons of mass destruc!on. Thus, the Philippines must, among others, demonstrate that covered persons understand their TFS obliga!ons and that supervisors undertake risk-based supervision of TFS measures of financial ins!tu!ons and DNFBPs. 1.2 Scope of Review The AMLC selected covered persons to be tested in order to determine the effec!veness of their customer and transac!on sanc!on screening systems in the implementa!on of TFS. The assessment was made against the tes!ng of specific sanc!ons lists obligated under the An!-Terrorism Act of 2020 and under UNSC resolu!ons (highlighted in sec!on 1.4). The lists include individuals and en!!es that are sanc!oned by the relevant regulatory bodies and accompanied by non-sanc!oned records to assist in the measurement of efficiency of the customer and transac!on screening systems. The aim is to understand the effec!veness and efficiency of the primary client and transac!on screening systems, with par!cular a%en!on placed on four key considera!ons: 1. Does the system generate an alert when an ‘unmanipulated’ sanc!oned name is screened? 2. Are the ‘fuzzy logic’ matching rules, configura!on and threshold se&ngs effec!ve, such that a ‘manipulated’ sanc!oned name generates an alert? 3. Are the levels of ‘false posi!ves’ or ‘noise’ within operable/manageable levels? 4. Is the system performance in line with the regulator’s expecta!ons?

! 1.3 What is Sanc!ons Screening? Sanc!ons screening is a control employed within Covered Persons (CPs) to detect, prevent, and manage sanc!ons risk1. Most CPs conduct sanc!ons screening via two core systems: customer screening and transac!on screening. Customer screening relates to the systems u!lized to iden!fy sanc!oned individuals and en!!es at onboarding or throughout the client and/or supplier and/or relevant par!es’ rela!onship. Transac!on screening relates to iden!fying the poten!al involvement of sanc!oned individuals and en!!es within a transac!on. The process of name screening is typically enacted by organiza!ons at onboarding, transac!on, ongoing monitoring, or trigger-based events. Sanc!ons screening is undertaken through the usage of technology and sanc!ons data either through manual or automated systems and processes at singular name level or in batch format. 1.4 Current requirements under Philippine Law The 2021 Sanc!ons Guidelines – Targeted Financial Sanc!ons related to Terrorism, Terrorism Financing and Prolifera!on Financing outlines the current requirements and obliga!ons as set out by the AMLC. Under current legisla!on, all CPs must screen all relevant par!es against the An!-Terrorism Council (ATC) List and United Na!ons (UN) Security Council Resolu!ons. The UN Security Council (UNSC) maintains a range of country-based financial sanc!ons that target specific individuals and en!!es connected with the poli!cal leadership of targeted countries. Each UN sanc!ons regime has a relevant Security Council Commi%ee that maintains general guidance on the implementa!on of financial sanc!ons and current lists of targeted persons and en!!es. At a minimum, the sanc!ons database should include the following and their successor resolu!ons: (1) UNSC Consolidated List that includes UNSC Resolu!ons 1267/1989 (Al Qaeda), 1988 (Taliban), and 2253 (ISIL Daesh) for Targeted Financial Sanc!ons on terrorism and terrorist financing; (2) UNSC Consolidated List that includes UNSC Resolu!on Numbers 1718 of 2006 (DPRK) and 2231 of 2015 (Iran) for TFS on Prolifera!on Financing. (3) Domes!c designa!ons (or those that are designated by the An!-Terrorism Council [ATC] pursuant to UNSC Resolu!on 1373, Sec!on 25 of the An!-Terrorism Act of 2020, Rule 15.b of the Implemen!ng Rules and Regula!ons of The Terrorism Financing Preven!on and Suppression Act of 2012 [TFPSA]) and those proscribed by the Court of Appeals under Sec!on 26 of The An!-Terrorism Act of 2020. The UNSC Consolidated List and the updates thereto may be downloaded from the UNSC website (h%ps://www.un.org/securitycouncil/content/un-sc-consolidated-list). Moreover, locally designated individuals and organiza!ons may be downloaded from the ATC website (h%ps://atc.gov.ph). 1 Wolfsberg Group 2019, Wolfsberg Sanc!ons Screening Guidance, h%ps://www.wolfsberg- principles.com/sites/default/files/wb/pdfs/Wolfsberg%20Guidance%20on%20Sanc!ons%20Screening.pdf 2

! 1.5 Benchmark Data As a reference point for system performance metrics, the tables below highlight the Customer & Transac!on Screening Benchmark Data for the month of January 2023. The data indicated should act as reference for CPs regarding the effec!veness levels seen globally which the Philippines-based organiza!ons should also be targe!ng. Global Benchmark as of January 2023 Client Onboarding Transac!on Screening Control Manipulated Control Manipulated 96.27% 88.90% 95.70% 90.89% 3

! 2. Common Trends and Observa!ons The Thema!c Review undertaken over the last twelve (12) months has iden!fied several common trends and findings. Some of these are: · Overall underperformance against most sanc!ons screening tes!ng metrics versus global benchmark data. · Significant weaknesses seen in the ability of CPs to iden!fy manipulated names in their screening system and processes. · Official mandated sanc!ons lists are not included in screening system configura!on. · Reliance on manual processes with limited automa!on across the sanc!ons screening process. · Lack of understanding into how sanc!ons screening systems operate and poten!al risks they bring. · Where there was no prior tes!ng of sanc!ons screening systems, there was limited understanding of system configura!on resul!ng in poor performance. · Over reliance on manual systems and processes along with an over reliance on technology and data vendors. · Average returns per hit (efficiency indicators) also remains rela!vely high in comparison to global standards. This shows system inefficiencies, genera!ng significant numbers of false posi!ves. · Vendors have been tasked with managing financial ins!tu!ons risk without financial ins!tu!on understanding or awareness of system se&ngs and impact thereof. · In some instances where systems have been tuned, aler!ng levels are tuned to current resource capacity as opposed to being turned to risk appe!te. · Limited number of CPs have tes!ng and audi!ng programs in place. · New systems are not being tested before implementa!on. · Screening systems are not genera!ng alerts to poten!al matches to sanc!on names where systems have not been tuned in any way for more than a year. · Senior Management are not being adequately briefed on sanc!ons risk and programs. · In some instances, there was a misunderstanding between the differences of transac!on screening and transac!on monitoring by CPs and the usages of iden!fying risks through a combina!on of customer screening, transac!on screening and transac!on monitoring technologies. Most screening tools use similar technology and work in the same way. The key to op!mum effec!veness and efficiency is how it is being used. Normally when a screening system is not performing as expected, it is because of one, or a combina!on of these things: · Poor configura!on. · It is being used with ‘out of the box’ or factory se&ngs. · The rules and se&ngs have not been updated to suit the changing risk appe!te of the ins!tu!on. · It is an old version of the vendor solu!on that has not been updated. · Poor list management – too many sanc!on sources are being screened. · The list provider is not fully up to date. · Problems with the ins!tu!ons’ list feed in keeping up with list providers updates. Throughout the Thema!c Review, we have iden!fied that it is how a system is used by the Covered Person and not the actual system itself that provided outstanding results against their peers. The 4

! expecta!on is that the following document is reviewed by each CP and followed assessment, valida!on, and implementa!on of the elements highlighted. 5

! 3. Supervisory Expecta!ons Financial ins!tu!ons can minimize their risk of non-compliance through the following: · Ensuring that senior management is commi%ed to promo!ng sanc!ons compliance. · Undertaking ongoing sanc!ons-based risk assessments to assess the likelihood of dealing with an individual or en!ty on a sanc!ons list. · Ensuring that all employees have been adequately trained to recognize any poten!al sanc!ons issues. · Ensuring adequate policies and procedures are in place and approved by senior management. · Appoin!ng a responsible person with the appropriate skills and experience to deal with sanc!ons related issues and take ownership of the sanc!ons regime. · Using technology as a tool to iden!fy financial crime risk through real-!me and ongoing screening methods. · Ensuring that there are proper internal escala!on processes in the event of an actual match. · Conduc!ng independent, ongoing, and regular screening tests to assess the effec!veness and efficiency of the systems. · Conduc!ng, tes!ng, u!lizing peer compara!ve data and tuning to improve configura!on of sanc!ons screening systems to drive greater effec!veness and efficiency. · Ensuring that appropriate supervision is in place in key client facing/money transmi&ng departments. 3.1 Senior Management Oversight & Commitment 3.1.1 Culture of compliance, tone from the top Senior management includes the Board of Directors, C-Level execu!ves, and departmental leaders. Senior management should have a good understanding of sanc!ons screening processes, procedures, frameworks, and technology with the capability to act should sanc!ons risk arise. Senior Management should ac!vely assess, review, and approve the organiza!ons sanc!ons compliance program including policies, procedures, resourcing, data and technology prac!ces. Senior management should own the sanc!ons regime, as they will be accountable in the event of non-compliance. A clear whistle blower policy and culture of compliance that does not penalise ac!ve repor!ng of poten!al sanc!ons viola!ons or misconduct and ensures senior management acts when misconduct or viola!ons are iden!fied. 3.1.2 Adequate resourcing Senior management need not only provide oversight and maintain governance protocols, they should also ensure adequate resources are provided to the compliance func!on. Resources including suitable and proper staffing, technology, data, and training to ensure sanc!ons screening can be undertaken in an appropriate ma%er aligned to the organiza!ons risk-based approach. 3.1.3 Management repor!ng Repor!ng on all relevant elements of the sanc!ons screening program should be provided to senior management on a frequent basis in a risk-based manner. Frequency should be no less than quarterly to the Board of Directors. Repor!ng should include but not limited to the alignment to this policy document and focused on being able to iden!fy, assess, and act on sanc!ons risk. Compliance leaders 6

! should have a direct repor!ng capability to Board Directors to escalate cri!cal sanc!ons risk informa!on generated from the sanc!ons screening process. 3.2 Risk Assessment In February 2019, the Wolfsberg Group published guidance on sanctions screening. They said that screening “requires a programmatic approach through which each financial institution must assess its own risks in order to define the manner, extent and circumstances in which screening is employed.”2 That process is built around four core principles summarized as follows: · Articulate the specific sanctions risk the financial institution is trying to prevent or detect within its products, services, and operations. · Identify and evaluate the inherent potential exposure to sanctions risk presented by the financial institution’s products, services and customer relationships. · A well-documented understanding of the risks and how they are managed through the set-up and calibration of the screening tool. · Assess where, within the financial institution, the information is available in a format conducive to screening. Being able to effectively identify potential threats and vulnerabilities within the sanctions compliance context will enable organizations to enhance their programs. A regular, periodic risk assessment of the sanctions screening program and associated policies, procedures and frameworks will produce stronger compliance programs. Organizations should construct, if they do not have one in place, a risk assessment methodology based on its ability to identify risk, assess, and manage those risks. 3.2.1 Emergent risk typologies Due to the evolu!on of crime and con!nued usage of evasive techniques undertaken by sanc!oned individuals and en!!es, there is a need to constantly monitor new emergent risks as well as test against the new typologies on an ongoing basis. Organiza!ons should be constantly monitoring guidelines and alerts published by competent supervisory authori!es and interna!onal standards bodies as well as through con!nual training and skill advancements. They should be able to enhance system effec!veness through the upda!ng of policy and system configura!ons to meet new and emergent risks posed by sanc!oned individuals and en!!es. 3.3 Ownership, Skills & Training 3.3.1 Responsible persons Responsible persons need to be accountable within the organiza!on for the overall effec!veness of the sanc!ons screening program. Responsible persons should be adequately skilled with requisite experience and be provided with ongoing training. Responsible persons should be knowledgeable 2 Wolfsberg Group 2019, Wolfsberg Sanc!ons Screening Guidance, h%ps://www.wolfsberg- principles.com/sites/default/files/wb/pdfs/Wolfsberg%20Guidance%20on%20Sanc!ons%20Screening.pdf 7

! across all elements of the sanc!ons screening process and be accountable to the areas in which they oversee. 3.3.2 Risk-based training program Training of responsible persons and associated personnel needs to be undertaken in a risk-based manner that is ongoing, frequent and helps develop appropriate exper!se across all components of the sanc!ons screening program. Training should be across all func!ons linked to the sanc!ons program and should include accessible resources for all stakeholders to con!nue to drive understanding of sanc!ons risks, driving greater execu!on. 3.4 Policies & Procedures 3.4.1 Documented methodology All configura!ons of the sanc!ons screening program including processes, policies, procedures, frameworks and technology configura!ons need to be adequately documented. Documenta!on should be securely stored and reviewed on an ongoing basis with con!nued updates in line with improvement programs. Documenta!on should have ownership by Responsible Persons and be accessible, and understood, by Senior Management. 3.4.2 Processes & procedures Clear and appropriate processes and procedures should be ins!tuted and followed by all persons in the sanc!ons screening process as well as the wider organiza!on. Clear processes need to be defined and ra!fied by senior management. Processes and procedures should be accurately documented and validated by Responsible Persons aligning to the risk-based approach of the organiza!on. 3.4.3 Record keeping In line with current obliga!ons under Philippine Law, all risk relevant records need to be properly documented and securely stored in both physical and digital means depending on the nature of the document and aligned with the organiza!on’s business prac!ces. 3.5 Technology 3.5.1 Balancing effec!veness and efficiency Financial ins!tu!ons should first ensure that they have the correct AML/CFT technologies in place to detect financial crime indicators. This should include a robust sanc!on screening system which is set up to alert against names on globally important sanc!on lists and tuned to flag sanc!oned names even when they have been altered using algorithms to assess the fuzzy logic matching capabili!es of a screening system. Algorithmic manipula!on will stress test a screening system and make it harder for a system to iden!fy and alert against sanc!on records. Sanc!on screening systems should be tested regularly to ensure that they are working as expected and that the number of false posi!ves generated by the system are manageable and do not overwhelm available resources. 8

! Sanc!on screening system tes!ng will help a financial ins!tu!on to understand a system’s configura!on whilst determining its weaknesses within pre-defined detec!on parameters. Tes!ng and the ongoing monitoring of the screening system will facilitate improvement and enhancement of system performance through ongoing itera!ve tuning to op!mize the efficiency and effec!veness of a sanc!ons screening system. All AML/CFT technologies should be monitored on an ongoing basis to ensure that they remain correctly calibrated and that the number of false posi!ves generated by the system remain at a manageable level. A highly tuned AML/CFT system that is fit-for-purpose leads to relevant and valid alerts without the interference of excess system noise caused by numerous irrelevant false posi!ves. 3.5.2 Manual & automated systems Within the Thema!c Review, many organiza!ons were u!lizing Manual screening systems including those of substan!al scale and with poten!al risks and vulnerabili!es to sanc!ons. The choice between implementa!on of Manual and Automated screening systems should be risk-based. Where commercially available, or in-house systems developed, automated screening so<ware is implemented, firms should understand its capabili!es and limits, and make sure it is tailored to their business requirements, data requirements, and risk profile. Firms should also monitor the ongoing effec!veness of automated systems. Where automated screening so<ware is used, firms should be sa!sfied that they have adequate con!ngency arrangements should the so<ware fail and should periodically check the so<ware is working as they expect it to. Automated screening systems provide batch screening system capabili!es which enable more efficient screening due to delta screening capabili!es, more effec!ve use of data segmenta!on, ability to u!lize secondary iden!fiers with greater effec!veness, and typically have far greater ability to customise configura!ons based upon risk. Delta Screening is the process of screening customer accounts whenever a change occurs in either the customer accounts or the watchlists used in the screening process. This limits the unnecessary process of a full list of customers screened against the full list of sanction parties every day. After the full list of customers is screened against the full list of sanction parties once, then the full list of customers can be screened only against new sanction names thereafter. Then only new customers can be screened against the full list of sanction parties daily, without screening the full list of customers against the full list of sanction parties daily. 3.5.3 Exact matching & fuzzy logic In some circumstances, in the name screening process, exact matching may be appropriate such as in the case of adverse media screening. However, in the instance of sanc!ons screening, the usage of fuzzy logic, or black box technologies powered by algorithms to detect manipula!ons of sanc!oned individuals or en!!es names is required. This can be provided either by third party vendors or built in- house. In the Thema!c Review, the AMLC iden!fied a consistent underperformance of CPs’ ability to match against manipulated names across the market and all forms of market segments. This underperformance is expected to be addressed by CPs in their own upli< programs. 9

! 3.5.4 Sanc!ons screening systems tuning Tuning screening system parameters needs to be undertaken in an evidence-based manner to ensure configura!ons are aligned to the organiza!on’s risk-based approach. Configurability of the sanc!ons screening technology in place needs to be addressed at procurement and implementa!on stage to enable the ongoing tuning to risk. The ability to con!nually op!mize the technologies and usage of data needs to be undertaken on a periodic basis. Tuning should be undertaken in line with Tes!ng Frameworks highlighted in sec!on 3.7.4 and should be targeted at the tuning stage for effec!veness and efficiency - reducing false posi!ves whilst not sacrificing effec!veness levels. Tuning should be itera!ve with audit capabili!es and repor!ng should be established to be escalated internally to stakeholders. 3.5.5 Over reliance on vendors Technology third-party vendor reliance con!nues to be prevalent in organiza!ons as they look to rely on the implementa!on and technologies prescribed by vendors without proper evalua!on and assessment. Screening technology providers are heavily relied upon in the configura!on of systems se&ngs and rules without proper oversight from responsible persons which can lead to incorrect or erroneous system configura!ons. Covered Persons must understand that off-the-shelf solu!ons from vendors may not meet and combat all their poten!al risks in which customiza!on and tuning would need to be undertaken a<er tes!ng is completed. 3.5.6 Group-wide system management If there is a group-wide screening policy, localiza!on measures and controls need to be provided to local offices to meet local regulatory obliga!ons. 3.6 Sanc!ons Data 3.6.1 List selec!on Appropriate Lists are to be selected in accordance with regulatory agreements in place with other territories, exchange control agreements which enable trade rela!ons, and any separate legisla!ve prescrip!ons. Internal lists that prohibit rela!onships with certain par!es can and should be included in screening configura!on. Lists are updated by governments and other sanc!on sources daily. Sanc!ons lists include individuals, en!!es, vessels, aircra<s, banks that have been sanc!oned and Dual Use Goods. Commercial lists are available for procurement and are developed in the format required for screening system use. Commercial list providers retrieve list records from official published sources and provide consolidated list services to ins!tu!ons in need. List providers are private companies and not the official source of sanc!on data. Thus, they carry the risk of not upda!ng records immediately, making errors in spelling of names, and incorrectly classifying records. CPs should show that the selected sanc!oned lists from the chosen commercial list vendor are comprehensive and efficient enough to detect all sanc!oned par!es and are updated with source updates. This can be done by comparing content and customer support of commercial list vendors. United Na!ons Resolu!ons, as highlighted in the sec!on 1.4 and An!-Terrorism Council lists, are mandated to be included in the screening process under Philippine Law. 10

! 3.6.2 Segmenta!on Segmenta!on is the process of segmen!ng lists within data sets to screen at appropriate configura!ons depending on the risk. Sanc!ons, Poli!cally Exposed Persons (PEP), and Adverse Media data should be segmented in the screening process to ensure that a risk-based approach is implemented. Segmenta!on allows for the ability to tune to differing thresholds for screening based upon risk and enables the ability to tune for greater efficiency u!lizing exact matching versus fuzzy logic as highlighted in sec!on 2.5.3. 3.6.3 Whitelis!ng Whitelis!ng/Good guy lists usage is the implementa!on of rules and configura!ons to automa!cally eliminate poten!al hits from screening. Whitelis!ng enables organiza!ons to drive greater efficiency in screening prac!ces. 3.7 Tes!ng & Audit 3.7.1 Independent & objec!ve Tes!ng of sanc!ons screening systems and valida!on should be independent of the compliance func!on and executed either by third par!es or internal audit. The assessment and tes!ng need to be objec!ve and carried out by skilled prac!!oners with detailed metrics and analy!cs. Repor!ng should be provided to the organiza!on that aligns with over-all effec!veness and efficiency goals set out by senior management. Tes!ng should u!lize dummy/synthe!c data, fit-for-purpose, and Clean Iden!fica!on for further efficiency tes!ng. Tes!ng is a mandatory requirement for all CPs to ensure they understand their TFS requirements and implementa!on of a program to iden!fy any poten!al sanc!ons risks. 3.7.2 Frequent tes!ng and valida!on Tes!ng of sanc!ons screening systems and the assessment and valida!on of sanc!ons screening processes and frameworks should be undertaken on a frequent and ongoing manner. Frequency should be risk-based, depending on the scale and risk assessment undertaken by the organiza!on, but more than once per year at a minimum. Tes!ng should be itera!ve and should u!lize a consistent methodology with repor!ng to senior management of results on a regular basis with the overall effec!veness of the sanc!ons screening compliance program to be reported as defined in clause 2.1.3. Peer compara!ve data should be u!lized in tes!ng to ensure system performance is mee!ng industry benchmarks. 3.7.3 Pre & Post implementa!on tes!ng Thorough, rigorous, and robust tes!ng at pre and post implementa!on of new or updated systems needs to be undertaken before systems go live to ensure relevant controls are in place to iden!fy poten!al sanc!oned individuals and en!!es. Tes!ng should be undertaken on all parts of the technology with a clear audit trail of tes!ng. 3.7.4 Tes!ng frameworks Tes!ng frameworks should be defined within the organiza!on’s policy and u!lized by Responsible Persons. Tes!ng frameworks should be based upon evidence and documented tuning prac!ces. Tes!ng should enable CPs to understand system performance, diagnose deficiencies and weaknesses within the technologies or data, and allow for configura!on support and a clearly documented methodology. 11

! 3.7.5 Ongoing supervisory tes!ng and repor!ng The AMLC requires CPs to provide ongoing tes!ng results of their sanc!ons screening systems and program as well as con!nue to undertake the TFS Thema!c Review of the effec!veness and efficiency of sanc!ons screening systems, selec!ng, and tes!ng CPs in 2023 and beyond. 12

! Glossary An!-Terrorism Council List – This is a list specified by the An!-Terrorism Council (ATC) and can be found on the website, h%ps://atc.gov.ph/. The An!-terrorism Policy adopted by the An!-Terrorism Council is "to protect life, liberty and property from acts of terrorism; to condemn terrorism as inimical and dangerous to the na!onal security of the country and to the welfare of the people; and to make terrorism a crime against the Filipino people, against humanity, and against the law of the na!ons.” Not all terrorist groups designated by the ATC are automa!cally included in the UNSC Consolidated List. Individuals/en!!es are included in the UNSC List because they are known to have a connec!on with interna!onal sanc!oned groups (e.g., Taliban, Al-Qaida). For example, the Abu Sayyaf and the Maute Group pledged their allegiance with Al-Qaida or ISIL, and because of those acts they can be included in the UNSC Sanc!ons lists under the UNSCR 1267. The Security Council also noted that there are homegrown terrorist groups who are not affiliated with interna!onal sanc!oned groups. Hence, there is no consolidated list for these types of groups that have no interna!onal connec!on. The purpose of Security Council Resolu!on 1373 on each country is to: (i) have its own domes!c designa!ons especially if there are no outside connec!ons and (ii) allow other countries to designate domes!c/local terrorists to prohibit obtaining support from abroad, and vice-versa. Customer Screening – The process of checking if customers of the ins!tu!on are listed on a sanc!on watchlist. This takes place upon account opening and daily as watchlists are updated daily. Effec!veness - the degree to which the matching of sanc!on names is successful in producing a desired alert. Efficiency – This is the measurement of the number of alerts that generate for analysts to review. It is an indica!on of the levels of staff needed to clear alerts generated by screening systems in iden!fying sanc!on risks. Efficiency Score - in sanc!on tes!ng, is the ra!o or the average number of returns per alert. Fuzzy Logic - Fuzzy matching relates to the rules used in screening solu!ons which allow for non-exact matches to be iden!fied. The parameters of the systems need to be wide enough to detect slight differences in sanc!on names but not too wide so that there are large amounts of false posi!ve alerts. Targeted Financial Sanc!ons - means both asset freezing and prohibi!ons to prevent funds or other assets from being made available, directly or indirectly, for the benefit of designated persons and en!!es. Transac!on Screening – relates to iden!fying the poten!al involvement of sanc!oned individuals and en!!es within a transac!on in a domes!c or interna!onal payment. Transac!on Monitoring – refers to the monitoring of customer transac!ons, including assessing historical/current customer informa!on and interac!ons to provide a complete picture of customer ac!vity. This can include transfers, deposits, and withdrawals. Transac!on Monitoring holds an important place in AML compliance. Through the analysis of financial transac!ons, AML Transac!on Monitoring is used to detect poten!al money laundering and illicit criminal ac!vity. 13

! Whitelis!ng - Instead of aler!ng on all names on sanc!on lists, whitelis!ng allows only specific names on sanc!on lists to not generate any alerts. This is usually done by crea!ng a rule in the configura!on of the system to not let any customer name generate a match against a name that is whitelisted in the aim of reducing false posi!ves to names that hold no or low sanc!on risks. United Na!ons Security Council Resolu!ons – Resolu!ons are formal expressions of the UN Security Council. The Resolu!ons are issued as individual documents. At a minimum, the sanc!ons database and system configura!on should include the following UN Resolu!ons and their successor resolu!ons: · UNSC Consolidated List that includes UNSC Resolu!ons 1267/1989 (Al Qaeda), 1988 (Taliban) and 2253 (ISIL Daesh) for Targeted Financial Sanc!ons on terrorism and terrorist financing; · UNSC Consolidated List that includes UNSC Resolu!on Numbers 1718 of 2006 (DPRK) and 2231 of 2015 (Iran) for TFS on Prolifera!on Financing. 14