In the past two years, the financial industry has experienced a drastic increase in money laundering. According to the United Nations Office on Drugs and Crime, money laundering makes up between 2% and 5% of global gross domestic product every year. This means that between $1.7 trillion and $4.4 trillion were potentially laundered in each of the last two years.
Banks have a wide variety of tools to fight money laundering, ranging from watch-list screening to transaction monitoring tools. Yet criminals are constantly adjusting their techniques to counter new technologies.
To stay ahead of the curve, some financial organizations are leveraging adverse media screening to mitigate the risk of money laundering. Adverse media screening is the process of scouring news sources for any type of negative knowledge or activity related to a bank’s customers. This type of screening can reveal information that might suggest an elevated risk of money laundering from a customer.
Key flags triggered by adverse media screening include:
Press reports or posts that cast doubt on a customer’s reputation, legitimacy or credibility
Information that underscores the complexity of a customer’s life or business, including connections to other individuals or businesses whose reputations are considered high-risk
News of a customer’s financial troubles that may make them desperate or susceptible to corruption or fraud
Indications of past or present corruption that might be repeated
Law enforcement allegations or indictments of criminal activity such as money laundering, terrorist financing, drug trafficking, cybercrime and fraud
Criminal convictions, especially those related to financial crime
When practicing adverse media screening, local, national and international sources should be searched in addition to newspapers, magazines, television, radio and contemporary online sources. Additionally, banks can search law enforcement, government agency and business databases for adverse information about their customers.
While adverse media screening is a helpful tactic to help banks fulfill their customer due diligence obligations, recent FinCEN guidance doesn’t require financial institutions to conduct it. The regulators also do not specify adverse media screening requirements. This lack of specificity in FinCEN’s rule, however, should not be misconstrued as a green light to forego adverse media screening.
Given the vast amount of global media, manually compiling adverse media information is a costly and time-consuming process. Many BSA/AML compliance officers are relying on adverse media screening software to pass examination scrutiny and avoid monetary penalties.
Adverse media screening rarely returns a binary result, which is why establishing your bank’s risk appetite is a crucial first step in the process. An institution’s risk appetite should define the course of action for a potential customer whose linked entities match adverse media results; if a potential customer’s remedial actions should be taken into account before onboarding; and the difference between financial crime and reputational risk.
Maintaining an audit trail
An audit trail is an integral part of both management reporting and regulatory proof of due diligence. If a regulator or examiner is inspecting customer files, they will want to see evidence that due diligence was performed and how the steps taken adhere to local regulations.
As the volume of news continues to increase, the adverse media screening process is not as simple as a quick Google search. Technology can automate the timing of a screening based on a financial institution’s designated parameters, validate credible sources, scan information, and reduce the number of false positives that prolong the investigation phase of the process.
Thanks to the vast amount of information available online, today’s banks have a greater ability to know about a customer’s past and present activities. Looking ahead, banks should take advantage of this ability to assess and determine the level of money laundering risk their customers pose, regardless of whether regulators require adverse media screening.
Andy Lapp is senior director of product marketing at CSI.
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