US compliance teams faced no shortage of adversity in 2022, not least the consequences of Russia’s invasion of Ukraine and lingering Covid-19 pandemic measures. Those challenges prompted a decisive regulatory response from the US government, and meant that firms had to adapt to an evolving anti-money laundering (AML) and counter-financing of terrorism (CFT) risk landscape in order to avoid damaging penalties.
With the Ukraine war and economic turbulence ongoing, US AML regulations will continue to evolve to meet new financial crime risks in 2023. To help your firm navigate the compliance landscape and meet its obligations, let’s take a look at some of the key upcoming US AML regulation changes.
The FINCEN Final Rule
The US’ Anti-Money Laundering Act 2020 (passed on 1 January 2021) set out new rules for the reporting of beneficial ownership information (BOI). Intended to crack down on the use of shell companies and legal structures in money laundering, the rules introduce new reporting requirements and ensure that US law enforcement and security agencies have access to essential company ownership information.
In September 2022, the Financial Crimes Enforcement Network (FinCEN) published its final rule on the BOI provisions. Due to be implemented on 1 January, 2024, the final rule broadly aligns with the original proposals, and introduces the following regulatory points:
A definition of “reporting companies” that are obliged to comply with the BOI rules.
A definition of “beneficial owners” which includes individuals that exercise “substantial control” over a company, such as senior officers or C-suite employees, or that have at least 25% control of the company.
A requirement for companies to report “company applicants” which refers to individuals who file company formation documents, and to individuals who direct those responsible for filing.
A list of ownership information that must be reported, including the names, addresses, and birthdates of owners, and other identifying documents (such as driving licences).
A requirement for firms to report no later than 30 days after their registration date.
A clarification of criminal and financial penalties for reporting violations. Under the new rules, responsibility for violations will “fall principally on individuals” rather than reporting companies.
Closing loopholes in the US AML/CFT framework that are vulnerable to exploitation by shell companies and cash real estate purchases.
Continuing to enhance the US AML/CFT framework by providing clear compliance guidance, facilitating information sharing, and funding supervision and enforcement.
Enhancing the effectiveness of law enforcement in combatting illicit finance.
Enabling the benefits of new technologies while mitigating the risks that they pose and addressing the potential threats of virtual assets and other fintech innovations.
Responsible Financial Innovation Act
Introduced to congress in June 2022, the Responsible Financial Innovation Act (RFIA) is intended to “create a regulatory framework for digital assets” in the US. Also known as the “Lummis-Gillibrand Bill” (after its proponents, senators Cynthia Lummis and Kirsten Gillibrand), the RFIA will provide regulatory clarity for the use of digital assets, including the authorities which will provide oversight for them, and will introduce reporting responsibilities for digital asset service providers.
Key highlights of the RFIA include:
Oversight: The Commodity Futures Trading Commission (CFTC) would become the primary regulator of digital assets.
Reporting: Issuers of digital assets would be required to periodically disclose information to the Securities and Exchange Commission (SEC). All digital asset service providers would be required to make certain disclosures to customers.
Stablecoins: Issuers of stablecoins would be subject to new prudential regulations.
DAO classification: Decentralised Autonomous Organisations (DAO) would be classified as “business entities” and subject to the relevant regulations and tax treatment.
Taxation: Digital assets would be subject to tax rules, with the IRS introducing guidance on certain tax issues.
Responsible Development of Digital Assets
The US government’s regulatory focus on digital assets is growing. In September 2022, President Biden released the Comprehensive Framework for the Responsible Development of Digital Assets, which included recommendations for protecting consumers and national security interests from the risks of digital assets.
The Framework suggests that the Biden administration will introduce further regulatory controls on digital assets in 2023 and beyond. Key highlights include:
Guidance: While the US government prepares digital asset regulations, the Treasury will “issue guidance and rules to address current and emergent risks in the digital asset ecosystem”.
Collaboration: The Treasury and other federal agencies will cross-collaborate with US firms to provide and implement regulatory guidance on digital assets.
Education: The US Financial Literacy Education Commission (FLEC) will lead efforts to increase public awareness of the risks and fraudulent practices associated with digital assets.
Global Sanctions and Ukraine
With the invasion of Ukraine entering its second year, it is likely that the US, along with Western allies, will add to its “unprecedented” sanctions programme against Russia and President Vladmir Putin’s regime. In February 2023, the White House announced a range of new economic restrictions, including:
New export restrictions targeting Russia’s defence and energy sectors.
A crackdown on attempts by third parties to evade US sanctions on Russia.
A joint initiative with the UK to impose sanctions against Russian cybercriminals.
Beyond Ukraine and Russia, the US will evolve its sanctions programmes against a range of global targets. In particular, it is likely that the US will continue to exert pressure on Iran in response to its ongoing oppression of human rights protesters, and efforts to develop nuclear weapons. In early February, the Biden administration imposed sanctions against Iranian petrochemical manufacturers that were selling fuel to customers in Singapore and Malaysia.
It is also likely that the US will target China with additional economic sanctions in response to ongoing espionage activities, including the Chinese spy balloon that was discovered in US airspace in early February. Following that incident, the US announced the addition of six Chinese technology companies to the Bureau of Industry and Security (BIS) Entity List as a result of their support for China’s military aerospace programmes.
Using Technology to Comply with US AML Regulations
While the US is following a global trend of digital asset regulation, its sanctions activity in 2023, especially pertaining to Ukraine, may be harder to predict, and depend on both the economic situation in Russia and progress made on the frontlines. In a compliance context, this means that financial institutions must implement agile screening solutions with a global scope, and be ready to move quickly to adapt to geopolitical developments. Innovative AML technology will continue to be critical to US AML compliance. In a complex and evolving risk environment, firms must be able to acquire meaningful data quickly and accurately, and minimise the amount of false positives their screening solution generates.
With that goal in mind, Ripjar’s Labyrinth Screening platform has a proven track record of helping firms extract actionable insight from complex data sets, including millions of adverse news media articles, and international sanctions and watchlists such as the US’ OFAC sanctions list. Labyrinth uses advanced machine learning algorithms to process data in real time, in over 20 foreign languages, delivering results in seconds to ensure your organisation understands its risk liability, in the US and around the world.
Learn more about Ripjar’s US AML compliance solutions: get in touch today
Adverse media screening helps financial institutions around the world understand the criminal risks they face in a complex regulatory landscape. In a compliance context, the value of adverse media is directly connected to the effectiveness of the customer screening – and the quality of the data that it generates: firms must ensure they are able to find the relevant information quickly, and apply it accurately, in order to prevent financial crimes such as money laundering.
Ripjar and 1LoD recently hosted a roundtable discussion with experts and professionals from UK banks and financial institutions, on the importance of adverse media screening for compliance and anti-money laundering (AML) procedures. We wanted to explore the ways that UK organisations currently use adverse media screening as a means of establishing customer risk, along with the challenges that entails, such as the need to cut through the administrative noise of the search process.
We’ve put together a report on the results of the adverse media screening roundtable – in the meantime, read on to discover some of the key discussion points which it covers.
Getting Core Screening Right
Most banks and financial institutions use third party providers to handle core adverse media screening on their behalf. Typically, a bank submits a list of customer names to their provider, which then searches each entry against a range of negative news articles (and other media), according to search parameters, and returns a list of matches. Our roundtable discussed a range of important core screening principles, including:
Finding an effective technology solution to handle core screening processes.
Categorising adverse media stories by type (AML predicate crimes, labour rights, data privacy, etc) in order to determine the significance of risk.
Scheduling name searches to run periodically – for example, more frequent searches for higher risk stories.
Adjusting the scope of customer screening to account for risk – for example, screening against a larger number of news sources during onboarding.
Balancing Coverage and Quality
The quantity of adverse media screening results does not necessarily translate to quality AML data. In fact, our roundtable revealed that standard keyword searches of larger volumes of news articles often generate more administrative noise, and increase the probability of false positive AML alerts.
Roundtable participants stressed the need for a balance between data coverage and quality, and the importance of the risk based approach to adverse media screening. However, even with a risk based approach, many banks still struggled with high volumes of alerts – which included both false positives and, worse, false negatives.
Enhancing Customer Searches
Numerous factors contribute to screening noise, not least the accuracy of the name matching process, the reliability of news sources, and issues such as regional spelling variations or the use of non-Latinate characters. Picking up on those issues, roundtable participants set out ways to improve the screening process with “meaningful” data – by adopting strategies such as enhancing the search models and search parameters set by banks, and refining the datasets produced by data aggregators.
Integrating New Technology
In the face of customer screening challenges, the roundtable highlighted the potential of new technologies, specifically machine learning systems, to make the process more effective.
Powered by artificial intelligence, machine learning tools such as Ripjar’s Labyrinth Screening platform, effectively read global negative news stories autonomously, with the capability to discern specific data points such as mentions of “money laundering” or predicate crimes. Machine learning brings a greater analytic depth to the customer screening process, increasing search accuracy, and reducing false positives, by intuitively removing duplicate articles, or threading reprints of the same story together.
Machine learning tools also help organisations identify specific features of their customers’ involvement in negative stories, and use that information to build even more accurate risk profiles. Enhanced risk profiles offer plenty of advantages, including enabling compliance analysts to identify meaningful stories faster, and streamline the alert remediation process.
The value of new technology goes beyond screening customers at onboarding. The roundtable also brought up the flexibility that machine learning tools provide, which can help organisations screen on a continuing basis, spot changes in customer behaviour, address new criminal methodologies, and adapt to new regulations as they are introduced.
Banks and financial institutions need all the help they can get to stay ahead of global criminal threats such as money laundering and terrorism financing. In an evolving financial landscape, customer screening represents the best way to achieve anti-money laundering (AML) and counter-financing of terrorism (CFT) goals, enabling firms to build accurate, up to date risk profiles, and then deploy the appropriate compliance measures to deal with any alerts.
Effective customer screening should be more than just a simple name search process, and it will be necessary to think carefully about your solution in order to optimise compliance outcomes. In practice, this means implementing a rigorous screening process with expansive, global scope, and then analysing the collected data accurately and efficiently, minimising administrative friction for both compliance employees and customers.
To get the most out of your customer screening, let’s take a closer look at 5 key ways to improve the process.
1. Find a reliable data provider
The reliability of your data provider is a critical AML/CFT concern. While it’s important that a provider delivers enough data to build out a customer risk profile, the quality of that data should also be a priority. Poor quality data that omits certain risk characteristics or customer attributes, is likely to prevent you from zeroing in on customer identities efficiently. This increases the possibility of false positive AML/CFT alerts, inevitably slowing down the subsequent remediation process.
The timeliness of customer screening data is also critical. Make sure your provider is delivering current information, regularly and reliably updated with the latest adverse media, sanctions, and watchlist data. Outdated risk data represents a significant compliance risk as it increases the chance of missing true positive alerts which may expose your firm to criminal liability.
2. Enhance customer experiences
Your customer screening process needs to be robust enough to detect a spectrum of risks, and to ensure you meet your regulatory obligations. However, the greater the level of scrutiny during onboarding (and throughout the business relationship) the greater the potential friction customers will experience when using your products and services – as a result of false positive alerts, delays, and administrative requests.
One of the most effective ways to reduce screening friction is to prepare customer screening data properly. In practice, this means organising and categorising data, and identifying data anomalies or discrepancies (even in official sanctions lists) which might reduce screening accuracy. Technology offers a huge advantage for data preparation: in addition to speed and accuracy, AI screening software can help intuitively identify relevant data points for easier AML categorisation and analysis, and so create smoother experiences for customers on the front-end.
3. Manage unstructured data
Effective customer screening requires the collection and analysis of large amounts of unstructured data. As opposed to the highly organised data available from official sources (such as sanctions lists), unstructured data is unformatted, often extremely text-heavy, and located across multiple sources. Adverse media, for example, in the form of news stories, websites, social media posts, and more, represents a valuable unstructured data source. However, that lack of structure complicates the adverse media screening process: firms may generate significant noise during searches of common names, leading to an increase in false positive alerts.
To manage unstructured data, firms must integrate technology capable of identifying and organising relevant data points and managing the level of ambient noise that the process generates. This means integrating software capable of making or at least facilitating intuitive decisions about data: in the case of adverse media, that means being capable of dealing with multiple language systems, non-Latinate characters, variations in spellings, duplications, and other translation and transliteration challenges.
4. Conduct effective risk assessments
Following Financial Action Task Force (FATF) guidelines, most regulators require firms to take a risk-based approach to AML/CFT as a way to balance compliance budgets and resources with regulatory obligations. In this context, ‘risk-based’ means that compliance processes, such as customer screening, should be deployed in proportion to the risks that a company faces, with higher risk customers subject to greater AML/CFT scrutiny. The inherent challenge of the risk-based approach is accurately determining individual customers’ risk levels, which requires firms to perform a risk assessment during onboarding.
In addition to static, identity-focused customer due diligence (CDD) data such as names, addresses and business locations, customer screening helps firms conduct ‘real time’ risk assessment, incorporating the latest relevant information. Customers may recently have been designated on sanctions lists, elected to political positions, or become involved in criminal investigations as reported by domestic or foreign news organisations. Customer screening offers a way to make that data available for risk assessments, and on an ongoing basis throughout a business relationship.
5. Integrate technology solutions
The pace of the modern financial landscape effectively rules out the possibility of manual customer screening, but finding a suitable technology solution that fits your firm’s unique business needs, and risk appetite, can be daunting. Your solution needs to be flexible enough to accommodate changes in regulation and emerging criminal methodologies, and at the same time, robust enough to manage vast amounts of data and achieve satisfactory levels of compliance performance.
With that challenge in mind, Ripjar’s Labyrinth Screening platform was developed with the power to undertake global data screening tailored to your firm’s risk environment. Labyrinth screens customer names against thousands of data sources, in real time, delivering up-to-date, actionable intelligence in seconds. In a complex and changing risk environment, Labyrinth Screening uses cutting-edge machine learning technology to build risk profiles from structured and unstructured data sources, including name searches in over 20 foreign languages, and natural language processing tools to deal with translation and transliteration challenges.
Discover what compliance professionals in UK banks and financial institutions are saying about adverse media screening: download the report
In 2022, sanctions compliance took on a new level of importance for firms across the world, as geopolitical events, such as Russia’s invasion of Ukraine, complicated the risk landscape. Although Russia’s invasion captured headlines and the attention of compliance officers, there were plenty of additional sanctions concerns throughout the year and, in 2023, it’s important that firms maintain focus on the effectiveness of screening processes in order to avoid penalties.
In a changing risk landscape, your sanctions compliance solution must be versatile enough to adapt to new designations and updates, and robust enough to ensure that customers are screened thoroughly. To help your compliance team stay ahead of its sanctions challenges in 2023, let’s take a look at some of the most notable trends on the horizon.
Sanctions 2023: What You Need to Know
Russia
In February 2022, Western governments announced sanctions against Russia and President Vladimir Putin’s regime as a response to the invasion of Ukraine – and imposed additional restrictions as the conflict progressed. As of February 2023, the UK had imposed sanctions against over 1,200 people associated with Putin’s regime, and over 120 businesses. The US, the EU, Canada, and other Western countries also implemented significant Russia sanctions programmes – a collective response that caused a dramatic contraction in the Russian economy and created a deficit of around $47 billion. The deficit figure is based on official Russian government data and is likely to be much higher than claimed.
The global sanctions pressure on Russia will continue into 2023. While it seems unlikely there will be new measures against Russia’s oil and gas industry, the most recent measures (as of February 2023) have a broad scope:
On February 8, the UK announced a new round of Russia sanctions, predominantly targeting five organisations supplying the Russian military with products and services, and five individuals with financial connections to Putin’s network of luxury homes.
On February 9, the UK and the US jointly announced sanctions against Russian cybercriminals, indicating a new focus on Russian attempts to perpetrate ransomware attacks against the rest of the world.
The EU signalled that it will maintain its own sanctions pressure on Russia with a focus on countering Russian disinformation. In February, the EU announced a new round of export bans worth €10 billion against Russian politicians, military leaders and state propagandists.
Iran
While Russia sanctions are an important global anti-money laundering (AML) and counter-financing of terrorism (CFT) focus, it’s important to remember that there is a wider sanctions landscape with critical compliance considerations. In particular, Iran will likely continue to be a sanctions priority in 2023, with Western nations imposing restrictions in response to the Iranian government’s ongoing repression of human rights protestors and attempts to develop nuclear weapons.
With that in mind, in January 2023, the UK sanctioned Iran’s prosecutor general, Mohammad Jafar Montazeri, in response to the execution of British-Iranian dual national Alireza Akbari. Similarly, the US sanctioned six Iranian petrochemical manufacturers following the sale of fuel to customers in Malaysia and Singapore. The EU also announced a new round of Iran sanctions, against multiple individuals and entities, in response to the Iranian government’s brutal crackdown on human rights protestors.
China
Following revelations about espionage activities in North America, including a spy balloon that entered US airspace in early February, the US quickly announced new sanctions against China. The US’ existing China sanctions include targets responsible for both espionage and human rights violations, but following the spy balloon incident, the Commerce Department set out new measures against several Chinese military tech firms that contributed to the balloon programme, and that pose a threat to US national security.
Matthew Axelrod, Assistant Secretary of Commerce for Export Enforcement, suggested that the US was renewing its sanctions focus on China as a way to counter the Chinese government’s surveillance programmes which have “violated the airspace of the United States and more than forty countries.”
Sanctions Evasion
2022 saw a dramatic increase in the complexity and quantity of global sanctions. Depending on global events, including whether Russia abandons or continues its campaign against Ukraine, the pace of that increase may slow in 2023, but firms must nonetheless be prepared for the emergence of new strategies to evade sanctions restrictions.
Sanctions evasion tactics may include conventional trade diversions, such as recent Russian attempts to move gas shipments through ports in Turkey and the UAE, or the use of shell companies to move money from one financial system to another. Sanctions targets may also seek to exploit technology to conceal their identities, including using untraceable cryptocurrency transactions to move funds across borders.
Russia’s efforts to evade sanctions have prompted a response from Western governments. In February 2023, the US Treasury Department announced that it would be cracking down on third persons that facilitate Russian sanctions evasion “wittingly or unwittingly”. The US’ announcement follows the UK’s introduction of strict liability for sanctions violations in its Second Economic Crime Bill. Under the new rules, the UK government may impose regulatory penalties regardless of whether the offending person knew they were in breach of the rules.
Non-Compliance Risks
Sanctions compliance penalties vary by jurisdiction but entail significant financial and even criminal penalties. Sanctions penalties usually reflect the severity of the offence: in the US, for example, fines can range from thousands, to tens of millions of dollars, and carry lengthy prison terms. The UK’s penalties include a prison sentence of up to 7 years and a fine of £1 million or 50% of the resources involved in the transaction (whichever is greater).
Sanctions violations contributed to a surge in financial penalties in 2022, which saw banks and other financial institutions pay around $5 billion for compliance failures.
Achieving Sanctions Compliance in 2023
The events of 2022 demonstrate just how fast sanctions regulations can change, and how important it is for firms to stay on top of their screening and monitoring obligations. In 2023, the pace of Western sanctions against Russia may slow, especially if the war reaches a stalemate or conclusion, but new measures will continue, including the broadening of existing programmes, and an increased focus on sanctions evasion strategies. In this changing sanctions landscape, the only way for firms to meet their compliance requirements is to integrate technology capable of screening and monitoring customers on a continuous basis – capturing both changes in risk, and attempts to circumvent restrictions.
Ripjar’s Labyrinth Screening platform is designed for purpose, enabling customer name searches against thousands of data sources, including sanctions and watch lists, and adverse media content, in real time, in over 20 languages. Powered by cutting-edge AI, and with intuitive analysis of names, translations, and regional spelling variations, Labyrinth delivers actionable intelligence in seconds, ensuring your firm is able to make crucial compliance decisions quickly, and stay ahead of unexpected challenges in 2023 and beyond.
Learn more about our adverse media screening capabilities: contact us today
Financial compliance shouldn’t be a box-ticking exercise: by monitoring and screening customers and transactions in accordance with regulations, firms can actively contribute to the global fight against financial crime and make financial systems safer from activities such as money laundering and terrorism financing. The earlier that financial crime risks can be detected, the more likely it is that firms can adjust their compliance framework, prevent crimes from happening in the first place, and reduce any potential damage.
Adverse media – or negative news – is one of the best early-warning signs of anti-money laundering (AML) and counter-financing of terrorism (CFT) risk because criminal activities may be revealed in news stories (and other online sources such as blogs or social media posts) before they are confirmed officially. That forewarning allows firms to establish the AML risk a particular customer presents faster than they would have by relying on other compliance processes such as customer due diligence (CDD).
In order to use adverse media screening as an early warning of risk, it’s important that firms understand what to look for when searching for customer names, and why the resulting data is so valuable for regulatory compliance.
Let’s take a closer look at the reasons why adverse media screening is such a useful early warning mechanism.
Categorising Risk
The adverse media landscape holds a wealth of potentially relevant risk data which can be used to make crucial compliance decisions. The utility of that data as an early warning can be further enhanced by organising adverse media stories into categories, and then assessing their relevance to a firm’s risk appetite. At Ripjar, for example, we organise adverse media into risk categories including:
Bribery and corruption: Activities including active and passive bribery, extortion, embezzlement, influence peddling, misuse of power, and blackmail.
Corporate malfeasance: Transgressions perpetrated by officers of an organisation, including financial deception, negligence, anti-competitive practices, and a range of unethical activities such as discrimination or unfair labour practices.
Financial crime: Major financial crimes including insider trading, fraud, market manipulation, and large scale tax evasion.
Predicate crime: Crimes that generate illegal proceeds that must be laundered, including drug trafficking, people trafficking, theft, forgery, cyber-crime, and illegal gambling.
Reputational risk: Activities that may be legal or illegal and that negatively affect a customer’s reputation, including environmental damage, workforce exploitation, animal welfare, and unethical trade practices.
Sanctions and embargoes: The risk of being sanctioned by governments or international organisations like the United Nations.
Terrorism and terrorism funding: Membership or financial support for terrorist groups, and incitement to commit terrorism.
While adverse media categorisation isn’t a magic bullet for managing risk, it’s a particularly useful way of determining effective compliance responses quickly. By better understanding the type of risk they face early, firms may be able to increase the impact of their compliance response and optimise the outcome.
Anticipating Criminal Activity
As governments introduce new regulations, and criminals find more sophisticated ways to exploit financial systems, banks and financial service providers must keep pace. With that in mind, one of the primary reasons to screen for adverse media is to ensure that your organisation is able to spot criminal risks on the horizon.
While customers may not yet be charged with crimes, or even involved in criminal investigations, breaking media stories and other forms of online content often reveal business ventures and relationships, financial difficulties, or political changes that will alter the risk landscape and that will lead to criminal risk in the future. Similarly, new sanctions designations may be anticipated via stories that expose customer connections to countries and individuals designated on sanctions lists. Supplemented by additional compliance data, including the relevant CDD information, adverse media can help firms gauge risk before a criminal threat manifests.
Avoiding Compliance Fines
Compliance violations have serious consequences, not least significant financial penalties which may impede a firm’s ability to continue doing business. Not all compliance penalties are created equal, and they vary by the type and severity of violation: money laundering the proceeds of drug trafficking, for example, may incur a greater fine than proceeds from other predicate crimes. Similarly, fines may vary by jurisdiction: in the UK for example, money laundering fines are unlimited, while US AML compliance penalties may reach $1 million or 1% of the assets of the offending institution (whichever is greater).
Depending on a firm’s risk appetite, adverse media screening represents a way to spot and avoid potentially damaging compliance fines. It’s therefore vital that firms stay up to date with the latest regulatory changes as they pertain to compliance fines. In the UK, for example, recent regulatory changes introduced strict liability for sanctions violations, which means that fines may be imposed regardless of a firm’s awareness of customer wrongdoing. The sanctions landscape evolves constantly, and adverse media screening should be a priority for any firm seeking to stay ahead of new designations and costly fines.
Avoiding Reputational Damage
Adverse media does not just act as an indicator of potential AML risk: in situations where firms have ethical priorities or responsibilities, it may also serve to prevent reputational damage. While involvement in financial crime has always entailed a degree of reputational risk, the nature of the modern media landscape means the resulting damage is often more acute: stories can be published quickly by news organisations and shared widely between users of social media sites. Managing reputational damage is difficult in a perpetually-connected world, so the better firms are at spotting incoming risks, the easier it is to prevent.
It’s worth bearing in mind that reputational risk is becoming a significant priority thanks to the rise of environmental, social, and governance (ESG) concerns, which include issues like labour disputes, climate change, and workplace equity. Not only is the public becoming more sensitive to ESG issues, but governments are beginning to regulate associated practices. As that dynamic continues, the importance of early risk detection will also increase, with firms incentivised to address reputational risk with the same speed and efficiency as traditional criminal risks.
Maintaining Ongoing Vigilance
The early detection of risk is crucial in an effective compliance framework. In practice, however, firms should monitor and screen for risks on an ongoing basis as a way to manage an evolving compliance landscape in which new criminal methodologies and new regulatory obligations emerge regularly. Unfortunately, not all compliance solutions give firms the capability to implement ongoing monitoring and screening, and instead rely on analogue CDD processes, and manual adverse media checks, sometimes conducted via search engines.
Ongoing screening, and early risk detection, requires firms to implement technology solutions capable of managing large amounts of data (including adverse media) from sources around the world. Ripjar’s Labyrinth Screening platform was created with this requirement in mind: powered by machine learning technology, Labyrinth enables firms to screen millions of adverse media sources, sanctions lists, and watchlists in real time, and delivers actionable intelligence in seconds. With name search functions in over 20 foreign languages, Labyrinth ensures your organisation has the capability to detect changes in risk as soon as possible, and adapt quickly when the risk landscape changes.
Learn more about our adverse media screening capabilities: contact us today
While it’s easy to rely on tried and tested compliance strategies, the financial landscape moves fast, and firms must be able to keep pace with that change to prevent crimes like money laundering and to avoid damaging penalties. Achieving global regulatory compliance means having the right tools, resources, and knowledge in place to manage a range of threats, but even the smallest change in legislation or criminal methodology can have significant effects on a firm’s compliance performance. That challenge requires compliance officers to adjust their compliance approach constantly, screening customers regularly to capture changes in risk, and keeping up to date with the standards and best practices recommended by financial regulators.
In May 2022, the Wolfsberg Group, an association of global banks, published a series of negative news screening (NNS) FAQs to enhance international anti-money laundering (AML) and counter-financing of terrorism (CFT) standards. NNS, or adverse media, is a crucial component of AML/CFT strategies because changes in customer risk are often revealed by media sources before official confirmation. However, it’s easy to forget that established NNS strategies may quickly become outdated without regular reviews, consequently failing to account for new technologies or the sophistication of criminal methodologies.
With a focus on addressing the limitations of certain approaches to negative news screening, the Wolfsberg Group FAQs offer guidance on how firms should adjust their compliance solutions in a changing risk landscape. To help your organisation build and maintain a robust NNS solution, let’s take a look at some of the most important changes you might need to make to your framework in 2023, and the four things you should stop doing.
1. Stop screening against only sanctions and watchlists
Sanctions lists and watchlists, such as the UNSC sanctions list, set out the names of persons subject to international sanctions measures, which usually involve trade prohibitions, asset freezes, and other economic restrictions. Sanctions violations carry significant financial and criminal penalties, so it makes sense that firms focus heavily on screening those documents as part of the AML/CFT process. However, a variety of factors complicate the sanctions screening process, such as translation and spelling variations of names, and out-of-date information – both of which can lead to false positives and, worse, false negatives.
Given the importance of sanctions list compliance, the Wolfsberg Group FAQs recommend broadening the information collected to inform the process – specifically integrating NNS as a way to capture sanctions risk. Global adverse media screening represents a way to stay a step ahead of new sanctions designations, and to resolve potential screening discrepancies. For example, the identity of a customer with a name that resembles a sanctions designation, may be clarified with a NNS search that confirms any initial AML/CFT alert with peripheral information. Similarly, NNS enables firms to respond quickly to new data points, such as announcements of law enforcement investigations, before customers are added to the relevant sanctions lists.
2. Stop relying on search engines for NNS
Negative news media is so useful for AML/CFT compliance officers because it is available, for free, online and easily accessible through public search engines such as Google, Bing and Yahoo. These search engines can deliver results from across the world in seconds, and include data from news organisations, blogs, forums, social media pages, and more. Manual searches are easy to conduct, relatively low cost, and can be integrated easily into an existing compliance framework.
However, search engines have significant limitations in the context of AML/CFT compliance and using them exclusively to conduct NNS could expose your company to risk. Commercial search engines like Google are essentially just content-delivery mechanisms that deliver results based on algorithmic assumptions about what a user wants to find. Those algorithmic results are opposed to the exhaustive data contained in dedicated AML/CFT databases, which are updated regularly with highly relevant information.
3. Stop conducting NNS in a single language
Financial institutions may assume that because a transaction originates in a single country, it is acceptable to limit the NNS process to that country in order to capture criminal threats. This approach represents a dangerous blindspot since it ignores the scope of global financial crime, and the diverse range of risks that a firm may face. Global financial crime necessitates a global compliance response: in the context of NNS, this means that firms must go beyond the ‘immediate’ location of a suspicious transaction and expand the negative news screening process across borders, in more than one language.
Multi-language NNS more accurately reflects the shape and character of international financial crime, which might see a customer commit fraud in one jurisdiction and then try to launder the proceeds in another country. Similarly, a firm may need to screen against foreign language news sources in order to establish if a customer is (or will be) subject to sanctions – and is attempting to exploit a foreign financial system in order to evade those measures. This approach requires technology solutions with multi-language screening capability, conducted with the same level of efficiency as the firm’s native language. Multi-language screening should also take into account differences in spelling, transcription, and translation.
4. Stop overlooking ESG risk
Environmental, social, and governance (ESG) risk has become a global regulatory priority in recent years, with several governments releasing guidance and introducing plans for new laws based on the relevant ethical factors. While NNS has traditionally focused on financial regulations, ESG concerns include waste management, ecological practices, equity, fair labour practices, and community investment, amongst other issues. Failure to consider ESG risk can result in criminal, financial, and reputational damage, and the range of new screening considerations represent a significant compliance burden.
Fortunately, firms may also capture ESG risk data with existing NNS processes – in the same way as they might capture data on money laundering or similar crimes. NNS parameters may be adjusted to detect stories with specific ESG relevance, such as labour disputes, involvement in ecological disasters, and so on. With climate change, workplace equality, and other social concerns rising in prominence in 2023, firms that prepare their compliance frameworks for ESG regulation may be better placed to avoid regulatory friction.
Using Technology to Achieve Compliance in 2023
The Wolfsberg Group FAQ guidance may require service providers to make significant adjustments to their NNS process. That change can be a challenging prospect, involving the broadening of search parameters and the collection and analysis of vast amounts of media data from sources around the world.
In practice, effective NNS means integrating an agile and adaptable technology solution that reflects the fast-moving nature of the media landscape. It may seem burdensome to evolve an established NNS process to meet the standards set out in the Wolfsberg guidance, but it’s important to remember that modern compliance technology can help to reduce or even eliminate the risks associated with outdated NNS processes, with enhanced speed, efficiency, and accuracy.
Ripjar’s Labyrinth Screening platform was designed to address the demands of modern NNS compliance. Labyrinth enables firms to conduct real-time NNS, delivering actionable intelligence in seconds, and ensuring that you learn about changes in customer risk as soon as possible. Powered by cutting-edge machine learning technology, Labyrinth Screening offers a spectrum of compliance advantages, including search capabilities in over 20 foreign languages, and access to thousands of international data sources, from sanctions and watchlists to local and national news outlets.
To learn more about Ripjar’s NNS technology, click here
The EU’s anti-money laundering regulations reflect a challenging global financial landscape, and evolve to account for emerging criminal threats, geopolitical change, and new technologies. Recent events such as the Covid pandemic and Russia’s invasion of Ukraine have only added complexity to the EU’s AML requirements, and increased the importance of regulatory compliance for organisations across the bloc.
Non-compliance with EU AML regulations carries the possibility of strict financial and criminal penalties. In 2022, for example, France’s financial regulator imposed a €1.5 million fine against Crédit Agricole for transaction monitoring and customer due diligence failings, while the Netherlands’ financial regulator issued a €2 million fine against Robeco for similar due diligence failings. With those penalties in mind, EU compliance officers must ensure that they account for a diversity of criminal and regulatory risks, and understand how incoming changes will affect their organisation’s products and services.
From data protection and cryptocurrency, to reporting rules and economic sanctions, the 2023 EU AML package will bring new compliance challenges for firms of every size. To help you stay ahead of those challenges, we’ve put together a guide to the key EU AML developments that your organisation needs to be ready for.
The EU AML Authority
In 2021, as part of its wider EU AML package, the European Commission proposed the creation of a new Anti-Money Laundering Authority (AMLA), which would be dedicated to protecting the EU’s financial system from money laundering and terrorism financing threats. In a September 2022 address, EU Commissioner Mairead McGuinness described AMLA as a “game changer”, and set out a range of functions that it would perform, including the supervision of high risk cross border financial sector bodies, and the provision of a Joint Supervisory Team with national supervisors.
AMLA is scheduled for implementation in 2024. The Commissioner pointed out that it will not replace existing national AML/CFT authorities but will contribute to the creation of a harmonised supervision system across the bloc.
The New 6AMLD
The EU’s AML package also included the announcement of updates to the Sixth Anti-Money Laundering Directive – essentially a ‘new’ 6AMLD. The updates entail a range of legislative mechanisms and measures, which include the introduction of:
National risk assessments every 4 years
Financial intelligence unit (FIU) frameworks for analysis and SAR submission
Clarification of beneficial ownership information requirements
Cross-border asset registers
New public supervisory bodies to provide oversight for EU self-regulatory bodies
Clarification of the rules for collecting personal data in the context of AML/CFT
Enhanced protection for whistleblowers that expose financial crimes
Common Rules of Conduct for FIs
Accompanying the creation of AMLA, will be the introduction of a ‘single rulebook’ for AML/CFT across the EU, based on the harmonised practices set out in the AMLDs. The single rulebook will establish a set of common rules of conduct for financial institutions (FIs) operating in the EU, including:
More detailed customer due diligence (CDD) rules to help FIs determine what type of measures should be applied for different levels of risk.
Clarification on the rules for determining ultimate beneficial ownership (UBO) in order to establish a more consistent definition of the term across the EU. The rules will also clarify the powers and obligations of FIs when investigating UBO.
A requirement to connect bank accounts to national registers in order to facilitate faster information sharing processes.
Crypto Asset Transfer Regulations
In June 2022, the EU announced its landmark Markets in Crypto Assets (MiCA) framework, which will come into legal effect in 2024. A set of crypto regulations relating to unbacked crypto assets and stablecoins, MiCA imposes the following compliance requirements on cryptocurrency service providers:
Under MiCA, issuers of stablecoins will have to maintain a sufficient liquid reserve to ensure redemption in the event of a mass withdrawal.
MiCA will require crypto asset service providers to obtain authorisation from a national authority in order to operate in the EU.
MiCA will introduce a public register of crypto asset service providers that are non-compliant with the new regulations. The register will be overseen by the European Banking Authority (EBA).
MiCA will come into effect in 2024 along with the Transfer of Funds Regulation (TFR), a separate set of compliance requirements that address the anonymity risks associated with cryptocurrency transactions. The TFR will introduce the following measures and controls:
Cryptocurrency exchanges must obtain the personal details of all parties involved in a crypto asset transfer or transaction. This requirement also applies to unhosted crypto wallets when the value of a transaction exceeds €1,000.
Crypto service providers must screen beneficiaries of transactions against sanctions lists.
Crypto service providers must provide the authorities with the personal data of customers when it is requested.
EU firms should begin preparing for the introduction of TFR and MiCA, which are legislatively intertwined, and which are designed to further harmonise AML/CFT regulations across the EU.
The UK’s Second Economic Crime Bill
While the UK left the EU in 2020, its AML/CFT regulations have kept pace with those of the EU. One of the most significant regulatory changes that will take effect in the UK in 2023 is the second Economic Crime (Transparency and Enforcement) Bill, which will prioritise the prevention of foreign money laundering and promote the UK as a safe business destination. Under the second Economic Crime Bill, the UK will implement the following regulatory steps:
Enhanced investigative and enforcement powers for Companies House.
Reform of limited partnership regulations to prevent misuse by foreign persons.
New regulatory powers to seize and recover crypto assets derived from money laundering and other financial crimes.
Enhanced anti-money laundering regulations including reformed information sharing rules, a simplified SAR submission process, and an increased focus on high value financial crime.
The second Economic Crime Bill builds on steps taken in the first Bill, which introduced an overseas entities register containing beneficial ownership information, a simplified unexplained wealth order (UWO) process, and strict liability for economic sanctions breaches. The Economic Crime Bills reflect the UK’s commitment to keeping pace with the EU, in 2023 and beyond, on issues such as Russian abuse of western financial systems, and the money laundering risks posed by cryptocurrencies.
How Technology Can Support EU Regulatory Compliance in 2023
The EU AML package will require firms to expand their compliance capabilities in 2023, with specific new requirements for data collection during CDD and UBO checks, and the sanctions screening process. At the same time, firms will have to adapt to enhanced scrutiny from new and existing authorities, which will be focusing on AML/CFT harmonisation. In this changing environment, it is crucial that firms find and implement a technology solution capable of meeting new compliance standards, and of adapting to new regulations as they are introduced.
Ripjar’s Labyrinth Screening platform offers your business a powerful advantage in meeting the evolving standards of EU AML/CFT compliance. Powered by machine learning technology, Labyrinth Screening enables you to search customers against thousands of structured and unstructured data sources, including adverse media, and global sanctions and watch lists. Labyrinth delivers actionable intelligence in real time, screening in over 20 foreign languages, to ensure that you know as soon as possible when a customer’s risk profile changes, and can adapt to new threats as they emerge, or new legislation as it is implemented.
Learn more about Ripjar’s EU AML/CFT compliance solutions – contact us today
Established in 1995, the Egmont Group is an international network of 166 financial intelligence units (FIUs) that works to prevent money laundering and terrorist financing by promoting information sharing and inter-organisation cooperation. As part of that goal, the group seeks to improve FIUs’ understanding of money laundering and terrorism financing, and inform government policy through operational experience. The Egmont Group states that financial intelligence should be “the cornerstone” of anti-money laundering (AML) and counter-financing of terrorism (CFT) standards.
In July 2022, the Egmont Group released its Strategic Plan 2022-2027, which seeks to position the Group “at the heart of a more efficient and effective global AML/CFT ecosystem”. The Plan outlines four Thematic Areas of Action (TAAs), which represent “the framework through which the Egmont Group’s activities will be coordinated over the next five years”. Accordingly, each TAA includes Strategic Goals, which are aligned with the Group’s AML/CFT objectives, namely:
Facilitating information sharing between international FIUs
Enabling cooperation between FIUs in order to increase their effectiveness
The Egmont Group wants each member FIU “regardless of its size or maturity” to commit to the Strategic Plan in order to maximise their contribution to the network, and collectively enhance global AML/CFT standards. With that in mind, we’ve identified 4 key takeaways from the Strategic Plan:
TAA 1: Enhance the framework for effective information exchange between FIUs
Key takeaway: FIUs must use their unique position within the global AML/CFT framework to strengthen information sharing processes and better manage emerging criminal threats.
The Egmont Group points out that its members’ AML/CFT strengths are derived from their “unique position” in the international AML/CFT framework which allows them to take advantage of financial intelligence such as suspicious activity reports (SAR) and suspicious transaction reports (STR). With that in mind, the Egmont Group will aim to “act as an enabler” for FIUs to share information “bilaterally and multilaterally” so that they can better maintain AML/CFT standards.
In delivering this TAA, the Egmont Group will promote international FIU cooperation, facilitate financial intelligence analysis, increase awareness of its mandate and desired outcomes, and ensure that FIUs are using their financial intelligence products effectively. The Plan’s focus on sharing intelligence and on financial intelligence products reflects the increasing regulatory complexity of the data landscape, and the need for closer cooperation in the face of sophisticated criminal methodologies. Many global jurisdictions have already developed their own information sharing initiatives, such as the FCA’s synthetic data trial in 2022, and the US government’s recent call for the development of “appropriate frameworks for information sharing” between financial institutions.
TAA 2: Strengthen cooperation with international partner organisations
Key takeaway: Enhancing and expanding engagement with international partners is vital to maximising outcomes for FIUs in the fight against financial crime.
The Egmont Group works with a wide range of international partners to bring its insight and intelligence to bear on AML/CFT policy and, ultimately, optimise financial crime outcomes. The Group’s international partners include global regulatory organisations such as the Financial Action Task Force (FATF), world governments, academic institutions, and numerous entities in the private sector.
Accordingly, the Strategic Plan sets out a requirement to both strengthen the Egmont Group’s existing partnerships and create new partnerships with other key stakeholders in the financial community – including “non-traditional’ partners” that can help the Group manage “future vulnerabilities and threats”. The Plan specifically emphasises the need to deepen the existing relationship with the FATF without diminishing the Egmont Group’s own “distinct purpose and identity”.
TAA 3: Develop and promote knowledge of new or emerging AML/CFT methods and trends, good practices, and Egmont Group requirements
Key takeaway: Implementing the latest AML/CFT methods and international good practices will help FIUs respond to threats faster and more effectively.
The third TAA represents a commitment from the Egmont Group to enhance its own unique position in the “AML/CFT ecosystem” in order to identify future financial crime threats and support “fast and flexible cooperation” between FIUs. The Group states that by continuing to deliver high quality insight, its members and stakeholders will be able to respond to money laundering and terrorism financing threats faster, and prevent and detect crime “at scale”.
The Strategic Goals for this TAA include helping FIU members apply AML/CFT good practices, being proactive in identifying emerging money laundering and terrorism financing threats, and promoting compliance with international AML/CFT standards. The Egmont Group also reiterates the importance of cooperation and engagement with the FATF to ensure AML/CFT standards are implemented effectively across the world.
TAA 4: Enhance support to Group members and candidate FIUs
Key takeaway: The Egmont Group will continue to expand its global reach to ensure FIUs maximise their AML/CFT impact regardless of their size or capability.
A trusted, respected international organisation, the Egmont Group will build on its progress to date with a commitment to support both existing members and candidate FIUs. This TAA involves a focus on shared strategic goals, and on ensuring that every FIU “has a voice within the Group” in order to maximise engagement, collaborative potential and operational effectiveness. Key to the TAA is the “active participation” of each member FIU, regardless of its access to AML/CFT resources or its level of maturity.
To deliver on the fourth TAA, the Egmont Group will support FIUs’ national and international initiatives, including fostering regional projects and prioritising technology enhancements. The Group will encourage FIU development by sharing best practices, fostering inter-agency trust, and enhancing access to the Egmont Centre of FIU Excellence and Leadership (ECOFEL). Reflecting the desire to focus on candidate members, the Egmont Group will place a particular emphasis on engaging with FIUs from Africa and Asia, both of which have comparatively low membership levels.
How Technology can help FIUs with AML Compliance
The Strategic Plan calls for a consolidation and strengthening of the Egmont Group, and its role, on the global AML/CFT landscape. However, with 166 member FIUs, and aspirations to expand, the Egmont Group’s information sharing mission requires a high degree of coordination and, crucially, the integration of technologies capable of distributing and searching data sets with speed and accuracy.
With that in mind, Ripjar’s Labyrinth Screening platform offers significant advantages for firms seeking to apply the information sharing best practices that the Egmont Group promotes. Labyrinth Screening gives firms the power to share, collect, and analyse vital AML/CFT data in real time, across thousands of data sources, in over 20 languages. Powered by cutting-edge machine learning technology, Labyrinth delivers actionable intelligence from structured and unstructured data, speeding up and streamlining information sharing processes in an increasingly complex regulatory landscape.
To learn more about Ripjar’s AML compliance technology, contact us today
