Risk management should be more than just a series of ‘box ticking’ data collection exercises. While many anti-money laundering (AML) and counter-financing of terrorism (CFT) regulations focus on capturing static customer information such as names, addresses and business details, it’s vital that you also understand your risk exposure in a constantly-evolving compliance landscape.
Adverse media screening, sometimes referred to as negative news or negative media screening, describes the process of searching for news stories that are relevant to a customer’s AML/CFT risk profile. It takes in traditional screen and print media, as well as online sources such as blogs, forums and social networks. With a global reach, including foreign language news sources, adverse media screening is one of the best ways of building an accurate, up-to-date picture of the counterparty risk that your company faces, and of anticipating future threats. In some jurisdictions, adverse media screening is even codified by law as an AML/CFT compliance requirement.
With these factors in mind, it’s vital you understand how and why your adverse media screening solution can help you meet your regulatory obligations. To optimise your compliance response, read our list of the 5 key reasons you need effective adverse media screening.
1. Spot Emerging Threats Early
When customers are onboarded, the AML/CFT risk that they present may not be immediately apparent. In the same way, existing customers may become involved in activities or be exposed to global events which are likely to increase compliance risk later in the business relationship. Adverse media offers banks and financial institutions a way to spot this kind of emerging threat early since negative news screening may detect certain business activities or financial behaviours that indicate a customer’s risk profile is likely to change.
For example, negative news screening may detect that a client with overseas business interests has connections with Russia, putting them at increased sanctions compliance risk at some point in the future as a result of measures taken in response to the Russian invasion of Ukraine. Similarly, negative news screening may reveal criminal activities (including money laundering predicate offences) that do not result in charges – but which indicate that customers should be scrutinised more closely in the future for ongoing risk indicators.
2. Keep Track of Broader Business Risks
An AML/CFT solution may be set up around the specific risks that an individual customer presents, and screen against a range of relatively static qualities, such as names, addresses, beneficial ownership, business locations, and transaction counterparties. Those data points provide only a very limited perspective on a customer’s risk profile, and do not take into account wider variables that might be affecting the business relationship.
Since the media landscape is constantly changing, with stories evolving on a daily basis, adverse media screening offers a way for organisations to keep track of the broader risk environment. Even better, the information that your compliance team gathers during the remediation of an adverse media alert will help to strengthen your AML/CFT response going forward. In particular, adverse media alerts may help firms stay ahead of geopolitical crises, new criminal methodologies, and new regulatory trends. Adverse media screening may, for example, help your company detect new Environmental, Social and Governance (ESG) risk liabilities – including environmental crimes and unethical labour practices.
3. Identify Beneficial Owners and Shell Companies
Criminals often set up shell companies or use complex corporate structures to conceal their involvement in money laundering transactions and avoid AML/CFT scrutiny. In some cases, shell companies may be set up in low-regulation countries like the Cayman Islands, in order to avoid compliance measures in higher regulation countries and force investigators that are attempting to trace illegal funds to navigate cross-border regulatory disparities. While firms may implement measures that require customers to reveal beneficial ownership, doing so may be challenging and add to the compliance burden.
Since the ownership of shell companies is a frequent subject of investigative media reports around the world, adverse media screening may help firms detect when customers are using corporate structures to commit financial crimes. Global adverse media screening tools are particularly important in this context because of the likelihood that customers are using foreign shell companies to avoid domestic regulations.
4. Discover New Information about PEPs
Politically exposed persons (PEP) are elected officials and government employees that pose an elevated AML/CFT compliance risk. That risk stems from the increased likelihood of PEPs being involved in financial crimes, including bribery and corruption, as a result of their access to government funds and their ability to avoid regulatory scrutiny. Given that threat, companies must screen customers against PEP lists regularly and be aware when a customer’s status as a PEP changes following their election to a political position or employment in a government agency.
The challenge of PEP screening reflects the speed with which the political landscape can change as individuals assume political office. Global adverse media screening is so useful at capturing information about PEPs because foreign news outlets frequently report on elections and on stories involving political corruption which domestic outlets do not.
5. Generate Information for AML Investigations
Regardless of whether an adverse media search generates an alert, the subsequent remediation process provides useful data points to help guide any future financial crime investigation. AML screening by necessity involves the analysis of a vast range of news stories, generating potential connections to a spectrum of financial activities.
The value of adverse media data will depend on the depth and detail of the search conducted. When conducting negative news screening, companies should also consider the quality, relevance, and reliability of the data, taking into account factors like political bias and media sources. Stories from an established mainstream news outlet, for example, with years of industry output, are likely to be more credible and reliable than data sourced from an internet forum or social network.
Adverse Media Screening Technology
In order to meet their adverse media compliance requirements, companies must implement an effective software screening solution capable of capturing relevant news stories from around the world. Ripjar’s Labyrinth Screening solution has been developed with that objective in mind, integrating next generation compliance technology, including real time global adverse media searches in 21 languages, to ensure you stay informed whenever your customers’ risk profiles change.