Category: Regulations

Adverse Media Screening Requirements Around the World

The global news landscape evolves quickly and breaking stories often indicate that customers, clients, and other parties pose a threat to an organization’s reputation or compliance liability before that information is confirmed by official sources. With that in mind, adverse media screening, also known as negative news screening, is a powerful compliance asset, helping firms anticipate and identify risks, and make decisions about effective compliance responses. 

Adverse media screening is valuable at every stage of a business relationship and a cornerstone of the customer due diligence (CDD) and enhanced due diligence (EDD) processes. Organizations should seek to screen for adverse media during onboarding to help accurately establish a customer’s risk profile, and then – if warranted – throughout the relationship as a way to detect changes in risk, or to provide supplementary data for related compliance processes. 

The compliance value of adverse media is reflected in the focus of regulators around the world, many of which impose adverse media screening requirements on organizations that operate within their jurisdiction. However, adverse media regulation is a challenging administrative proposition and often applied with less structure than other compliance requirements – such as PEP screening, sanctions and watchlist screening, and transaction monitoring.
Given the regulatory uncertainty, organizations must think carefully about how they implement their adverse media solutions as part of their broader regulatory compliance commitments and understand whether their solutions are compatible with the expectations of jurisdictional authorities.

Adverse media screening features in financial compliance regulation in jurisdictions around the world. Who are the regulators that have set out adverse media recommendations and regulations – and how strictly are they applied? 

Explore our illustrative map to learn more about the legal requirements and recommendations for adverse media screening in different countries around the world.

Global Adverse Media: FATF

The Financial Action Task Force (FATF) includes adverse media screening in its anti-money laundering guidance, as part of its recommendation that organizations implement a risk-based approach to compliance. Practically, the risk-based approach requires organizations to deploy a proportionate compliance response based on an assessment of the risk that individual customers and clients present. Accordingly, low risk customers may be subject to simplified AML/CFT customer due diligence measures, while higher risk customers should be subjected to enhanced due diligence which should include adverse media screening. 

FATF adverse media screening guidelines suggest that organizations deploy “verifiable adverse media searches” in order to build out their client’s risk profiles and to understand the nature of the business in which they are engaged. The adverse media searches should involve the gathering of “sufficient… publicly available information” during the CDD and EDD processes.

FATF also requires organizations to establish whether customers have been subject to historic criminal investigations or regulatory penalties – which may involve historic adverse media screening. Historic actions against customers should inform their current risk categorization.

European Adverse Media: 6AMLD

The EU Parliament has mandated adverse media screening measures as part of its periodically-released Anti-Money Laundering Directives (AMLD) which member states must transpose into domestic law. The most recent of these directives is the sixth – usually known as 6AMLD – but previous directives also set out adverse media compliance requirements. 

The Fourth Anti-Money Laundering Directive (4AMLD), which came into effect on 26 June 2017, included a requirement for screening against “open source” media, such as “reports in reputable newspapers”, as part of the EDD process. On 10 January 2020, 5AMLD came into effect and strengthened adverse media requirements by expanding the number of business sectors that were required to perform searches. 5AMLD also intensified the regulatory push towards compliance automation, including the use of automated adverse media screening technology. 
The Sixth Anti-Money Laundering Directive came into effect on 3 June 2021. Amongst 6AMLD’s regulatory changes was a codification of 22 money laundering predicate offences – with the addition of cybercrime and environmental crime to the list. Accordingly, under 6AMLD, adverse media screening solutions must be adjusted to account for the new predicate offences as risk liabilities.

UK Adverse Media: FCA

The UK’s Financial Conduct Authority, reflects the guidance of the FATF, stipulating that adverse media screening should be implemented when onboarding customers and during “periodic reviews” of customer relationships. 

The FCA referenced the importance of adverse media screening in the UK in a letter sent to retail banks in May 2021. The letter detailed a range of transaction monitoring failures by UK banks, and emphasized a particular case in which a bank had failed to act on adverse media stories that revealed allegations about illegally-obtained funds. The FCA stated that the failure had put the bank “at significant risk of facilitating money laundering”.

APAC Adverse Media: MAS, HKMA, AUSTRAC

Adverse media screening is a feature of regulatory regimes across APAC. Following FATF guidance, the Monetary Authority of Singapore (MAS) requires organizations to put suitable screening measures in place when establishing business relationships, including “screening against ML/TF information sources” such as media outlets. In 2020, MAS released a guidance paper on ‘Effective AML/CFT Controls in Private Banking’, setting out the need for organizations to monitor “adverse news” as part of their approach to risk management. 

Like MAS, the Hong Kong Monetary Authority (HKMA) has underlined the importance of adverse media screening as a way to inform customer risk profiles in financial contexts. In a January 2021 publication, MAS identified adverse media searches as “ideal candidates” for automation in a regtech-integrated AML solution, and recommended the use of news media databases to facilitate those searches.
Adverse media screening features prominently in AML/CFT compliance guidance from the Australian Transaction Reports and Analysis Centre (AUSTRAC). In order to build accurate and effective customer risk profiles, AUSTRAC recommends adverse media screening as part of the CDD process during onboarding and then throughout a customer relationship in order to detect material changes in risk.

Want to learn how Ripjar can help with Adverse Media Screening? Please Get in touch.

The impact of the new US Anti-Money Laundering Act

As President Trump heads towards the end of his single term of office, one of the most important changes to beneficial ownership rules, which has made its way through both the House and the Senate with such a huge margin of votes that it is now “veto proof” and almost certain to be  enacted, despite recent social media activity by Mr Trump indicating he will veto the encompassing National Defence Authorization Act within which it sits.

“Surely Trump can have nothing against corporate transparency?” I hear you asking. But the threatened veto is nothing to do with the act at all but simply a quid pro quo for the house failing to repeal section 230 of an entirely different piece of legislation (The Communications Decency Act) which protects social media companies from prosecution for libel on the basis that they are not “publishers”.

Both Democrats and Republicans have indicated they would vote to override the veto should such an event come to pass.

Notwithstanding this seeming fit of pique by the outgoing president, the changes to Anti-money Laundering laws are both extensive and profound (with some reservations as explained below). And, for the sake of clarity, the enactment of this legislation, whilst occurring at the point of Trump’s departure, has little or nothing to do with the president himself.

It is the culmination of years of effort by a small group of campaigners both within the government and in advocacy organisations to ensure that corporate registers contain meaningful beneficial ownership information.

Let me start with the ”why” – transparency is our best weapon for fighting financial crime. To launder the proceeds of crime, to embezzle funds, to peddle corruption, almost always relies on creating entities where the ownership structure is opaque or hidden. These entities, often registered offshore to further hide ownership, are the lifeblood of the criminal world. To wit, if all company ownership was visible, who owned which companies, which companies owned which assets, and ultimately in whose back pocket money ended up– criminal finance would be extremely difficult indeed.

And it is worth noting, before highlighting some of the important aspects of the new legislation, examples from the currently situation. In, say, Delaware for example, to create a Limited Liability Corporation you have to complete a one-page form identifying the proposed name of the company, the registered address, and the name of the registered agent responsible for overseeing the process. And that is it!

The Anti-Money Laundering Act 2020 means all of that is going to change very soon. Here are some of the key points (both positive and potentially negative):

  • FinCEN (the US Financial Crimes Enforcement Network) will be required to own and maintain a full beneficial ownership registry for legal entities registered in the US.
  • According to the legislation, the registry will be “highly useful” to various arms of national and federal agencies including national security, intelligence, and law enforcement as well as federal regulators.
  • The act will only allow financial institutions access to the registry with the permission of the entity whose details are being queried.
  • This is likely to be a significant aid in the onboarding process
  • But it is unlikely to be of help when performing investigations raised by transaction monitoring alerts, internal SARs or other control measures designed to identify potentially suspicious actors utilising a financial institution’s products or services.

A key difference between the US approach and, say, the one here in Europe is that the US has decided to maintain its current definition of a beneficial owner, which is someone who owns or controls at least 25% of the entity. Here in the UK and also in the EU it is more than 25%. Whilst in practice this might only be a difference of 1 share, it also means the difference between having, effectively, a maximum of either 3 or 4 beneficial owners.

In addition, there are other jurisdictions around the world which use different percentages (5%, 10%, 20% etc).

It is certainly true from my own research, albeit across a relatively small population, here in the UK, that the commencement of the Person with Significant Control (PSC) regime in April 2016 saw a significant migration of shareholdings of “suspicious” entities from what was, prior to that, the common sight of 100% owned by a company based in a secrecy jurisdiction, to four 25% shareholders (often in very different jurisdictions around the world) which then precluded the requirement to place them on the PSC register.

It does not make the job of the banks and other financial institutions any easier, particularly when they have a multi-jurisdictional or global footprint, when the rules relating to beneficial ownership vary country by country.

What is a bank to do if it has a relationship with a company in, say, the US and Germany, where the company has four equal shareholders? Does it perform the necessary due diligence in the US (where they meet the criterion for beneficial ownership) but not in Germany (where they do not).

Would it breach the German privacy laws if additional due diligence was sought when it was not strictly required by law?

And what happens if, as a result of performing the correct level of due diligence in the US, the firm discovers that one of the 25% shareholders is a PEP when they would have made no such discovery if the client was solely onboarded into Germany and they would not have been required to check?

There are many other changes being brought in by the legislation which will make their way into the public domain over the coming weeks and months but the changes to the beneficial ownership regime is likely to be the most far reaching, provided that the momentum created by this first tentative “toe in the water” is maintained and there is sustained campaigning to ensure the register is ultimately open to public scrutiny.

In respect of this piece of legislation then, the end of term report might well read “a good effort but more work needed to complete the task.”

Graham Barrow

Ripjar Strategic Advisor
18th December 2020