More complex and farther-reaching than ever before, supply chains make it possible for organisations to venture across borders, create new relationships, and launch new commercial ventures.
But supply chains are also more vulnerable than ever before. The more third parties that a firm integrates into its network, the more exposed it becomes to regulatory risk, including money laundering, terrorism financing, and sanctions evasion risk.
As the world’s largest economy, the United States has created a strict regulatory regime to counter the threat of global financial crime. Supply chain risk is an important part of that regime and firms that operate within US jurisdiction must factor that into their compliance solutions, including implementing effective adverse media screening measures.
However, in a regulatory environment as complicated and populous as the US, implementing effective adverse media screening isn’t always straightforward. In this post, we’re going to explore that challenge.
What is adverse media screening?
The term adverse media refers to any media that indicates compliance risk. Similarly, adverse media screening is the process of actively monitoring publicly available sources of risk data in order to accurately establish individual customers’ compliance risk.
By offering valuable enhancement to standard sanctions and watchlist screening, adverse media screening eables firms to uncover otherwise hidden risk.
Also known as “negative news screening”, adverse media screening should take in all relevant data sources, including traditional media such as print and television news, and online sources such as news websites, blogs, and social media platforms.
Adverse media screening is, essentially, a name matching process in which compliance teams search for their customers’ involvement in stories and other published content from across the global media landscape. With that in mind, adverse media screening solutions need to be able to account for both structured data, such as entries in lists and forms, and unstructured data, such as names that appear in sections of prose or in recorded audio and video files.
Screening solutions should also be capable of accounting for variations in language, such as different spellings, nicknames, aliases, initials, and so on.
Why is adverse media important for supply chain compliance?
Adverse media is so useful for compliance solutions because effective screening typically reveals criminal risk long before it’s confirmed by official sources.
An investigative news report, for example, may hint that sanctions against a specific person are in the works, prior to a later confirmation in a government press release, thereby enabling a firm to take prompt action to minimise or eliminate its risk exposure, and avoid regulatory penalties.
That utility extends to the supply chain, and to third-party screening requirements. While firms are typically used to managing the direct risk that their customers and clients present, third-party relationships up and down the supply chain can be much harder to scrutinise. Supply chains often hide their true compliance risk, especially if a network spans multiple parties, borders, regulatory environments, and so on.
The presence of bad actors within a third-party network adds even more complexity to the problem. Persons designated on sanctions lists, for example, may try to actively conceal their identities when dealing with business partners.
Adverse media screening in the US
US AML/CFT compliance regulations impose risk-based adverse media screening requirements. Although it’s not always an explicitly stated requirement, adverse media screening is typically a part of best practice recommendations, especially those relating to customer due diligence (CDD) and, for higher risk customers, enhanced due diligence (EDD).
Key adverse media screening considerations in the US include:
The Bank Secrecy Act (BSA): The cornerstone of AML/CFT regulation, the Bank Secrecy Act requires firms to implement risk-based compliance procedures, including monitoring for suspicious activity, which typically entails screening customers against adverse media.
The Customer Due Diligence Final Rule: A 2018 amendment to the BSA, the CDD Final Rule includes a requirement for “ongoing monitoring”, which (as mentioned previously) entails adverse media checks, even if they aren’t explicitly mandated.
The Financial Crimes Enforcement Network (FinCEN): The US’ primary financial regulator FinCEN also frames the requirement for adverse media screening as “ongoing monitoring” – a component of risk-based compliance with the BSA.
The Office of Foreign Assets Control (OFAC): Like FinCEN, OFAC does not impose an explicit requirement for adverse media screening, although it does require firms to conduct risk-based compliance when managing sanctions risk. With that in mind, adverse media screening is a best practice expectation.
Environment, Social, and Governance (ESG): Certain states across the US are implementing ESG laws that entail adverse media screening as part of their monitoring rules. Examples include California’s Climate Corporate Data Accountability Act, and New York’s Climate Leadership and Community Protection Act.
The benefits of supply chain screening
The primary purpose of risk-based adverse media screening is to ensure that compliance teams get an up-to-date, accurate picture of their customers’ compliance risk. In the context of supply chain and third-party screening, and with the integration of automated search technology, there are numerous benefits.
Data management
Supply chain screening necessarily requires compliance teams to collect and analyse vast amounts of customer risk data, drawing on thousands of sources from across the globe. Automated screening solutions streamline and simplify that task, adding speed and accuracy to the name search process, accounting for structured and unstructured data, and reducing or even eliminating the potential for human data-handling error.
Language variations
Cross-border supply chain relationships often mean that compliance solutions need to screen data in multiple foreign languages. Screening technology can automate multi-language analysis requirements and account for regional variations in spelling, the use of nicknames and aliases, and the use of non-Latinate characters.
Real-time updates
Global supply chains and third-party networks are constantly evolving, with each new sanction or regulation introducing fresh compliance risks. Automated screening solutions mean that compliance teams can stay ahead of these changes, and be informed as soon as election results are announced, for example, or as soon as a relevant social media post is published.
Scalability
Business growth can also complicate supply chain risk exposure, especially when firms need to expand into new territories, and adjust for new compliance regimes. Automated third-party screening gives firms a way to scale their approach to screening along with their business ambitions, keeping pace with expanding risk exposure by simply augmenting the scope of their name search process to include new regulations, new customer populations, and so on.
More than compliance
For US companies, managing compliance risk is not just a question of avoiding financial penalties.
While regulators like FinCEN may punish firms for technical regulatory violations, members of the public may view association with unethical third parties just as negatively. That guilt by association may be applied even if the firm was not directly engaged with the offending entity and no regulatory violation took place. In a fast-moving and highly editorialised media landscape, the subsequent reputational fallout can be as (if not more) damaging than the government-imposed penalty.
To that end, robust supply chain screening solutions provide not only protection from regulatory punishment but valuable peace of mind that a firm is taking all possible steps to minimise risk and deliver on internal commitments to pursue ethical business practices.
Stronger, smarter screening with Ripjar
If your organisation is required to meet US supply chain screening requirements, it’s no longer enough to rely on manual adverse media processes – Google searches are both incredibly time-consuming and highly ineffective for this purpose. You need a comprehensive solution capable of capturing global risk, and delivering actionable financial intelligence in seconds.
Ripjar 3P60 is a next-generation screening platform designed to help compliance teams stay ahead of third-party and supply chain challenges. Leveraging advanced AI analytics to build flexibility and resilience into the screening process, Ripjar 3P60 cuts through the noise to identify regulatory and reputational risks from every direction as soon as they emerge, and ensure decision-makers have all the information they need to protect their businesses, and their reputation.
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