Adverse Media Screening | Assessing and Mitigating Potential Crime Risks
In today’s digital world, where fraud prevails exponentially, risk management is crucial to fighting crime and should be more than just a series of ticking boxes to collect customer data. While counter-terrorism financing (CFT) and anti-money laundering (AML) regulations focus on gathering static clients’ information, businesses need to understand the need for adverse media screening in a constantly evolving compliance and fraud landscape.
Adverse media screening is a critical part of AML/CFT compliance procedure – regardless of which industry businesses operate in. However, the Financial Action Task Force (FATF) recommends this check for all sectors. Adverse media screening checks safeguard businesses against emerging crime risks associated with customers. Read more to discover how your business can effectively meet the art of balancing compliance, onboarding, and risk mitigation.
What is an Adverse Media Screening?
Adverse media screening refers to searching for suspicious information linked to customers prior to onboarding. Adverse media screening includes sources such as news platforms, radio, TV, and social media sites. News may also be scrapped from non-traditional information sources like blogs, articles, or websites.
The fundamental purpose of adverse media screening is to extract customers’ past activities or ongoing involvement in illicit activities. Here are some common steps businesses carry during adverse media screening:
- Data Collection: Implementing a customer due diligence procedure, customers’ personally identifiable information is gathered from various reliable sources. This step is an essential component of the Know Your Customer process, helping businesses to know who their customers are.
- Adverse Media Check: Using the customers’ data, companies then screen the data across multiple media sources to determine suspicious information about the client. This includes scraping newspapers, websites, social media platforms, and other public information sources.
- Risk Assessment: If a customer is present in adverse media, the next step is determining and assessing risk levels. The risk should include significant checks, including the type of negative information, time periods, and its potential impact on the business or individual.
- Alerts and Action: If the assessed risk is severe, an automated alert is generated – depending on the business’s policy and the severity of risk associated with a client. From ongoing monitoring to filing a suspicious activity report, adverse media screening helps companies deter the risk of crimes.
Why is Adverse Media Screening Important?
Screening customers against adverse media sources is a viable way of identifying, managing, and mitigating a company’s reputational risk and financial losses. Generally speaking, working with an individual or business involved in suspicious activities and presence in adverse media can be dangerous. To overcome this risk, all regulated institutions are obliged to comply with AML screening procedures and conduct ongoing customer due diligence. As per the Financial Crimes Enforcement Network (FinCEN’s) CDD Rule, businesses are mandated to verify customers while conducting ongoing monitoring throughout their partnership. This means that companies need always to look for adverse media sources to search about their customers’ existing or potential, and when they are highlighted, businesses need to be prepared to make or end ties with entities that present financial crime risks.
Types of Adverse Media
Beyond certain boundaries of riskiness, such as a customer’s involvement in organized crimes or appearance on any watchlist – it’s up to a business to determine who qualifies as adverse media and whether or not this makes a client a high-risk entity. However, many companies want customers like politicians and world leaders, who are usually exposed to money laundering and terrorist financing risks. Thus, by accepting high-risk clients, businesses must enhance security that goes alongside.
Indicators that, depending on industry context, amount to adverse media include:
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- Criminal Activity: Customers’ involvement in financial crimes, including drug trafficking, money laundering, terrorist financing, etc., should make businesses’ compliance teams reconsider client risk levels, regardless of whether crime reaches the public or not, with the awareness that media exposure will make it catch the attention of regulating authorities.
- Political Exposure: Government officials, particularly high-ranked with lots of media coverage, need to be monitored periodically to search for signs of involvement in money laundering or other financial crimes. As these entities are exposed to increased risk of crimes, their relatives also need to be screened.
- Sanctions: Businesses’ risk and compliance management teams need to stay aware of announcements and updates related to global sanctions, as high-profile sanctions will more likely become part of the news before international lists are updated.
- High-Risk Geolocations: Some countries and jurisdictions may fall in or out of the perimeter of risk depending on their economic and political climate. Customers from such high-risk countries need to undergo increased scrutiny, be monitored rigidly, and be handled appropriately to limit the risk of crimes.
- Regulatory Actions: Onboarding sanctioned, penalized, and fined entities should be considered high-risk as they have been involved in criminal activities. However, such entities can make sudden moves, leading businesses to regulatory scrutiny. However, becoming a part of these movements can expose businesses to regulatory actions.
The Challenges of Adverse Media Screening
As billions of news articles are published daily, it’s hard for businesses to manually search and verify every piece of information. However, compliance and risk management officers collect, examine, and interpret news articles using conventional third-party databases and search engines while conducting manual and tedious adverse media checks. Unfortunately, this practice is not worthwhile and leads to duplications, scraping irrelevant information, and even misleading information. Here are some limitations of carrying out adverse media screening manually:
Hidden Data: Businesses may find it challenging to access restricted news or interpret information in different languages. In addition to this, additional expenses may also be required to gather such news sources.
Questionable Reliability: As no centralized entity regulates online news-sharing platforms so that anyone can publish information. Many news outlets lack verification checks, which can mislead businesses. This is a significant challenge for institutions to verify the accuracy as well as reliability of the news.
Tedious and Time-Consuming Process: Gathering and verifying news manually is time-consuming to check the authenticity of the news article linked to the customers undergoing adverse media screening – particularly when screening clients with common names. This situation ultimately increases the risk of false positives.
Due to the above-mentioned limitations associated with manual adverse media checks, regulated businesses find it hard to find ways to carry out adverse media checks and meet their compliance requirements.
What the World’s Financial Watchdogs Say:
Multiple regulatory authorities worldwide, including the Financial Action Task Force (FATF), Financial Conduct Authority (FCA), Australian Transaction Reports and Analysis Centre (AUSTRAC), etc, have mandated regulated businesses to develop a risk-based approach to anti-money laundering compliance obligations. Adverse media screening is one of the essential components of the AML screening procedure, which is not just a way of securing the integrity of a company from reputational damages but also drives trust among the business community and customers. The global regulatory authorities have also emphasized the significance of limiting the risk of crimes through adverse media screening.
The European Union’s Sixth Anti-Money Laundering Directive (6AMLD) obligates businesses to carry out enhanced due diligence for customers from high-risk countries, which can expose them to financial crimes. EDD checks include screening such entities against open sources or adverse media outlets. To further limit the risk of crimes and overcome misleads, businesses are advised to have automated negative media screening solutions.
Similarly, FATF has also published recommendations and guidelines that mandate businesses to make adverse media screening an essential part of the enhanced due diligence process. Where a customer, supplier, or third-party vendor is in adverse media searches, this indicates a red flag that businesses need to manage effectively. To back the stance of FATF, the UK’s financial watchdog, FCA has also stipulated that adverse media checks should be part of the customer onboarding procedure with ongoing monitoring.
“Adverse media screening should be implemented when onboarding customers and during “periodic reviews” of customer relationships.”
UK Financial Conduct Authority
Adverse Media Screening with Shufti
As anti-money laundering and ongoing screening for businesses is a clear regulatory obligation, adverse media checks are often ignored. There are multiple reasons behind this, including complacency about its potential impact and lack of understanding and resources in companies’ compliance departments.
Shufti, one of the market leaders in providing anti-money laundering screening services embedded with state-of-the-art adverse media checks, enables businesses to identify high-risk customers and the potential risks of crimes they pose in real-time. The company’s solutions have access to 1700+ watchlists, helping companies perform adverse media checks along with PEP and sanction screenings throughout the customer onboarding journey to ongoing monitoring – All while balancing verification, compliance, security, and customer experience.
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