Adverse media checks enable businesses to meet obligatory compliance targets in light of global regulations
Businesses operating in the financial industry need to make sure their customers and partner entities are trustworthy and transparent about the information they exchange. To help address these concerns, enterprises carry out a set of due diligence checks in light of Know Your Customer (KYC) and Anti Money Laundering (AML) standards. Screening prospects against globally maintained watchlists and sanctions can help identify high-risk individuals and mitigate possible financial crime.
What is Adverse Media or Negative News?
Adverse media is any kind of negative news or information existing across global regulatory databases, sanctions, news platforms, media publications, etc. Adverse media can highlight important links about an individual involved in financial crime, terrorism funding, organized acts of crime carried out by groups, and embezzlement.
Classifying Adverse Media
Adverse media can be categorized as any of the following acts:
Digital Fraud: Phishing scams, e-commerce shopping frauds, identity theft instances, account takeover, illegitimate chargebacks, spyware, adware, malware, etc.
Organized Crime: Cross-border trafficking of luxury items, money or humans, extortion, tax fraud programs schemes, infiltrating legal businesses and stock manipulation schemes.
PEP Lists: If an individual is a Politically Exposed Person (PEP), they could possibly appear in adverse media. PEPs are appointed with a higher role in the public which means that they can misuse the authority making Enhanced Due Diligence (EDD) and adverse media checks necessary.
Monetary Crime & Terrorism: Obtaining money from illicit means either through money mules or multiple spread-out channels, financing terrorist organizations, insider trading, and any form of bribery or corruption.
What are Sources of Adverse Media?
As a rule of thumb, negative media about an onboarding user is acquired from traditional media outlets, newspapers, magazines, blog posts as well as from TV, radio, other online broadcasting channels, and social media platforms.
Global Sanction Lists
Regulatory authorities like the Office of Foreign National Control (OFAC) of the US, and the European Union (EU) have compiled various sanction lists that enable better adverse media screening of potentially high-risk customers. Apart from that, other global bodies also maintain watchlists, some of which are listed below:
- Specially Designated National & Blocked Persons List (SND) by the OFAC
- Specially Designated Global Terrorist Lists (SDGT) by the US Treasury
- Lists by the Office of Financial Sanctions Implementation (OFSI) of HM Treasury of the UK
- Targeted sanction lists maintained by the United Nations (UN)
- Consolidated list of persons, groups and entities subject to EU financial sanctions
Intentionally Maintained Databases
Adverse media information is also acquired from database records maintained by regulatory watchdogs. Press releases and public statements by these authorities also play a key role in making the corporate sector aware of bad actors. The International Database (IDB) maintained by the US Census lists demographic data that can be used to screen customers and perform risk assessment.
Why are Adverse Media Checks Necessary?
Businesses can reap various benefits by utilizing adverse media checks in their customer onboarding procedures. These checks can greatly affect how Suspicious Activity Reports (SARs) are generated by financial institutions – considering real-time availability of adverse media can enable results with greater accuracy and turnaround time. Screening customers through adverse media can allow room for better risk management strategies.
The Anti Money Laundering directives issued by the European Union direct financial organizations to carry out proper Customer Due Diligence (CDD) and adverse media searches for entities and individuals that pose a greater risk to the legal financial system. In this regard, the 4AMLD, EU’s ML/TF risk factor guidelines, and FATF’s 40 recommendations can enable financial service providers to make the best out of compliance practices. Adverse media checks play a significant role in meeting compliance requirements in light of globally acclaimed regulations.
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