In our first post we talked about why screening matters, which businesses need to screen their customers and took a brief look at the three types of screening tool available. In this follow up, we are focusing on which sources you should screen against, from Sanctions to Adverse Media.
Why screening matters
Breaching sanctions— by doing business with a sanctioned individual or entity—is a criminal offence in almost all jurisdictions.
Increasingly harsh penalties are being applied by regulators and prosecutors to businesses that fail to screen customers adequately or fail to risk rate them appropriately. Regulators don’t even need to demonstrate that an organisation has been exposed to criminality through their customer’s activities – it is enough simply to show that its AML controls were inadequate.
In the UK for example, prison terms of up to 7 years can be imposed in addition to unlimited fines for organisations that have failed to take precautions to prevent sanctions breaches.
What sources should I screen against?
As a minimum you should screen against sanctions lists, PEP lists, and government watch/black lists. Let’s look at these in more detail.
Individual countries and multinational bodies (e.g. the EU and the UN) impose sanctions measures to pressure other countries or organisations to change their behaviour. Sanctions can apply to individuals, specific businesses or whole nations. Breaching a sanctions measure, or assisting another party to do so, is nearly always a criminal offence. Businesses must scan customers against sanctions lists issued by all the jurisdictions in which they are operating or to which they have operational links, in addition to lists issued by multinational bodies.
In the wake of the 9/11 attacks, the US has developed economic sanctions into a sophisticated tool for conducting what some commentators have described as ‘financial warfare’ against actors that threaten the country’s interests. Leveraging the status of the US dollar as the world’s de facto reserve currency, the US Treasury aggressively pursues organisations that, knowingly or not, help individuals and nations get round US sanctions.
In 2014, French bank BNP Paribas agreed to pay a record fine of nearly $9 billion for breaching US sanctions against Iran, Cuba and Sudan. As such, any businesses which make use of the US dollar, even if they have no other connection to the US, would be well advised to comply with US sanctions measures.
Although the outline sanctions regimes are published by some of those states that employ them, it’s still important to use a high-quality data provider, because in many instances a sanctions regime will identify only an individual and not all of the entities connected to that individual – all of which will nonetheless fall within the ambit of the sanctions measure. That’s where a high-quality data provider such as Dow Jones or Refinitiv World-Check will assist in identifying these linkages for you.
Politically exposed persons
Politically Exposed Persons (PEPs) are individuals who hold or have held a significant public function. This function might give them influence over, for example, the spending of taxpayer money or the allocation of contracts by state owned enterprises. As such, they are regarded by the Financial Action Task Force as a category of individuals which is more susceptible than most to engaging in bribery and corruption, and money laundering activity.
Screening providers maintain databases of millions of global PEPs, and Relatives and Close Associates (RCAs). Nearly all jurisdictions require their regulated sectors to establish if applicants for business are PEPs and to profile and treat them as high risk.
Watch lists or black lists are official lists of individuals and companies which may pose a greater financial crime risk owing to their past behaviour. They may include lists of wanted criminals or suspects, lists of persons disqualified from holding directorships or holding executive positions in the finance industry or lists of persons convicted of particular crimes. Watch lists don’t capture every criminal offence and are not a comprehensive source for criminal records. RiskScreen’s data sources track over 4,500 global watch lists maintained by bodies ranging from Interpol to national financial regulators and prosecutors.
Screening an individual for adverse media coverage involves looking for any negative mentions of them in news media and wider open-source information.
Adverse media screening could reveal that, for example, a potential customer was convicted of a criminal offence but not one deemed sufficiently relevant to financial crime to merit their inclusion on a watch list. Or you might find that an individual is in the process of being tried for an offence which would be relevant to financial crime – just that proceedings have not yet concluded.
In some jurisdictions, adverse media screening is reserved for enhanced due diligence checks – but it is good practice to carry out basic adverse media screening for all customers, particularly as it can reveal information not included on official sanctions, PEP and watch lists.
In recent times, regulators’ expectations have increased and many financial services businesses are now seeking to carry out continuous adverse monitoring, at least in relation to their higher risk customers.
Download our Definitive Guide to Customer Screening for more insights into a better approach to AML & KYC compliance.