The introduction of the Customer Due Diligence (CDD) ruling implemented in 2018 spurred the maturity of anti-money laundering (AML) requirements. But the CDD rule left more questions than answers, and the resulting ambiguity forced financial institutions to act on their interpretations.
One such interpretation was for financial institutions to take a more risk-based approach. Taking a more offensive position, financial institutions could actively work to avoid or sever connections between themselves and illegal actors. This led to the wide-spread adoption of adverse media investigations and screening.
How adverse media screening became mainstream
Even before the CDD rule, some financial institutions started screening for negative news or media. This was typically recommended by regulators or because they were adopting higher-risk transactions and customer bases. For many financial institutions, screening and monitoring for negative news and media were in response to the CDD rule.
Today, there has been a surge of adverse media screening and monitoring needs within, and beyond, the financial institution. While those outside banking are not held to the same CDD rule, their vendor networks are being affected by the same bad actors. It only takes a few recent examples in the news to make the point for knowing who you are doing business with, and how much risk they represent through their words and actions.
You are only as strong as your weakest vendor
The latest example comes from hacked IT technology company and software vendor, SolarWinds, whose cybersecurity system was no match for sophisticated criminals. The hackers were able to place malicious code inside the software system, Orion. Unbeknownst to the vendor, SolarWinds, this bug was then distributed via a software update to their client base.
With the support of the CDD Rule and bountiful evidence of how quickly a weak link in your customer or vendor network can take down an otherwise healthy organization, it’s no wonder that adverse media or negative news screening is on the top of everyone’s minds.
To help you along your way to stronger due diligence, below are some best practices for utilizing adverse media screening.
Financial institution use cases:
- High-risk customer on-boarding detection
- Full customer base ongoing monitoring
- Vendor/supplier monitoring
- Beneficial owner monitoring
Non-financial institution use cases:
- Vendor/supplier monitoring
- Claimant monitoring
- High-risk public relations detection
- High-risk user detection
To put these practices to use, an organization needs to harness the power of technology. Without technology, organizations have no chance of finding the information they seek due to the sheer volume of data that exists. With 2.5 quintillion bytes of data being created every day and more than 90% having been created in the last two years alone, it’s obvious to see that a failure to utilize such data could spell disaster.
The utilization of free Boolean search tools applies to this type of screening on an ad-hoc basis, but the problem is around frequency. How often are you going into depth with these searches, especially with marketing algorithms introduced? The vast amount of information on the web leads to the need for artificial intelligence and tools to screen more effectively.
This leads to the question, what can this technology screen for? Adverse media screening tools crawl both global and local news and media for categories within the traditional Know Your Customer (KYC) and Know Your Vendor (KYV) spaces. Some of the categories monitored are as follows:
▪ Reputational risk
▪ Financial crimes/money laundering
▪ Violent crimes
▪ Charges/convictions/verdicts
▪ Misconduct
▪ Incarceration/parole
▪ Fraud
▪ Terrorism
▪ Narcotics
By staying up to date on media across the world and monitoring based on customer/vendor names and hundreds of relevant words and phrases, a company can quickly mitigate public relations issues and high-risk behavior as soon as the articles are published (even locally), that could otherwise crush them.
Monitoring becomes especially helpful when it comes to filing suspicious activity reports (SARs). With evidence in hand, organizations can simply attach a file to support the basis of the report. Adverse media tools can notify an institution of damaging relationships and potential compliance issues more quickly than most other monitoring solutions. This expediency mitigates further risk and fraud to the business, provides compliance for the institution, and supports law enforcement investigations through partnership.
Implementing adverse media screening can be as easy as one, two, three. All an institution would need to do is compile a customer/vendor list consistently and submit it to the adverse media service for ongoing monitoring. Ad-hoc searching is available in most monitoring systems as well.
The time to add adverse media screening is now before it is required by regulations, which is possible as the Anti-Money Laundering Act of 2020 moves into legislation.
