A year in review of 2020 quickly shows that financial crime was a regular headline. The COVID-19 pandemic added fuel to the fire in terms of fraudulent activity seen by financial institutions. With the rollout of the Paycheck Protection Program (PPP) loan program to the Financial Crimes Enforcement Network (FinCEN) reopening comment for proposed rulemaking on certain convertible virtual currency and digital asset transactions, it is apparent that there is an urgency to quickly identify criminal efforts to launder dirty money and monitor for ongoing risk. But for those governed by the Bank Secrecy Act (BSA) how can this be done when the process, by its very nature, is time-consuming and complex?
Public record research with adverse media screening, also known as negative news screening, is a crucial and mandatory part of any customer due diligence (CDD) program. In 2018, FinCEN issued the Customer Due Diligence Requirements for Financial Institutions (the CDD Rule), amending Bank Secrecy Act regulations, to improve financial transparency and prevent criminals and terrorists from misusing companies to disguise illicit activities and launder monetary gains.
At the core, the CDD Rule amendment was to ensure that financial institutions know who they are doing business with – commonly referred to as Know Your Customer (KYC). The CDD Rule has four core requirements:
- Identify and verify the identity of customers
- Identify and verify the identity of the beneficial owners of companies opening accounts
- Understand the nature and purpose of customer relationships to develop customer risk profiles
- Conduct ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information
As a result, financial institutions are specifically required to conduct enhanced due diligence (EDD) and ongoing monitoring through public records searching and adverse media screening to identify the risk associated with doing business with entities and ultimately the beneficial owners of the entity.
These requirements have caused financial institutions to evaluate their public records research programs and processes to see if they are truly complying with the CDD rule and can conduct the research and ongoing monitoring in the most efficient means possible.
Financial institutions are reporting adverse media screening is not only time-consuming but overwhelming due to the proliferation of open-source data to sift through. So how can adverse media screening become an easier and more efficient process? At its most simple application, adverse media screening is the process in which a customer or prospective customer is compared against global negative information and data sources. The screening and monitoring allow financial institutions to focus on identifying and preventing potential reputational and regulatory risk.
To that end, the Financial Action Task Force (FATF), an inter-governmental global money laundering and terrorist watchdog, has set guidelines for offenses that must be searched and monitored for. These offenses including:
- Human trafficking
- Organized crime
- Terrorism
- Trafficking in stolen goods
- Illegal drug activities
The FATF continues to strengthen its standards to address new risks, such as the regulation of virtual assets, which have spread as cryptocurrencies gain in popularity and use. With the standards and requirements coming from the CDD rule and the FATF, the financial professionals are tasked with conducting adverse media screening that inundates them with an immense amount of open web searches and results. Weeding through these results can take hours if not days.
What these professionals need is:
- A simple solution that not only allows them to run ad-hoc searches but also conduct ongoing screening in an easy to use system.
- The searching capabilities to access global data and results that are simple, organized, and classified based on the relevancy of their search subject and the key financial and reputational crimes that must be monitored for.
- Automation for ongoing monitoring to ensure that the potential risk is identified as soon as possible and can be delivered directly into systems that the financial institution is already using.
- A review process of the alerts that allows the financial professional to quickly disposition results so that the financial institution can act if needed.
Financial institutions with an adverse media searching and monitoring solution in place that streamlines their process for identifying and stopping risk will not only have more productive employees, but they will ultimately attract and retain more talent. No one should think that financial crime is going to dissipate in 2021. In fact, the engine is probably only starting to rev with the new wave of PPP loans being processed.
While we will have to wait and see on what the year will bring in terms of the newest financial crime and fraud schemes, the financial institutions that have an organized and efficient adverse media searching and monitoring solution will be the ones who will ultimately identify and stop the risk first.
