Adverse media searches urged as way of combating money laundering and financial fraud
Jump to:
 |
Regulations kick in |
 |
Offering guidance on adverse media searches |
Adverse media searches (sometimes called negative news searches) have become a critical part of the due diligence process for financial institutions and other organizations as an efficient approach to avoid potential alliances with criminal organizations and illicit actors, especially those who could be involved with money laundering, funding terrorism, or other financial crimes.
Adverse media searches, in fact, are being driven by regulators both in the United States and around the world after such searches have become a required part of due diligence, necessitating that organizations decide how to implement such searches with the right skills and proper tools that can sift through a high volume of available data.
Traditionally, the process of searching through data to determine if someone seeking banking services is a legitimate customer and not involved with illicit activity has long been a practice at many financial institutions. However, the use of these searches was greatly accelerated over the past few years as more advanced digital tools made them quicker and easier, and new regulation mandated that organizations make strident efforts to know with whom they are doing business.
It’s important to note that the specific regulations and requirements may vary by jurisdiction and industry regarding adverse media searches, and that organizations themselves are responsible for staying informed about the regulatory landscape applicable to their operations and implementing measures to ensure compliance. In addition, privacy and data protection laws must be considered when conducting adverse media searches in order to protect individuals’ rights and privacy.
Regulations kick in
In 2018, adverse media searches got their first regulatory boost with a new compliance requirement on customer due diligence (CDD), which was implemented by the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN). The new law underscored financial institutions’ strict obligation to report on possible financial crime attempts by their clients. Further, the new rules required financial institutions to continuously monitor media sources as an ongoing obligation in order to identify any new negative information related to their customers.
Within the realm of CDD, there are specific requirements that include know your customer (KYC) rules, anti-money laundering (AML) practices, and countering the financing of terrorism (CFT).
KYC regulations, for example, mandate that businesses verify the identity of their customers, especially during the customer on-boarding process, during which financial institutions are legally obligated to conduct adverse media searches. These searches usually entail scanning global media sources for evidence of a customer’s involvement in suspicious activities, such as associations with drug syndicates, human trafficking, or terrorism.
AML and CFT regulations, on the other hand, are designed to prevent and detect money laundering activities. In these cases, adverse media searches can help financial institutions comply with AML/CFT requirements by identifying potential high-risk individuals or entities involved in financial crimes or funding terrorism.
Offering guidance on adverse media searches
More recently, the European Union’s sixth AML Directive (AMLD6), which took effect in 2021, requires clients from high-risk regions to undergo adverse media searches when seeking banking services in Europe. To help guide financial institutions’ searches, AMLD6 listed 22 predicate offenses that are commonly followed by those attempting to launder money. AMLD6 also introduces stricter penalties — including individual criminal liability — for companies and individuals who fail to detect and prevent money laundering activities.
Two other areas in which adverse media searches have become vital — sanctions compliance and financial fraud prevention — also have increased the use of these searches by companies and financial institutions. Indeed, conducting adverse media searches have become one of the main ways organizations can comply with international sanctions regimes because these searches help identify individuals or entities that may be subject to sanctions imposed by governments or other regulatory bodies.
And with fraud prevention, adverse media searches have proven extremely useful by identifying negative information about individuals or groups, allowing organizations to reduce the risk of falling victim to their fraudulent activities.
Two regulatory entities — the inter-governmental Financial Action Task Force (FATF) and the Office of Foreign Assets Control (OFAC) — also have pushed adverse media searches as a way to robustly address risk in these areas.
The FATF, which sets international standards for combating money laundering and terrorist financing, advocates a risk-based approach that makes financial institutions responsible for identifying, assessing, and understanding money-laundering risks. The FATF has published recommendations to assist institutions in identifying high-risk individuals or entities. And in a sign of on-going regulatory focus, FATF has now issued newer guidance around monitoring cryptocurrency and other virtual assets.
OFAC, also a part of the U.S. Treasury, administers and enforces economic and trade sanctions against targeted foreign countries and regimes. OFAC has said that adverse media searches help financial institutions and other organizations comply with its regulations by identifying entities or individuals on international sanctions lists.
The goal of all this — and adverse media searches in general — is to allow financial institutions and other organizations to create an accurate customer risk profile to better protect themselves against potential threats to institutions’ reputation and brand as well as to keep them compliant with a growing list of interested regulators.
You can learn more about avoiding the issue of false positives and false negatives in your searches by leveraging innovative adverse media solutions for your business.
Thomson Reuters is not a consumer reporting agency and none of its services or the data contained therein constitute a ‘consumer report’ as such term is defined in the Federal Fair Credit Reporting Act (FCRA), 15 U.S.C. sec. 1681 et seq. The data provided to you may not be used as a factor in consumer debt collection decisioning, establishing a consumer’s eligibility for credit, insurance, employment, government benefits, or housing, or for any other purpose authorized under the FCRA. By accessing one of our services, you agree not to use the service or data for any purpose authorized under the FCRA or in relation to taking an adverse action relating to a consumer application.
