Why is Negative News Screening Crucial for Financial Institutions in the Fight Against Financial Crime?
Think for a moment that your financial institution is growing at a rapid pace, everyone is talking about the growth your business is making. But suddenly from nowhere, the regulatory body finds out that one of your clients has been linked to the criminal’s activities such as money laundering or other financial crimes. The single loopholes in your business can destroy your years of hard work. In case, your organization does not implement the AML regulations to stop mitigating such cases, your organization can face millions of dollars in fines.
That is the reason, the international regulatory bodies obliged financial institutions to integrate the AML screening solution into their business operations. Negative news screening is one such solution that helps you stay updated with the latest criminal news. With the real-time negative news monitoring system, you can protect your business from unknowingly associating with risky individuals or companies.
A Must-Have for Financial Institutions
Banks, credit unions, and other financial institutions deal with bigger risks when it comes to money laundering. That’s why negative news screening is so important. It’s not just about checking off a box for compliance, it’s about protecting your business and its reputation. Done right, this simple yet powerful tool can help you avoid bad partnerships and build a stronger, more secure organization.
The Role of Negative News Screening in AML Compliance
All the AML regulations are implemented with the same purpose and that is to reduce the chance of money laundering and terrorist financing. The regulations related to the negative news also serve the same. But what happens if any financial institutions do not take these regulations seriously and let the criminals launder money? In such circumstances, the organization may have to face millions of dollars of fines for not following the AML regulations. By using adverse media monitoring tools, financial institutions can ensure they are not unwittingly providing services to high-risk clients who may be involved in illicit activities.
1. Detecting Criminal Activity
There is a common perception that if a person is involved in one criminal activity, the chances of his involvement in another activity are higher. When financial institutions screen against negative news, it has the data of the person involved in any criminal activities. This helps them identify the people with the intent to make business relations for money laundering and other financial crimes.
2. Managing Reputational Risk
The reputation of any business is more valuable than any other thing. Because a single negative association can harm the reputation in seconds, and damage the respect your business earns over the years. Therefore, screening against negative news helps financial institutions to identify the individual or group of people involved in scandals and criminal activities. Let’s understand it with a real-life example of Danske Banks, one of the largest banks in Europe.
The bank was accused of facilitating the transfer of $200 billion in suspicious transactions, primarily through its Estonian branch. The public fallout from this scandal led to massive fines, legal challenges, and a significant loss of reputation. If banks had screened their customers against the negative news, the result might have not been the same for the organization.
3. Identifying Politically Exposed Persons (PEPs)
Who could be more at risk than the people holding the public officers? There might be ones, but the risk a politically exposed person poses can never be neglected by financial institutions. If the name of any PEP is printed in the negative news, this could be more challenging for the financial institutions if they are already in a relationship with them. Because due to their potential for corruption and bribery, PEPs are often seen as high-risk clients.
Negative news checks can help uncover any illicit activities tied to PEPs, such as corrupt practices or misuse of power, which may signal a need for enhanced scrutiny. In the case of HSBC, which was penalized $1.9 billion for inadequate AML controls, including failing to detect suspicious transactions tied to PEPs.
How Negative News Solutions Work
Negative news is the data of a person who is involved in any criminal activity. The databases include the previous history and their criminal record. The following are the types of news screening that can help businesses mitigate the money laundering chances at an early stage.
- Pre-onboarding screening: assessing the level of risk any person poses before the onboarding process is very helpful and with the pre-onboarding screening, firms can ensure that new customers or business partners do not have any negative associations before they are brought on board.
- Ongoing monitoring: Screening solutions such as AML Watcher adverse media screening solution screen the people in real-time and alert the red flags if any news erupts about the clients.
- Sanctions and watchlist screening: In addition to negative news, this process involves cross-referencing client names with global sanctions lists and politically exposed person (PEP) databases.
Finding it hard to stay updated with the latest negative news? Connect with AML Watcher to advance adverse media screening solutions and get an alert if any of your clients are in negative news.
