Adverse media screening is a critical practice in the financial industry, particularly in relation to anti-money laundering (AML) compliance. In this article, we explain what adverse media screening is, why it’s an essential AML tool, and some best practices to help your business integrate it effectively into your current AML compliance strategy.
What Is Adverse Media?
Adverse media, also known as negative news, is publicly available information that signals illegal or unethical activities tied to an individual or a company. It might include news reports, blog posts, social media posts, or any other form of media that negatively portrays a potential customer or business partner.
To carry out adverse media screening, financial institutions typically follow a multi-step process:
- Data Collection: Relevant data about the customer or business partner is collected from various sources. The data usually include names, addresses, and other identifying information as part of the standard Know Your Customer (KYC) process.
- Adverse Media Check: Using the collected data, the business then checks various media sources for any negative information about the subject. This can involve scanning newspapers, blogs, websites, social media platforms, and other public sources. Many businesses use databases and search platforms developed to streamline AML adverse media screening.
- Risk Assessment: If adverse media is found, the next step is to assess the severity of the risk. A risk assessment considers the type of negative information, its veracity, its timeliness, and its potential impact on the individual or business.
- Alerts and Action: If a severe risk is identified, an alert is generated. Depending on the institution’s policy and the severity of the risk, various actions can be taken, ranging from increased monitoring, to reporting the findings via a Suspicious Activity Report (SAR), to terminating the business relationship.
Adverse media screening can be carried out manually or can be automated with the help of specialized software. In either case, the goal is to identify potential risks associated with individuals or businesses and mitigate those risks as effectively and efficiently as possible.
Why Should Financial Institutions Screen for Adverse Media?
Every financial institution has a responsibility to understand its customers. Adverse media screening plays a crucial role in this process and contributes to several key areas of risk management and compliance. AML and CTF regulations such as the USA PATRIOT Act and the Financial Action Task Force (FATF) standards require financial institutions to take measures to prevent their services from being abused for illegal purposes.
Customer Due Diligence and Enhanced Due Diligence
Adverse media screening is a critical part of both customer due diligence (CDD) and enhanced due diligence (EDD) processes. CDD is a basic level of fact-checking that every financial institution should perform when accepting a new customer. If a risk is identified during the CDD process, more detailed EDD checks are required.
Screening for adverse media can also assist financial institutions in meeting these regulatory obligations. For instance, FinCEN’s CDD Final Rule requires not only verification of a customer’s identity but also an understanding of the nature and purpose of customer relationships. Satisfying this requirement often includes checking the customer against various databases, including media sources, to aid in the creation of a comprehensive risk profile.
Adverse media screening is essential for managing reputational risk. Financial institutions need to be aware if they are doing business with individuals or organizations that could harm their reputation. Conducting business with an individual or entity associated with negative news could cause potential clients to avoid your business, and could even lead to existing clients choosing to terminate any association with your business.
Adverse Media Screening Best Practices
Adverse media screening can be a complex process, but there are several best practices that can make it more effective, including the following.
Check a Wide Range of Sources
An effective screening process should check a wide variety of sources, including traditional news media, social media, specialized financial crime publications, and adverse media databases.
Keep Comprehensive Records of Alerts
It’s important that institutions keep detailed records of all adverse media alerts, actions taken, and decisions made. This can help with audit trails and possible regulatory investigations.
Carry Out Screening on Ultimate Beneficial Owners
Often, the ultimate beneficial owners (UBOs) of a company are the people who pose the highest risk. As a result, adverse media screening should always include checks on UBOs.
Be Aware of Politically Exposed Persons (PEP)
Politically Exposed Persons (PEPs) are people who have or have had significant public roles, such as senior government officials, judicial or military officials, senior executives of state-owned corporations, and important political party officials.
Given the nature of their positions, PEPs can wield significant influence, which might lead to increased risks of bribery and corruption. Because of this, PEPs are often subject to enhanced due diligence procedures, which include comprehensive media checks.
Use Adverse Media Screening Alongside Watchlist and Sanctions Screening
Adverse media screening can also complement watchlist and sanctions screening. While it is not common, sanction lists can have lag times in updating their information. The screening of media sources can provide real-time updates and cover a broader range of potential risks that may be missing from sanctions and other lists, making it a valuable tool in preventing financial crimes.
Combine Automatic Screening with Manual Reviews
Automation plays a valuable role in adverse media screening. With the huge volume of data available, it would be nearly impossible to review every source for potential risks manually. Automated tools can scan vast quantities of data much faster and more accurately than a human ever could, saving time and resources.
However, automated systems, while useful, are not foolproof. They may sometimes raise false positives and flag innocent individuals or companies as potential risks. That’s where manual review comes in.
Manual reviews by trained analysts interpret the results from the automated screening, distinguishing between true and false positives and making informed decisions based on their expertise and experience. Combining automated screening with manual reviews helps financial institutions streamline their adverse media screening process while maintaining accuracy and thoroughness.
Conduct Ongoing Screening for Existing Customers
Adverse media screening should not be a one-time process. Financial crime is dynamic: New threats emerge, and old ones evolve. A customer who initially appeared low-risk could be implicated in illicit activities at any time. Continuous monitoring of existing customers is a key aspect of a robust adverse media screening program.
The Inefficiencies of Manual Screening
Effective manual screening for adverse media in today’s world is impossible. Manually scouring the internet for mentions of a client on blogs, websites, social media posts, YouTube videos and traditional news media sources, such as television and radio, would be time-consuming for a single customer, let alone doing so for all new and existing customers. There are too many possible mediums and sources of information to manually monitor effectively.
How Alessa Can Help
Adverse media screening is a key tool in the fight against financial crime. With the right processes and tools in place, it can help protect financial institutions from potential risks. As part of the Alessa integrated AML compliance software solution, we have partnered with CLEAR Adverse Media from Thompson Reuters to screen for adverse media for our clients.
As a result of our partnership with Thompson Reuters provides our media screening with:
- Transparent holistic data from millions of global sources
- Relevancy scoring of data sources
- Underlying sources
- API integration
- Narrowed search results
- Global coverage
To learn more about our adverse media screening solution, or our AML compliance platform as a whole, contact us today.