Watchlists are databases kept on government or international levels containing records of fraudsters, money launderers, PEPs, and terrorists. These individuals may exist anywhere from agriculture, finance to the health sector. Watchlists are compiled by law enforcement, financial institutions, and regulatory agencies to ensure that criminals are not hiding in the system or using it to further an illegal agenda. Therefore, watchlist screening enables institutions and corporations to check their customer compliance to avoid being used by criminals to commit crimes.
The Federal Bureau of Investigations even maintains its own proprietary terrorist watchlist and screening center. According to the FBI’s website, “[t]he Terrorist Screening Center, a multi-agency center administered by the FBI, is the U.S. Government’s consolidated counterterrorism watchlisting component and is responsible for the management and operation of the Terrorist Screening Database, commonly known as “the watchlist.”
The advancement in technology in the digital space has led to an increased level of criminal activity. A development such as the decentralized cryptocurrency systems has provided opportunities for money launderers to evade AML watchlists. In 2019, for example, over 2.7 billion dollars were laundered by criminals in the form of Bitcoin cryptocurrency. In general, the United Nations estimates that up to $2 trillion are laundered yearly around the world (Lazic, 2021). This is a large amount of money made from illegal activities.
The amount of money laundered each year shows the fast rate at which criminal activity is rising and the weakness in criminal oversight or the general negligence of institutions to comply with anti-money laundering regulations. This is why regulatory demands continue to increase, and states enact new laws every day to keep up with the rising crime rate. Therefore, organizations face the challenge of monitoring, assessing, and disclosing risks among their clients while still striving to maintain a competitive advantage.
Three major watchlists exist:
- PEP – any person who holds public office who is at risk for bribes or corruption offenses or connection to said offenses
- Terrorist watchlist – a watchlist that contains past offenses of persons involved in committing, associating with those who, commit terrorist acts
- Adverse Media Watchlist – any negative or potentially damaging media reports about a subject
How PEP, Terrorist, and Adverse Media Watchlists Work?
PEP, terrorist, and adverse media watchlist screening aims to reduce the risks of working with criminals, onboarding bad actors, and ensuring an organization complies with antiterrorist and anti-money laundering regulations on local, state, and international levels. We must recognize the risks of these crimes to understand the importance of this process.
The risks to banks and financial firms include:
- Legal risk
- Regulatory risk (fines)
- Reputation risk
Legal Risk
This is the risk that an organization incurs by violating sanction legislation; it can happen when a company or an institution works with a customer with a record in a national or international sanctions list. The consequences of this include incurring heavy fines or imprisonment.
Regulatory Risk
Regulatory risk is incurred when a company fails to comply with anti-money laundering (AML) regulations. The penalties to this violation include penalties such as large fines and costly AML compliance projects.
Reputation Risk
In today’s digital-first world, digital information technology has raised the level of media coverage and potential for a reputation risk to companies that don’t comply with AML regulations. Information spreads like wildfire. The media will widely publicize money laundering and terror crimes including associates or customers that companies employ. Those that commit these offenses or fall victim to them are most likely to lose their reputation on a global scale. It is, therefore, less risky to ensure compliance through screening than salvaging a damaged reputation.
How Identity Verification Services & Watchlists Work?
Identity verification services and watchlist screening involves conducting identity verification for individuals before conducting business with them or offering services. The watchlist screening process is mainly conducted by third-party vendors with AML risk management and know your customer (KYC) software. These tools are used to search through reliable data to verify client identity and ensure their legitimacy. For example, Fiserv is a watchlist screening vendor serving over 1000 clients worldwide with its software Fiserv Risk Manager. The primary requirement for watchlist screening is access to a reliable database. These are some of the valuable databases in this field:
Sanction lists– Sanctioned organizations are suspected to be carrying out crime operations. Common sanction lists include UN consolidated lists, OFAC sanction lists, and EU consolidated lists.
Regulatory databases– these are records containing organizations or individuals with records of crime operations and penalties. They exist on a national and global level and are helpful in watchlist screening. They include the World Bank Ineligible Firms, EU Terrorism list, Denied Person list, among other records.
Adverse Media data– these records include media coverage on crimes such as fraud, cybercrimes, financial violations, arms dealerships, and narcotics. Adverse media screening involves searching media records for negative data on individuals and organizations that reveal an individual’s or organization’s criminal history.
How Does PEP, Terrorist & Adverse Media Screening Happen?
Secure Connection to Encrypted Databases
Information is key to successful screening. Connection to sanctions, PEP(PEP), AML, and adverse media databases provide the software with information to screen. AML and identity verification services that have broader access to data are more likely to succeed in providing quality match rates for clients.
Contact one of IDMerit’s identity specialists to learn more about our AML solutions for banks.
Identity Verification
Identity verification services, and their systems, need to have a dedicated, experienced, team that is able to actually apply the rigorous ‘first pass’ review process and understand red flags that may hint at a geolocation issue, a spoofed or synthetic identity fraud attempt or just plain manual error. These types of attempted incursions follow patterns and criminals have specific typologies (a term often used by the Federal Bureau of Investigation and law enforcement personnel).
Knowledge of specific features or personal associations also may help an identity verification service provide you the best match rate. Cross-referencing one or more databases with known criminals or those who have shown up on adverse media lists may also improve the security and strength of your onboarding process.
Watchlist Screening
Watchlist screening matches the verified identity with the records in several databases accessed by identity verification services. Different vendors offer screening tools with fast speed and access as well as any information running back and forth is encrypted.
Your watchlist screening tool should provide reliable, and independent, sources that are frequently updated, thus giving clients access to new and reliable information from which to screen and make onboarding decisions.
The Screening process
We will now provide a guide on how the screening process works. Note that this screening process may vary with the identity verification service being utilized.
The first step is the preparation process. Customer and vendor information, including the records from the PEP, AML, and sanction lists, are prepared and standardized to ensure they are the best match for the screening candidate. Preparation and data cleansing is crucial to prevent false matches.
The second step is where nicknames, aliases, and other names identified in the records are included in the screening to broaden the search process. (Note that criminals use every method to disguise themselves from criminal oversight possible so check, but verify). Therefore, the screening process should utilize both a stringent identity document validation and know your customer verification process.
Thirdly, the screening tool matches the records available, including spelling errors, missing information, unnecessary or false data, and acronyms. It is, therefore, best that the data entry team is keen on what they include in the search to avoid inaccurate outcomes and false matches. These can be extremely costly to an organization.
Data reviewing is the last step where the screening team analyzes the search results with the help of software case management tools (Innovate Systems, 2021). A comprehensive identity verification service provides your organization with on-demand reporting, audit trails, and management dashboards (or they can provide pdf documentation) to ease the data review process.
Contact one of IDMERIT’s identity specialists to learn more about watchlist screening and protecting your organization.
Why are PEP, Terrorist, and Adverse Media Watchlists So Important for anti-money laundering Efforts?
Emphasis On Adverse Media Screening by Regulatory Agencies
Financial regulatory agencies worldwide have recognized the importance of adverse media screening in reducing money laundering risks. For example, the Financial Action Task Force (FATF) identifies negative media searches as helpful information for high-risk customers. This agency advises organizations to run media searches on potential clients to understand them before working with them.
Now more than ever, it is much easier to find adverse media on one or more corporate officers orPEP(PEP) with the stroke of a finger on Google or YouTube. ”67% of the Association of Financial Specialists (ACFS) find adverse media screening a source of reliable data on money laundering.” (Thomson Reuters, 2021). It is, therefore, easier to find money laundering information on clients by conducting due diligence searches.
Regulatory agencies are also becoming more serious in helping financial organizations fight money laundering. Another agency that recommends adverse media searches for customer screening is the U.S. Financial Crimes Enforcement (FinCEN). This agency provides regular guidance notices and advice on how to implement new laws and compliance guidelines. The European Commission in 2017 also introduced a new website whereby financial sanctions lists can be published and made available in different formats.
Reliable Watchlist Data
Watchlists are becoming not only more reliable but necessary during the onboarding process. Researchers and analysts are going a long way to gather and evaluate necessary risk profiles, and background information. With the help of automation tools, information is updated regularly and accurately, thus improving the accuracy of screening processes.
Regular pre-check data cleansing, analysis, and understanding red flags in data submissions and the continuous lack of this exercise has costed millions of dollars to corporations and those failing to get proper match results.
This type of faulty data increased the need for watchlist organizations to put into gathering and analyzing the proper information and reliable data sources. IDMERIT completes this task for you which allows your bank or financial institution to receive match results quicker and will less worry about the risk of false matches and errors.
Risk-based Screening Approach
The risk-based screening approach involves filtering, which means deliberately selecting the names to use in the screening process. Then prioritizing the screening results, such as paying attention to aliases, transpositions, and acronyms to obtain sanctions and PEPresults. It is essential to note that new technology is improving the efficiency of risk-based techniques, thus improving the chances of matches.
What is clear is that organizations need to provide data to a trusted source that has many years of experience in identity verification tools and services to receive proper, unbiased, and error-free risk profiles in order to comply with anti-money laundering laws and frameworks.
Final Thoughts
Money laundering remains a threat to the quality of financial institutions and a challenge to law enforcement and regulatory agencies. PEP, terrorists, and adverse media watchlists provide helpful information in fighting this challenge. Through screening, financial institutions can verify customer credentials and screen them against the comprehensive database to protect themselves against money laundering criminals. This is, of course, made possible by AML and KYC software available by a ton of vendors worldwide.
Adhere to Global AML and KYC Compliance Obligations with IDMaml
IDMaml is designed to help minimize the risks associated with money laundering and other illicit activities. Our platform and risk-mitigation solutions will help your organization build a robust compliance program while substantially reducing fraud and loss.
Our anti-money laundering solution, IDMaml will help you:
- Comply with anti-money laundering Directives in the EU: 4AMLD, 5AMLD, and 6AMLD
- Level 1 Compliance Screening
- US Laws & Regulations: FINRA Rule 3310, the Bank Secrecy Act, and FinCEN guidance notices that dictate the laws and compliance regulations in your region
- Meet anti-money laundering (AML) and Know Your Customer 2+2 (KYC 2+2) requirements
IDMaml Gives You Access To PEP, Counter-Terrorist, & Adverse Media Watchlists
- PEP and OFAC Sanction lists
- UN, HMT, EU, and DFAT Sanction lists
- FBI and police/law enforcement databases
- Interpol, foreign federal and state government agencies
Contact one of our identity specialists to Schedule a Demo of IDMaml today.
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About IDMERIT
Headquartered in San Diego, California, IDMERIT provides an ecosystem of identity verification solutions designed to help its customers prevent fraud, meet regulatory compliance and deliver frictionless user experiences. The company is committed to the ongoing development and delivery of offerings that are more cost-effective and comprehensive than other solution providers. IDMERIT was funded by experts who have been sourcing data on personal and business identities across the globe for over a decade. This access to official and trusted data throughout the world has become increasingly important as companies find themselves completing transactions across borders as a standard course of business. www.idmerit.com
References
Berdah, E. (2020, February 9). The basics – retargeting and lookalikes for higher education. Fixel. https://fixel.ai/blog/the-basics-retargeting-ads-and-lookalike-audiences-for-higher-education/.
DowJones. (2008). The New Step by Step Approach to Client Screening (p. 22). http://factiva.com/en/cp/collateral/files/djwl_whitepaper_en.pdf
Innovate Systems. (2021). AML Sanctions, PEP Screening & Watch List Alert Software. https://www.innovativesystems.com/finscan-watch-list-and-pep-screening
Lazic, M. (2021). 27 Informative Money Laundering Statistics in 2021. https://legaljobs.io/blog/money-laundering-statistics/
Thomson Reuters. (2021, March 8). Adverse Media Screening-Using AI to Mitigate Risk | Thomson Reuters. https://legal.thomsonreuters.com/en/insights/white-papers/adverse-media-screening-harness-the-power-of-ai-to-mitigate-risk
