Adverse media screening is associated with monitoring for negative news and reputational risks on a person or business as part of a company’s onboarding, KYC and AML process. The screening can be conducted manually which is usually more time-consuming and yields limited results or batch screening technology can be applied. Batch screening helps evaluate and identify the most relevant content in a quick and cost-effective manner and overcome potential language barriers, resulting in a global overview of the subject’s coverage that otherwise might have been unnoticed.
Adverse media screening can reveal involvement with various wrongdoings – from terrorism, organized crime, modern slavery, financial crime and fraud, bribery and corruption, to emerging types of crime, such as cybercrime as well as many other possible offenses. Such linkages of a potential client, distributor, intermediary or investor can pose a serious reputational challenge for a company’s business reputation and lead to legal and regulatory proceedings.
Sources of adverse information include public data sources, media outlets – both online and offline, press releases by government bodies, publications by NGOs, investigative journalists, watchlists, blacklists and additional sources.
Regulatory requirements for adverse media screening
Several regulatory bodies and institutions globally have emphasized on the importance and benefits for mitigating risks of adverse media screening. For example, the EU’s 4th Anti Money Laundering Directive requires businesses to perform adverse media searches for natural persons or legal persons established or residing in high-risk countries and other high-risk situations. The Directive also mentions adverse media screening in the context of enhanced customer due diligence for high-risk clients which includes “open source or adverse media searches or commissioning a third-party intelligence report”.
The intergovernmental organization in the field of anti-money laundering policy making – the Financial Action Task Force (FATF) lists “verifiable adverse media searches” in its enhanced due diligence and simplified due diligence measures in its guidance for a risk-based approach in the banking sector.
Furthermore, US’s Financial Crimes Enforcement Network (FinCEN) indicates in its bulletin “adverse media, negative news, and other forms of derogatory information continue to trend as a basis for submitting a suspicious activity report (SAR)”.
Conducting effective adverse media screening
The first step for conducting effective adverse media screening process is leveraging technology and automated screening techniques. As mentioned above, manual negative media checks have limited effectiveness and are time-consuming, especially when running a fast-growing business with a strong inflow of new customers or a business having multiple partners worldwide. Apart from yielding more accurate results, automated solutions also contribute to less false positives during the screening process.
The second step for effective negative media checks involves checking any aliases of the subject and analyzing global multilingual coverage. Multilingual checks are very important for regions such as MENA and APAC where the subject’s name in English may have multiple local aliases and without checking them as well, the results may be incomplete. For effective screening, it is also important to select a screening solution which also supports automated alias checks, not just name checks, so any important information associated with an entity or an individual can be uncovered.
The third step is using categorization, as not every positive result for adverse media coverage has the same importance for the subject’s risk profile. The categorization of adverse media can be made easier by setting up categories of offenses as defined in international and national legislation or a company’s internal compliance policy. This would allow for easier interpretation of the adverse media coverage and segmentation of customer risk profiles.
The fourth step is checking the credibility and independence of the source of negative news. Adverse media sources can be broadly separated into two groups – official (derived from government and institutional) sources and non-official (derived mostly from media outlets) sources. Thus, coverage of the key institutions and regulators in multiple jurisdictions is a strong asset for negative media screening. However, when it comes to unofficial sources, it is important to note that the lack of news coverage on criminal convictions alone might not be enough to discount crime allegations.
The final good practice involves using an ongoing monitoring solution which allows the tracking of the news flow associated with clients constantly and ensure the consistency of their risk profiles. The ongoing monitoring functionality puts one in a position where they can review adverse media screening results and update risk profiles for any changes as an apparently harmless news allegation may evolve and require a more serious compliance response.
Consequences of a positive adverse media match
A positive adverse media match usually leads to a higher risk rating of the subject’s risk profile which could result in the filing of a suspicious activity report; conducting further enhanced due diligence; or, terminating the business relationship. The action taken is dependent on a company’s risk and compliance policy. This is how adverse media screening can help mitigate reputational and regulatory risks for business, but also – this type of screening provides the intelligence necessary to handle any business relationship – both expected and existing.
Whilst there are clear regulatory requirements to perform on-going screening of a business’s relationships for any potential changes throughout the relationship, it also makes good business sense from a reputational risk perspective. The culture of compliance should focus on the bigger picture of seeking to ensure ‘bad actors’ are not able to integrate ‘dirty money’ into the financial system and on-going screening using high quality data sources is a fundamental component of a business’ overall risk mitigation framework.
By Nick Parffit, Acuris Risk Intelligence