Money laundering is a massive problem. In the United States alone, it’s estimated that criminals launder nearly $300 billion every year. Globally, the United Nations estimates that figure is closer to $800 billion to $2 trillion.
The effects of these activities are wide-reaching. Money laundering makes it possible for illegal enterprises to spend their ill-gotten gains in the global financial system, which enables them to continue their activities. And perhaps most importantly, money laundering reduces the tax revenues that a government is able to collect, which has a direct impact on the public services those governments are then able to provide to their citizens.
All of this is to say that governments have incredible incentive to prevent and stop money laundering whenever possible — which is why countries around the world have adopted strict anti-money laundering (AML) laws and regulations.
In the United States, the most important of these laws include the Bank Secrecy Act and the USA PATRIOT Act, among others. Internationally, the Financial Action Task Force (FATF) has released a list of 40 recommendations that governments are encouraged to implement to reduce the risk of money laundering and other financial crimes.
These laws have established a number of requirements that businesses operating in industries with a high risk of money laundering — such as financial institutions — must comply with. Failure to comply with these requirements can lead to a variety of regulatory actions, including significant fines and even jail time.
One of the requirements is that businesses subject to AML laws must perform AML screenings.
Below, we take a closer look at what AML screenings are and how they work. We also walk through the different types of AML screenings you should be aware of as you craft an AML strategy for your business.
What is AML screening?
AML screening refers to the processes a company must complete to evaluate the money laundering risk posed by each customer. In addition to verifying a customer’s identity during the account creation process, AML screening also involves cross-checking customers against relevant lists and databases, such as sanctions lists, watchlists, politically-exposed person lists, and more.
It’s important to note that this screening, in and of itself, does not meet all of the AML requirements that businesses are responsible for completing. A comprehensive anti-money laundering program should also include transaction monitoring, the continuous reevaluation of customer risk, and more.
How does AML screening work?
The AML screening process will differ slightly from business to business. Generally speaking, though, it will look something like this:
When a customer first seeks to open an account, they are required to provide information that’ll be used to verify their identity. This includes their name, date of birth, address, and Social Security number or TIN. Once collected, the information must be verified — for example, through government ID verification, document verification, database verification, or a combination of methods.
Additionally, financial institutions must get a sense of how much money laundering risk each customer poses. They accomplish this by cross-checking the information provided by the customer (name, date of birth, SSN, etc.) against certain authoritative databases and lists. This includes watchlists, sanctions lists, and databases of politically exposed persons (PEPs). It can also include conducting an adverse media screening, among other types of reports.
If one of these reports indicates that a customer is someone the financial institution should not be doing business with — for example, someone on a sanctions list, watchlist, or who is otherwise a known money launderer — they will be prevented from opening an account.
If a report indicates that they are a high-risk individual — for example, they are politically exposed — the institution must make an informed decision as to whether or not they should be granted an account. If they are allowed to open an account, the institution will need a plan in place for ongoing monitoring, which may be more stringent than the monitoring conducted on lower-risk customers.
Once a customer has opened an account and been onboarded, that doesn’t mean the AML screening process is complete. Watchlists, sanctions lists, and other reposts constantly change as some people are added and others fall off. With this in mind, financial institutions must continuously cross-check their customer database against these lists to ensure that risk profiles have not changed.
AML checklist
In addition to identity verification and the types of AML screening discussed above, all AML programs must meet certain requirements known as the five pillars of AML compliance. Below is a quick AML checklist you can use as you design your program:
- Designate a compliance officer.
- Develop written internal policies.
- Educate employees and develop a training program.
- Schedule an independent, third-party review.
- Deploy risk-based procedures for conducting customer due diligence.
Types of AML screening
Below, we take a closer look at different types of AML screening you may want to consider weaving into your broader AML program.
Sanctions list check
A sanctions list is a list maintained by a government or international organization that contains information about individuals, corporations, and other entities that are affected by government sanctions. In addition to a person’s name, sanctions lists also often contain other information such as their:
- Aliases
- Date of birth
- Place of birth
- Nationality
- Identification numbers
In the United States, important sanctions lists to be aware of include those maintained by the:
- Office of Financial Assets Control (OFAC)
- Department of State
- Department of Commerce
Foreign governments and international organizations also maintain their own sanctions lists. Some of the most important of these include those maintained by the:
- United Nations
- World Bank
- European Commission
- Monetary Authority of Singapore
- Her Majesty’s Treasury (UK)
- Government of Canada
Failure to run an adequate sanctions list check can lead to major ramifications. Doing business with a sanctioned individual or entity — even unknowingly — can result in significant fines, formal investigation, and jail time.
Watchlist check
A watchlist is an official list that contains information about known or suspected criminals, terrorists, money launderers, or individuals known or suspected to support these criminals. With this in mind, watchlist checks are an important part of fighting not only money laundering, but also the financing of terrorism, as well as other crimes.
Watchlists contain much of the same information you’d find in a sanctions list, including an individual’s name, aliases, date of birth, and other important identifying information. Watchlists are maintained by a variety of entities, from law enforcement agencies to governments, international organizations, and other regulatory bodies.
In the United States, some important watchlists to reference include those maintained by the Department of Foreign Affairs and Trade (DFAT), Department of Homeland Security (DHS), FBI, OFAC, FDA, and FinCEN, amongst others. Some international watchlists of note include those maintained by Europol, as well as various “most wanted” lists compiled by governments around the world.
Politically-exposed persons (PEP) check
A politically-exposed person (PEP) is any individual, foreign or domestic, that maintains a high-ranking position of power — as well as their families and close associates.
Due to their power and influence, politically-exposed persons are considered a higher risk of being involved in financial crimes such as money laundering, bribery, and corruption. Even if a PEP is not known or suspected to have engaged in such activities, their position is a risk factor that must be taken into consideration.
Understanding a customer’s political exposure makes it easier for your business to construct an accurate risk profile of that individual. It may also trigger additional risk management protocols vs a non-politically-exposed customer.
Unfortunately, there is no single definition that determines who is and is not a PEP. Each government is allowed to make this determination on their own. With this in mind, there is no single PEP database for you to cross-check an individual against. Getting an accurate picture of a customer’s political exposure will likely require you to check multiple databases depending on the information you know about the individual.
Adverse media check
An adverse media check is the process of looking for negative news about a prospective or current customer that might indicate they carry a higher risk of money laundering or other financial crimes. If someone is trying to open a new account at your bank, for example, and an adverse media check shows that they were previously arrested for money laundering, it’s natural to assume that that individual might pose a higher risk for similar activities in the future.
Adverse media checks typically involve searching through various news, internet, and media databases for mention of the individual, alongside certain keywords. While this can be done manually, it is often prohibitively time-consuming and expensive to do so at scale. With this in mind, most adverse media checks are conducted via automation.
Adverse media screenings can also act as a backup to your other AML checks, helping you identify individuals who are politically exposed, sanctioned, or included in a watchlist.
AML screening shouldn’t be one-size-fits-all
Here at Persona, we understand that AML compliance should not be a one-size-fits-all endeavor. Just because something works for one business doesn’t mean it will work well for all businesses. A high-quality AML platform will be one that gives you the flexibility to design identity verification and screening processes that make the most sense for your business.
With our Verifications solution, you aren’t limited to certain types of verification. Select whichever option provides you with the coverage you need — from government ID verification to document verification, database verification, and more. Use our Reports solution to supplement your AML process as necessary with watchlists, sanctions lists, and adverse media checks, amongst others. Leverage dynamic risk segmentation to cater your AML and identity verification processes on a case-by-case basis depending on the level of risk you identify in each interaction.
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