A Guide to Anti-Money Laundering for Crypto Firms

What is Adverse Media

Adverse Media Knowledge & Training

Adverse media, or negative news media, is defined as any kind of unfavorable information found across a wide variety of news sources – including both ‘traditional’ outlets and unstructured sources such as websites or social media platforms. From a compliance perspective, there may be increased risk in conducting business with persons featured in adverse media stories.

Where Does Adverse Media Come From?

Adverse media can originate from a range of sources, including traditional news media like newspapers (in print and online formats) and from broadcast news radio and television. However, negative news stories are increasingly emerging from non-traditional and even disruptive sources such as internet blogs and posts, and unstructured feeds such as social media platforms and forums.

The Implications of Adverse Information

One of the most common types of adverse media information concerns an individual’s past criminal activity. If there is an established historical suspicion that a person was involved in financial crime, or authorities discover that they were previously caught for committing an offense, there may be more reason to suspect that individual is involved in ongoing criminal activity.

By contrast, if a person has no criminal history and is not known for associating with individuals who do, it may be safer to assume they present a lower risk of involvement in financial crimes such as money laundering 

Adverse media information may also reveal a person’s designation on international sanctions lists. Sanctions designations suggest that a person has been determined by government authorities to be involved in serious criminal activity, including financial crime – and therefore presents a much higher regulatory compliance risk. 

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Why Do I Need to Do Adverse Media Checks?

Adverse media checks may reveal involvement with money laundering, financial fraud, drug trafficking, human trafficking, financial threats, organized crime, terrorism, and more.

These criminal links pose a serious threat to firms’ professional reputations and can lead to legal repercussions, especially if these firms operate within a regulated sector.

Accordingly, financial institutions that are required by regulation to implement KYC policies must be constantly vigilant for their customers’ involvement in relevant adverse media stories.

Why is Automating Adverse Media Checks Essential?

Despite the pressing need for efficient, effective adverse media monitoring, legacy and manual screening solutions present significant challenges for modern compliance teams.

Traditional processes usually group customers into low-, medium-, and high-risk ‘buckets’. This is a problem for the following reasons:

  • To be compliant with basic EDD requirements, high-risk clients must be monitored on an ongoing basis. However, the processes by which people are classed as high-risk, and subsequently monitored, often leave much to be desired.
  • Institutions often use manual internet searches, “googling” news articles to search for negative news involving individual high-risk clients. Compliance staff must then review potential matches to determine whether the person named in the media stories is actually the individual they are investigating. This type of search is labor-intensive and entails high compliance costs.
  • The limits inherent in manual monitoring also mean that media sources may be missed during searches. Moreover, manual searches provide only a static snapshot of risk; in a world where media coverage updates by the second, this is inadequate.

Adverse Media Best Practices

The media landscape is fluid and fast-moving, which makes capturing relevant negative news stories a challenge for many businesses. In order to optimize the adverse media screening process, firms should be familiar with the following best practices: 

  • Customer screening: In order to detect relevant adverse media stories, firms should ensure that they screen not only their customers but related account parties and the beneficial owners of firms or other corporate structures involved in transactions. 
  • False positive remediation: Firms should consider their capacity for dealing with false positive adverse media alerts. The threshold they set for matching customer names with similar names featured in new stories will directly affect how many false positive alerts are generated. The false positive threshold is an important compliance consideration and firms must balance their regulatory obligations with their risk appetite and resources.
  • Record-keeping: Every adverse media alert should be logged and kept on record so that other compliance employees are able to reference the reason for that alert in subsequent analysis. Bear in mind that false positive alerts must also be recorded. 
  • Media relevance: Adverse media stories should be assessed for their relevance to a company’s compliance priorities. This means determining how the story relates to a money laundering concern such as an allegation of government corruption, or a sanctions violation. For example, the EU’s Sixth Anti-Money Laundering Directive (6AMLD) sets out a list of money laundering predicate offenses. Firms operating in the EU must adjust their adverse media screening solutions accordingly to capture a broader spectrum of stories relevant to their expanded compliance priorities.  
  • Media categorization: Different types of adverse media represent different levels of money laundering risk. With this in mind, firms should seek to organize the stories they capture into AML risk categories in order to better gauge the threat that they present. Financial crime-related stories, for example, may represent a greater AML concern than other types of crime-related stories – a factor which may affect a firm’s ultimate compliance response. 

Adverse Media and a Risk-Based AML Approach

Following guidance from the Financial Action Task Force (FATF) firms must implement a risk-based approach to AML/CFT compliance. This means that firms must perform risk assessments of individual customers and transactions to determine the level of risk that they present, and then adjust their compliance response accordingly, subjecting higher risk customers to an enhanced level of AML/CFT scrutiny known as enhanced due diligence (EDD). 

While there are no explicit legal requirements for firms to implement adverse media screening as part of the enhanced due diligence process, that measure is recommended by the FATF as a way to accurately capture risk. FATF guidance is reflected in the latest EU money laundering directives which suggest that effective adverse media screening can inform a range of crucial AML/CFT data points, including: 

  • Ultimate beneficial ownership: Adverse media screening can help identify the beneficial owners of shell companies and other instances of money launderers disguising their crimes using corporate structures 
  • Terrorist financing: News stories concerning terrorism, sourced from international outlets, represent a supplementary channel through which financial institutions can address the risk of individuals being involved in groups suspected of terrorism
  • Politically Exposed Persons: News stories involving politically exposed persons (PEP) may expose instances of corruption or financial crime before the information is confirmed in official channels 
  • Ongoing monitoring: Adverse media screening should be part of a firm’s ongoing monitoring of their customers. Real-time adverse media tools allow firms to capture changes in a customer’s risk profile as soon as possible – and address those threats in a more effective and timely manner

Next Generation Adverse Media Screening

In a fast-paced media landscape, automated adverse media solutions surpass manual, user-initiated searches which can be slow, and prone to human error. Next generation AML/CFT technology enables firms to add speed and accuracy to the screening process, deepening client risk profiles, capturing breaking news stories, and adapting more quickly to regulatory changes in jurisdictions around the world.  

Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.

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