A Guide to Anti-Money Laundering for Crypto Firms

What is Adverse Media

Adverse Media Knowledge & Training

Adverse media or negative news is defined as any kind of unfavorable information found across a wide variety of news sources – both ‘traditional’ news outlets and those from unstructured sources. The risks associated with conducting business with persons or companies having an adverse media profile are many and varied.

Where Does Adverse Media Come From?

Adverse media can come from a range of sources. This includes traditional news media like newspapers in print or online or broadcast news across radio and TV.

Increasingly however, this type of media can also be drawn from blogs, web posts and unstructured sources such as social feeds and unstructured forums.

The Implications of Information in Adverse Media

One of the most common types of adverse media information is the past criminal activity of an individual. If it is suspected that a person may be involved in financial crime, and authorities discover that that person has been previously caught for committing another crime, this gives authorities even more reason to suspect that individual to be involved.

In contrast, if a person has no criminal history and is not known for associating with individuals who do, they are then at a much lower risk of being involved in something such as a money laundering scheme.

Another type of relevant adverse media information that individuals oftentimes look at is if a person is on a sanctions watch list or not. If he or she is, chances are that it is not for a good reason, and that authorities should be on the lookout for them being involved in any financial crime.

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Why Do I Need 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 links pose a serious threat to firms’ reputations and can lead to legal repercussions, especially if these firms operate within a regulated sector.

Because of this fact, many financial institutions that are heavily regulated by KYC policies are required to constantly conduct negative news screening in order to discover any hints or tip offs that may aid their investigations.

Why is Automating Adverse Media Checks Essential?

Despite the pressing need for efficient, effective adverse media monitoring, legacy and manual solutions carry significant challenges for today’s compliance teams.

Traditional processes usually group customers into “risk buckets” of low-, medium-, and high-risk. This is a problem for a number of reasons:

  • To be compliant with basic KYC due diligence requirements, high-risk clients must be monitored on an ongoing basis. But the processes by which people are classed as high-risk and subsequently monitored often leave much to be desired.
  • Institutions use internet searches , “googling” news articles to perform manual searches for adverse media on each individual high-risk client. Then, compliance staff must review these potential matches to determine whether the person named in media stories is actually the individual they are investigating. This type of search is incredibly labor-intensive and means high compliance costs for institutions.
  • The limits inherent in manual monitoring also mean that some media sources may be missed. Moreover, these searches provide only a static snapshot of risk levels; 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

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Originally published December 9, 2017, updated August 18, 2022

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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