State of Financial Crime 2023 Report
Running adverse media screening isn’t just a question of protecting your company from reputational damage, or building a helpful image of a client’s risk profile: it’s also a regulatory requirement of financial authorities around the world. Accordingly, financial institutions should be aware of the regulatory environment in which their media screening process runs – and ensure it meets the needs of the authorities in the wider fight against money laundering and financial crime.
Global territories obviously enforce different adverse media AML regulations and recommendations, but all emphasize the need to build accurate risk profiles of clients. The United States’ Financial Crimes Enforcement Network (FinCEN), for example, requires obligated financial institutions to conduct adverse media screening as part of the customer due diligence (CDD) process. In more detail, FinCEN requires ongoing monitoring: firms should be aware of their clients’ potential adverse media liabilities and should implement a risk-based AML approach which tells them when to screen their clients for negative news throughout the relationship.
Similarly, the EU’s 4th Anti Money Laundering Directive (4MLD) requires firms to perform enhanced CDD for high-risk customers, a process which includes “carrying out open source or adverse media searches”. 4MLD will be strengthened by 5MLD on 10 January 2020: the new directive will increase focus on digital CDD and encourage the use of automated adverse media screening. On 3 June 2021, 6MLD will take effect across the EU. 6MLD will add both cybercrime and environmental crime to the list of money laundering predicate crimes, and extend the criminal liability of money laundering to enablers and legal persons. That adjustment will expand the necessary scope of the adverse media checks that obligated financial institutions must perform.
With a global regulatory reach, the intergovernmental Financial Action Task Force (FATF) issues guidance on adverse media in its 40 Recommendations. The FATF recommends “verifiable adverse media searches” as part of customer risk assessments, and points out the need for financial institutions to “understand the client’s reputation” when establishing relationships. It also requires firms to find out whether high-risk clients have been “previously investigated” for money laundering or terrorist financing, or have been subject to regulatory penalties in the past.
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Originally published October 10, 2019, updated August 18, 2022
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