It’s no secret that money laundering is an issue that raises some concerns. The term was coined at the beginning of the 20th Century when the world’s economy was affected by organized criminals or corrupt politicians. At that time, their earnings came from gambling, extortion, bribery, and theft. Naturally, the need to define the situation and take control helped us step forward in the fight against fraud.
This is where AML or Anti-Money Laundering Screening and Ongoing Monitoring come into the picture.
Screening vs Ongoing Monitoring
Screening is a risk assessment process used to evaluate a company’s current or future customers in accordance with anti-money laundering (AML) guidelines. Through the screening process, businesses verify and confirm that their customers are not listed on sanctions lists, politically exposed persons (PEPs), banned or wanted lists, or adverse media data. The screening of customers constitutes a fundamental aspect of the AML compliance program.
Ongoing monitoring is a systematic procedure where financial institutions and other regulated entities regularly monitor their clients, including their transactions and behavioral activities, to ensure adherence to laws and regulations. This is especially relevant for anti-money laundering (AML) and countering the financing of terrorism (CFT). The key goal of such ongoing scrutiny is to help organizations detect and address potential financial crimes and other types of fraud.
How Does Money Laundering Occur?
If we look closer, today, this battle isn’t over. Illegal operations evolved and took over the cyber world. Here, fraudsters hide their true source of income by participating in financial crimes. That’s why financial institutions and governments joined forces to constantly search for new options on how to combat the widespread problem.
Sometimes, fraud occurs in unexpected scenarios, and many forget that a decent amount of crime happens among politicians. While some are known for their amazing work, others in this segment abuse their power to steal public funds or take bribes. That’s why this issue of money laundering and corruption is everywhere, from democracies to autocracies.
With £100 billion of dirty money passing through UK systems every year, the USA isn’t an exception. According to the Corruption Perceptions Index, the United States finished 2021 with a score of 67, which is the lowest score since 2012. The results are provided on a scale of 0 to 100, where 0 is highly corrupt, and 100 is very clean. While the USA’s two-point drop from the year before isn’t drastic, the overall trend is clear – most countries have made no progress in overcoming corruption during the past decade.
Related: Examples of Money Laundering and Prevention Methods
The Importance of Sanctions and PEP Screening
While you can find more cases of corruption in weaker legal systems, strong and independent institutions find unique ways to legalize or, to put it simply, “launder” ill-acquired funds. That’s why Politically Exposed Persons (PEPs) have better opportunities to steal illegal funds, making them high-risk customers compared to ordinary people.
PEPs need to be screened and monitored because of their risks, especially in financial institutions where such screening is part of mandatory compliance programs. Illegally-acquired funds are a threat for virtual asset service providers as well. This is where AML Screening and Ongoing Monitoring come in handy.
The key factor benefiting the businesses is the implementation of ongoing sanctions lists and PEP data screenings in the standard Know Your Customer (KYC) process. When added, such tools assist companies and lower the risks of regulatory fines, not to mention help fight the global issue of money laundering.
Related: PEPs and Sanctions Checks Explained
What is the Screening Process in AML Compliance?
To put it briefly, it’s a process for businesses that are used to control existing and potential customers in sanctions, PEPs lists, Most Wanted, or criminal activity watchlists. In this day and age, a pleasant customer experience plays an important role. Organizations prioritize having a smooth and quick onboarding process.
A common way to achieve this goal and meet AML obligations is to perform AML Screening. This way, companies scan through their customers to determine the risk level. Risky customers can be avoided, as they tend to expose companies to financial crime and, in this way, damage their reputations.
Due to this all-around issue, manual solutions have become inefficient. Financial institutions aren’t capable of preventing these offenses with the control of the hand. That’s why AML Screening is a better option in terms of speed and accuracy, as it allows companies to screen customers’ reputations and detect risks automatically without human error.
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How Automated AML Screening Tools Help Identify Risks
With the change in technology, financial crimes have adjusted to the scenery. Nowadays, most of the violations occur through the system. The principle stays the same, as fraudsters detect gaps in financial systems to commit money laundering crimes.
AML Screening is crucial, as it’s designed to help financial institutions or other regulated bodies from different industries understand the relationship with people who fall into the high-risk category. If you detect anything suspicious, for example, another business possibly being involved in money laundering, or there’s negative news floating around that company, you should probably think twice before agreeing to partner with such an organization.
Due to instant data scanning, it’s considered to be an effective solution in the war on financial crime. AML Screening is performed in many instances:
- Businesses have to carry out the screening during the customer’s account opening process.
- Customers’ risk levels can change over time. Companies can benefit from Anti-money laundering monitoring by regularly checking the risk level.
- Businesses can execute AML Screening and Ongoing Monitoring in their employment processes.
- Companies are required to perform AML Screening and Ongoing Monitoring of the ultimate beneficial owner of any company they’re partnering up with.
How Does AML Ongoing Monitoring Work?
Ongoing monitoring means that a company takes extra steps to ensure safe business relationships by checking customers’ reputations and their consistency with expected behavior patterns. Unlike screening, AML ongoing monitoring is a daily matter. The process is done automatically, and in case any unusual risks are detected, the business receives an alert informing them of the change in reputation.
That’s why this process controls business relationships and monitors frequently renewed sanctions, media, PEPs, and Watchlists. Due to AML Ongoing Monitoring, you can determine whether the business’ customers’ activities are consistent with customer risk assessment and KYC.
Why Do You Need Ongoing Monitoring?
We’ve already established that ongoing monitoring is a vital process for companies to stay compliant with ever-evolving regulations. Additionally, this process is instrumental in applying the risk-based approach (RBA) and mitigating the risks associated with financial crimes, such as money laundering and terrorist financing.
Additionally, there are a few key reasons why companies implement ongoing monitoring:
- To ensure AML/CTF compliance. These regulations mandate that financial institutions and other organizations must proactively identify, assess, and mitigate risks associated with money laundering, terrorist financing, and other financial crimes. AML compliance programs need to have ongoing monitoring as one of the key elements.
- To detect and prevent crime. Given the potential adverse impacts on the financial system, organizations bear the responsibility of actively identifying and preventing such crimes. Ongoing monitoring helps companies detect crime in real-time, and, if needed, enables them to report such suspicious activities efficiently.
- To build a proper KYC process. This step is necessary for facilitating the identification and verification of clients’ identities, allowing organizations to scrutinize their activities for any suspicious behavior. By doing so, organizations enhance their ability to detect and prevent financial crimes while also ensuring compliance with regulatory standards.
Related: Transaction Monitoring in Fintech — How to Set it Up?
How Can You Improve Ongoing Monitoring with Automation?
Many companies look for automated AML solutions to screen their customers regularly in order to check changes in databases. For instance, news about PEPs and political representatives is published in the media every day, along with new regulations that are frequently updated. That makes manual monitoring almost impossible. Bad information in the media can expose criminal behavior as well; therefore, it’s beneficial to check what can be revealed during a negative news screening.
For example, iDenfy’s automated solution – AML Ongoing Monitoring – reduces human error by:
- Daily monitoring in many sources for complete AML coverage.
- Adding monitoring users via a dashboard or automatically with the identity verification process.
- Monitoring entities and individuals.
- Whitelisting false positives or removing the entries completely.
- Auditing trail logs.
- Adding notes to the team members.
Based on your risk assessment, when you enter into a business relationship with a partner or a client, typically, you need to conduct AML ongoing monitoring of that business relationship periodically. Naturally, low-risk customers will require less frequent ongoing monitoring versus those who are categorized as high-risk customers.
Related: How Can RegTech Improve AML Compliance?
What is the Goal of AML Screening?
AML screening serves three primary goals:
- To enable companies to make a proper risk assessment.
- To protect businesses from non-compliance and regulatory fines.
- To prevent organizations from getting involved with sanctioned entities.
Individuals listed in sanctions or other wanted lists, such as PEPs, with elevated chances of involvement in corruption and bribery are high-risk customers. Consequently, banks and financial institutions must screen such customers and refrain from engaging in business with them.
Of course, the main purpose of customer screening is to make a risk assessment and identify the chances of fraud. Businesses greatly benefit from the AML screening service because they avoid violating various sanctions.
Such procedures as Know Your Customer (KYC) and Customer Due Diligence (CDD) are also a part of the risk assessment. To perform AML screening of any businesses or individuals, it’s required to obtain the full name and date of birth of the customers. KYC collects clients’ data and checks its accuracy. Then, after the details are reviewed, CDD procedures are implemented.
Related: What is the Difference Between KYC and CDD?
What Industries Should Implement AML Screening?
Security is an extremely important factor when it comes to today’s economy. Not sticking to safety regulations can result in reputational damage. Even if a company isn’t restricted by such requirements, when dealing in the global B2B space, one of the ways to reduce the risk is to use the AML Screening software.
There are many local and global AML regulations that companies must follow. AML Screening is beneficial to organizations from various sectors. Fintech companies, banking and healthcare sectors, gaming businesses, and the telecommunication industry all need it.
Instances When to Conduct AML Screening
Businesses should conduct AML screening in various situations, including:
- During the account opening process. AML screening is necessary when customers open new accounts during the customer onboarding process.
- When conducting regular checks. As customer risk levels can change, companies should regularly screen and assess their risk in order not to miss any important changes, such as if the customer suddenly becomes eligible for the PEP status.
- For employment purposes. AML screening is essential during the hiring process.
- For business partners. Companies must also screen the ultimate beneficial owner (UBO) of any firm they do business with and conduct corporate KYC (Business Verification) checks on other companies.
Want to find out more about who you’re partnering with? Try a free AML company screening demo.
The Future Trends of AML Screening and Monitoring
The digital space comes with challenges, and many industries have money flow involved. Such businesses are automatically exposed to the risk of money laundering. This leads us to the need for effective AML measures.
To avoid the risks of bumping into loopholes, iDenfy suggests maximizing the security process by adding AML Screening and Ongoing Monitoring. It’s not enough to verify the customer’s identity through one aspect. Conducting in-depth background screening of sanctions and watchlist checks helps understand the risk around potential customers or investors.
iDenfy’s algorithm, powered by artificial intelligence, saves time and completes AML coverage by monitoring users automatically on a daily basis via a dashboard or API. It’s a customizable experience – in addition to the various Sanctions and PEP lists, you can scan negative news sources or Lost and Found document databases.
Get started right away.
This blog post was updated on the 22nd of February, 2024, to reflect the latest insights.