A proper screening mechanism is an essential component of an efficient Anti-Money Laundering and Combating Financing of Terrorism and Proliferation Financing (“AML/CFT”) framework. Put it simple – if you miss a crucial information when conducting screening on a customer/prospective customer/business partner, it may lead you to breaching Sanctions, not identify a Politically Exposed Persons (“PEPs”) or not capture an adverse information that would have otherwise been a red flag not to say Suspicious.
What is Screening?
Screening is the process of searching personal information (name, date of birth, address, nationality etc) of a customer/prospective customer/business partner or another relevant party against independent information sources/data bases with the objective of capturing relevant information on them (if any). Relevant information may include association with Sanctions, PEPs or adverse information. Screening is performed at different stages including at customer onboarding, periodic Know Your Customer review and transaction monitoring processes among others. Financial Institutions usually subscribe to commercially available screening engines to carry out their screening process.
Conducting Screening In Practice
The usual screening procedure can be summarized as per the below:
- Identifying Relevant Parties
An important initial step is identifying all relevant parties that need to be screened. When the customer is an individual, this is straight forward however when the customer is a legal person or structure, it is important to identify all relevant parties for screening. In the case of a simple company limited by shares for example, the screening process should cover the directors, shareholders, beneficial owners, authorized signatories etc.
- Screen Relevant Parties Against Appropriate Data Base
Once the relevant parties have been identified, their personal information should be screened against appropriate data bases. This is discussed in more details below.
- Assess False Positives
It is usual practice to have false positives when conducting screenings. This may include screening results with similar names, nationality or locations. A thorough analysis and investigation has to be conducted in order to retain true positives and discard the false one. This has to be carefully done so as not to discard an important information.
- Take Appropriate Measures
Once the screening process has been conducted and depending on the results obtained, there should be a clear procedure to escalate true positives so as to take appropriate measures to mitigate risks. This may include for example conducting enhanced due diligence measures or reporting a suspicious transaction.
Choosing the right Screening Engine
It is of utmost importance to carefully select the screening engine prior to subscription. Commercial Screening Engines build up their own data bases which are based on adverse media information, PEP lists and Sanction lists among others. Different screening engines may be suitable for specific geographical areas and financial services businesses and may vary in terms of sanction and PEP list they cover. It is therefore critical to test screening engines to verify that they are suitable and satisfy applicable regulatory requirements of the Financial Institution or Designated Non-Financial Businesses and Professions (“DNFBPs”) depending on their relevant jurisdictions.
Internet Searches
A common mistake is to rely solely on commercial screening engine. A proper screening process should be an appropriate combination of searches on screening engines and internet searches. If used properly, internet searches can be a powerful tool throughout the screening process either to capture information missed during searches on screening engines or to complement those searches.
Alerts Resolution
Whether true or false positives, it is important for Financial Institutions and DNFBPs to ensure that they resolve alerts and keep their analysis on record. A common mistake is to systematically discard false positives without properly documenting it, or keeping alerts opened without resolving it. There should be appropriate procedures and criteria that would enable relevant employees to properly address alerts up to their resolution.
Ongoing Screening
Some commercial screening engine vendors provide overnight (ongoing) screening, which is the process by which personal information of relevant parties are included in a batch screening that keeps on conducting the screening process automatically on an agreed frequency against data bases. While this is an easy way to conduct screening on a frequent and automatic basis, Financial Institutions and DNFBPs should test the ongoing screening platform to ensure that it is efficient, effective and results generated are accurate. Depending on the jurisdictions, ongoing screening can be mandatory for Financial Institutions and DNFBPs, specifically to ensure prompt screening against UN Sanction list.
Invest in Human Expertise
No matter how sophisticated a screening system is, human expertise and interpretation skills should never be under-estimated. Financial Institutions and DNFBPs should invest in the training of employees who are involved in the customer due diligence and screening process. Properly trained employees are the greatest asset in the screening process who can capture important information, detect false positives and resolve alerts.
Conclusion
As international compliance experts, we have worked on several compliance assignments, for many financial institutions (banking and non-banking) as well as for DNFBPs (real estate professionals, lawyers, accountants etc) established and regulated in different jurisdictions. Based on our experience, we would recommend:
- To provide appropriate and regular training to relevant employees on screening process. This can be the critical part as untrained employees may not capture important information
- Carefully select commercial screening engines prior to subscription
- Ensure that procedures are implemented for alerts resolutions
- If ongoing screening is conducted, ensure to include all relevant parties on the search engine
- Seek professional help without hesitation if this required to mitigate your risks
