Adverse Media Screening and its significance in the KYC process

Bad news for criminals

How can you tell if a customer is "good" or "bad"? This question plays a crucial role in the customer onboarding process of banks, insurance companies, and other entities obligated under money laundering laws.

To assess customer risk, it is necessary to identify and thoroughly examine, among other things, the beneficial owners, persons appearing on behalf of the customer, and those authorized to represent and dispose of the goods.

The names are checked against lists of high-risk countries and sectors, as well as sanctions lists. But that alone will no longer be sufficient in 2024, according to BaFin's current opinion.

Prevention of Terrorism Financing

In a publication In early February 2024, BaFin highlighted the importance of adverse media screening – i.e., the review of (current) media reports within the framework of the Customer onboarding – first into focus.

The trigger for this was the FATF “Crowdfunding for Terrorism Financing” report from October 2023. In this document, the FATF outlines how social media platforms in particular are becoming tools for financing terrorism.

And the new version of the "Interpretive and Application Guidelines (AuAs)" on the Money Laundering Act also addresses the screening of media by BaFin. While this is still a Consultation draft – nevertheless, BaFin is sending a clear signal: Media screening is an important part of risk assessment.

Adverse media screening is a process that reviews and analyzes information from various media sources. These include, but are not limited to:

• Traditional news agencies and media outlets such as daily newspapers
• Blogs and articles on websites
• Internet forums
• Press releases and announcements from regulatory authorities, law enforcement agencies, tax authorities and other government agencies

The goal is to find negative media reports about companies or individuals. This could include information about financial irregularities, legal problems, links to criminal activities, or other relevant risk factors.

The insights gained from media screening are intended to identify potential risks and threats associated with business relationships or transactions at an early stage. This should reduce risk and prevent damage to the company.

Adverse Media Screening: More than a background check

Is it enough to simply "google" a little on the internet to conduct a media screening? For a comprehensive risk assessment, the answer is: No.

Adverse media screening differs from a traditional background check. While both methods pursue a common goal – the assessment and mitigation of risks – they differ in their approaches and focus.

Adverse media screening focuses on identifying negative media coverage and information about individuals or companies. It utilizes a wide range of publicly available sources.

The challenge lies in processing and analyzing large amounts of data and distinguishing relevant from irrelevant information. Adverse media screening is particularly valuable for creating an up-to-date and dynamic risk profile that also takes the latest developments into account.

Traditional background checks rely primarily on historical data and official documents to verify the past and credibility of a person or company.

These include, among other things, police clearance certificates, credit reports, educational certificates, and work references. These checks are fundamental for verifying the identity and the professional and financial history of an individual or organization.

They provide a solid basis for assessing trustworthiness, but carry the risk that newer information or unofficial sources that could reveal relevant risks may be overlooked.

In the so-called Know Your Customer (KYC) process Adverse media screening plays a significant role in the comprehensive assessment of the risks of a customer relationship.

By systematically reviewing media reports and publicly available information, it enables companies to identify potential risks associated with new and existing customer relationships at an early stage.

This proactivity is particularly important in industries subject to strict regulatory requirements, such as finance, to maintain the integrity of the financial system and ensure trust among stakeholders.

For example, Adverse Media Screening can uncover if a potential or existing customer has been involved in money laundering activities by identifying reports of investigations or convictions in this context.

Similarly, reports of fraud or the financing of terrorism in which a customer might be involved can be uncovered through thorough media research. Such information is invaluable for minimizing financial and legal risks for the company and avoiding regulatory sanctions.

Case study: The Australian and ISIL

In 2013, an Australian man, who allegedly supported ISIL (Islamic State in Iraq and the Levant – also known as ISIS or IS), left Australia for Syria.

Before his departure, he collected numerous donations through an unregistered charity claiming to help Syrian war refugees. Donors were solicited via the fraudulent organization's Facebook page to transfer money directly to the individual's personal account at a major Australian bank.

The bank closed the account after the Australian publicly supported ISIL. The Australian denied that the funds were used to support ISIL. In 2021, he was extradited to Australia and charged with six terrorism offenses, including entering Syria with the intent to fight and being a member of the al-Qaeda-affiliated Syrian group Jabhat al-Nusra.

This example from the report of Fatf [1]shows how media screening can be used to combat and detect terrorist financing.

1. Definition of search criteriaThe first step is to define the specific search criteria used for screening. This includes names of individuals or companies, but also keywords associated with potential risks, such as "money laundering," "fraud," "corruption," or "terrorist financing."
2. Selection of data sources: Crucial for effective screening is the selection of suitable data sources. These include news websites, press releases, blogs, social media, and specialized databases containing information on legal proceedings, sanctions lists, and other relevant public records. The effectiveness of media screening is directly linked to the quality of the underlying data. It is therefore essential to choose a reference data provider that delivers verified and timely information from the relevant markets.
3. Conducting the searchUsing the defined search criteria, a comprehensive search is conducted across the selected data sources. Modern screening tools often employ artificial intelligence (AI) and machine learning to efficiently sift through large datasets and extract relevant results.
4. Analysis and evaluation of the resultsThe information gathered must be carefully analyzed and evaluated to determine its relevance. This step often requires manual review to rule out false positives and ensure that the identified risks are indeed relevant.
5. Documentation and reportingAll relevant findings and the resulting assessments are documented. This typically includes a report summarizing the negative information found, its sources, and the assessment of the associated risk.
6. Decision-makingBased on the findings obtained during the screening process, you as a company decide how to proceed with the individuals or companies concerned. This can range from increased monitoring measures to the exclusion of business relationships.
7. Continuous monitoringAdverse media screening is often not a one-off process, but requires ongoing monitoring to identify new risks arising from future negative reporting at an early stage.

The use of technology plays a crucial role in the efficiency and effectiveness of adverse media screening, especially given the volume and dynamics of media content available worldwide.

We would be happy to support you with our solution. KYCnow We help you integrate effective media screening into your KYC process. To achieve this, we rely on a combination of smart technologies and the best national and international data sources.

The screening results are presented to you in a visually appealing and easy-to-understand way. This reduces manual effort to a minimum.

Are you interested in our solution? We would be happy to discuss your specific needs with you without obligation. Simply send us a message. E-mail or simply use our Contact form.

Sources

Photo by Jp Valer on unsplash.com

[1] Source: FATF report, page 23