The importance of adverse media checks in today’s AML environment
Any company has an obligation to its shareholders to protect its reputation. And especially in the anti-money laundering (AML) world, where bad or negative news equates to reputational risk, monitoring potential clients, customers, counterparties and employees for adverse media is crucial.
Adverse media or negative news is defined as any kind of unfavorable information and can be found across a wide variety of sources – not only more ‘traditional’ news outlets. The risks associated with conducting business with persons or companies having an adverse media profile are many and varied. Adverse media checks can reveal involvement with money laundering, financial fraud, drug trafficking, financial threat, organised crime, financial 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.
Despite the pressing need for efficient, effective adverse media monitoring, current solutions are seriously flawed. Traditional processes usually group customers into “risk buckets” of low-, medium-, and high-risk. To be compliant with basic EDD 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 and news articles to perform manual searches for negative news 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 might uncover useful information, but it 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 wholly inadequate. And, lastly, traditional adverse media monitoring solutions make it difficult to manage record keeping and audit capability.
In this fast-paced media landscape, a process reliant on user-initiated searches cannot compete with automated approaches that notify institutions when there is something of interest. Similarly, traditional bucket assessments may categorise a customer as low-risk when, in reality, their risk profile is significantly greater once social links and newsworthiness are considered. By analysing an individual profile in the context of its social network links and any adverse media—either direct or through social links—institutions can make a more accurate assessment of risk.