What is AML Screening?
AML screening is the process of checking the data you hold on your clients, counterparties, relevant third-parties and corporate structures to manage AML risks to you and your firm.
You would screen against structured data in the form of Sanctions, PEP, and Watchlists alongside unstructured data in the form of adverse media which could take the form of an internet search although most third party suppliers of screening software will include adverse media checks as a standard part of their screening tools.
Why Screen?
The aim of screening is to prevent your firm from inadvertently doing business with a sanctioned individual and to highlight potential risks such as dealing with a PEP, or person with links to a high-risk jurisdiction. Through thorough screening these risks can be mitigated by applying enhanced due diligence where appropriate or withdrawing from a transaction when necessary.
Doing business with a sanctioned individual is not only a breach of the Money Laundering Regulations (MLR) but also a breach of the sanctions regime which alone carries a potential 7 year prison sentence. Regulators across all sectors are applying increasingly harsh penalties on firms that do not adequately risk rate their clients, which is usually the result of inadequate screening. The firm does not even have to have been exposed to money laundering for a fine to be incurred. It simply enough for the regulator to show that the AML controls were either not up to the task, or not applied properly. In 2014 Standard Chartered Bank was fined $300 million by US regulators for inadequate controls which failed to detect potential high-risk transactions. Regulators on this side of the pond are equally alert to such failings.
In addition to meeting your obligations to the MLR, screening early in a transaction will give the firm early indicators of risk in the form of adverse media indicating potential criminality or corruption before charges are formally brought. Armed with early information you may choose whether it is worth carrying out a transaction or waiting for a legal process to complete before engaging with a potential client.
When and How Often Should You Screen?
The answer depends on the type of transaction being undertaken. For most Estate Agency Businesses you would screen:
- Whilst completing initial due diligence checks before the business relationship begins
- If any new information comes to light through the course of a transaction
- If the same client returns to conduct further business in the future
You may choose to prescreen at ad-hoc periods as a transaction progresses. A retained search client where the relationship lasts longer than a year may need to be rescreened after 12 months to make sure nothing has changed, and no new risks have become apparent since the start of the business relationship.
Interpreting your results
When screening using software you will be presented with either a report that shows your client was not matched against any lists or a report that will show any potential matches against PEP, Sanction and Watchlists or adverse media that has been detected. The word ‘potential’ is important in this context as the providers of the data will show you results that are similar to your inputs in addition to any exact name matches. Inevitably this will lead to false-positives being included. Your job is to review the results and remove the false-positives. Always document your reasons for discounting any of the results.
A potential Remediation Method:
- Make sure that the results do relate to your client. Check the known and confirmed name against the results presented, country of origin and date of birth.
- Name matches that are close to that of your client but not identical should be checked for accuracy and confirmed as not being an alias.
- Data related to PEPs or Sanctioned individuals come from known government sources so will generally be accurate. Adverse Media sources come from any searchable items on the internet and therefore must be treated with more caution. Check the age of news items presented. Is the source a reputable news organisation or small unmoderated blog? Blogs are not necessarily false information, but may be inaccurate or out of date and the data should be checked.
- Results that state a person is a criminal, involved in trafficking or drug crime are easy to interpret. However some results are more opaque referring to accusations or opinion with no actual charges being brought or even sought. A person may have been linked to an organisation that has fallen foul of the law, but had no actual part in the criminal or corrupt activity. It is important to make sure that you seek expert advice and adequately train staff in the needs of the MLR to interpret such results.
Do You Really Know Your Clients? Avoiding mistakes
One of the most common phrases I hear is “I’ve known these guys for years. They’re ok.” This may be true but on a process level is no defence to the regulator for not screening them. Customer risk change over time. Risk can increase for a person you have known for many years because:
- They changed job
- Moved abroad to a high-risk jurisdiction
- Have been elected to a political office
- Committed a crime they have successfully hidden from their peer group
Even where you believe you know a person or family, screening must be completed or the first time you find out about something important will be a regulatory visit and that is far too late.
Develop Your Knowledge
One of the main causes of potential bad actors passing through the net is that property professionals and their staff are not adequately informed about the way criminals can use their firm to commit crime or launder money.
Screening is not the end of the process, it is the beginning. You should always be comfortable that you understand the rationale behind a transaction and (as this is to prevent money laundering) the way the finance in a transaction is structured.
For example, a client claims to be a billionaire. KYC and AML screening is passed without issue and the client informs you they are taking a mortgage for 80% of a purchase price of £8 million. All information points to the client being of good standing, searches online show that they are indeed a billionaire. The question that now presents itself is why would somebody with access to cash many times in excess of the purchase price borrow money at a cost? Does this fit the transaction profile? This does not mean money laundering or a crime is being committed but that you should ask the question and note the response.
Some firms see training as expensive. It does not have to be, and it certainly less expensive than a fine or loss of reputation. Along with good AML controls and expert advice, training should be a cornerstone of an effective anti-AML regime. It is never possible to completely know your client, but training staff to identify what a bad client looks like will pay-off in the long run.
Document Everything
An essential part of any good compliance procedure is to keep adequate records that record what decisions were made and why. LondonCDD uses suppliers that record the decision taken in remediating any screening result. Reciords the date, who took the decision and the reason a record was remediated as a false-positive or overturned. For example, “The name and date of birth matched are different to the verified name and date of birth provided on the validated UK Passport number XXXXXXXX..”
Any data that is verified to be your client should then be reviewed and record any taken. For example, “Client X is a PEP based in the US which is a low-risk jurisdiction. Client X has no significant public function or access to public funds and the regulations for this person to be treated as a low-risk PEP”
Or, “Client Y is a PEP linked to a high-risk jurisdiction. Enhanced due diligence will be applied by … [record actions applied for enhanced due diligence]”
In the event of a regulatory visit the recording of our actions will be critical in understanding the decisions you have made and are an important part of the regulatory environment.
How LondonCDD Can Help
LondonCDD uses award winning software and providers to screen all parties in a transaction. Our expert knowledge AML risks puts us in the best place to advise you on the correct course of action to take and what you must do.
LondonCDD can:
1. Revise your Risk Assessment and upgrade your Policy, Controls and Procedures;
3. Advise on broadening the ekyc/digital solution you use;
4. Provide you with a complete solution for your AML concerns.
