Screening involves a dynamic comparison of gathered data against external data sources of sanctioned lists, PEP lists, adverse media, etc.
Why do businesses need screening? Vivid answers confine to the scope of risk management purposes only. Furthering into details unfold a large variety of concepts ingrained for deeper analysis of a customer, partner, or party.
Since several ‘bad actors’ like politically exposed persons, terrorist organizations, money launderers, etc. have propulsion of risky business strata, businesses engaging with them have to face untoward consequences. This is the primary reason why financial and banking institutions engage in AML screening before entertaining a customer or partner.
The principle objective behind customer screening aims at preventing businesses from getting exposed to terror financing activity, money laundering, tax criminality, bribery, corruption, etc. AML mandates customer screening in various regulated sectors, such as banking, financing, real estate, accountancy, law, trust, insurance, high-value goods dealers, lending, accountancy, and gaming.
Jurisdictions may ask various businesses to conduct customer screening due to the application of rules and regulations in the specific area. Therefore, these cases vary. Most commonly the AML regulated sector’s ambit covers businesses from banking institutions, financial institutions, credit and investment businesses, money services businesses, accountants, lawyers, real estate agents, gaming businesses, deals of high-value goods, company and trust administration businesses.
Don’t know which category your business fits in? Check with your industry body or trade association to find clarity regarding the same. Outside the AML regulated sector, there are still few businesses that need KYC screening, especially to prevent reputation damage, bribery & corruption-related cases, which are quite common in pharmaceutical industries, natural resources, and armaments.
The inception of Screening Technologies
Given the low rate of efficacy in manual screening methodologies, technology-based screening becomes mandatory for businesses. Once operational, these screening technologies enable the superior rate of screening using external data and data analysis. Here, the businesses can optimize their compliance performance using the ‘right’ screening technology with the best quality data to produce accurate results with minimum false positives.
Risk profile assessment sets out a core of accurate results with a few or no false positives. Since most of the businesses engage in comprehensive screening, the number of false positives is likely to feature on the higher side. This is the key reason why risk profile based screening is deemed necessary.
How does screening bring an advantage?
Would you like to commit business with any organization or individual who belongs to a sanctioned list? You may just earn yourself a criminal offense once you commit such a folly.
From harsh penalties to loss of reputation, the regulators and prosecutors may incur heavy consequences, should you fail to screen customers properly or assess their risk rate. Whether the UK or the USA or any other country, organizations have been slapped with penalties to demonstrate the criticality of effective screening. Shall any organization decide to breach sanctions, they would only be inviting themselves to some diabolical troubles that may even last for a lifetime.
Linqs Inc writes about the criminal offenses that businesses may attract shall they fail to do a critical customer screening as demanded by the AML regulations. From banking to real estate, AML screening remains a critical step to prevent exposure to terror financing organizations, money laundering organizations, and any proponents of criminality. Not performing proper KYC screening would only invite the regulators to impose harsh penalties.