Why Adverse Media Screening Is Important for Businesses?

Adverse media screening is fast becoming a crucial element of an organisation’s customer due diligence (CDD) programme. Adverse media screening allows companies to identify and protect their customers and partners from risks. Adverse media screening allows firms to spot a potential problem before the institution becomes associated with it or allows its reputation to suffer as a result. Unfortunately, adverse media screening still remains poorly understood and inadequately implemented at many financial institutions. So, what are the best practices to improve the efficiency and effectiveness of adverse media screening in a financial institution?

What Is Adverse Media and Why Is It Important

Adverse media could be broadly defined as any kind of negative information on a potential or existing customer found across variety of sources. Such information aids financial institutions and other obliged persons in completing the fuller picture of the customer’s financial crime risk as a part of the know your customer (KYC) process.

KYC process, including customer risk scoring, is one of the most important parts of the anti-money laundering and counter-terrorist financing (hereinafter – AML/CTF) compliance, as numerously demonstrated by fines, restrictions of activities and license revocations issued by the Lithuanian regulatory bodies. That is why the obliged entities should be acquainted with the legal requirements and industry best practices.

Legal Regulation on Adverse Media Screening

According to the Lithuanian Law on the Prevention of Money Laundering and Terrorist Financing (hereinafter – the AML Law), there is no verbatim requirement for obliged persons to perform adverse media screening. Adverse media screening requirement is hidden under the AML Law’s obligation to identify customer factors that can lead to a higher money laundering and terrorist financing risks.

Lithuanian legislation does not provide a more detailed information on the adverse media screening, however the Bank of Lithuania and other state authorities follow the guidance of international, regional institutions, and in rare cases – of private sector’s organizations, such as the Wolfsberg Group, which aims to develop financial industry standards for AML/CTF/KYC processes.

Guidelines on Adverse Media Screening

The Wolfsberg Group has recently published “The Wolfsberg Group Frequently Asked Questions (FAQs) on Negative News Screening” (hereinafter – the Guidelines). According to the Guidelines, the obliged persons should adapt a risk-based approach to the adverse media screening by first deciding what kind of information will be considered as negative news, for example:

should allegations be considered as negative news or should there be a record of conviction,
should misconducts not related to financial crime be considered as negative news, e.g., speeding fines, public disorder offences,
who published the negative news – information from tabloid media usually holds less water than publications by state institutions, additionally the obliged person should evaluate the risk of disinformation and false positives.

Obliged persons should also:

decide if the adverse media screening is going to be performed manually, automatically or by combining both methods:
- if a third-party solution is used, the obliged person should assess the adequacy of a selected solution,
- internet search engines may be used, however the searches should include relevant key words together with the person’s name and also be performed in the customer’s local language.
decide how often will the screening be performed and is there a time limit after which the news is not considered as negative,
decide who will be screened – customer, ultimate beneficial owner, related parties, etc.,
perform staff training on the adverse media screening processes,
perform quality control and quality assurance on the quality of checks.

Advice for Adverse Media Screening

The Wolfsberg Group reminds that there is no universally defined key words, however some suggestions are provided: money laundering, terrorist financing, terrorism, tax evasion, bribery and corruption, organised crime, drug trafficking, human trafficking, wildlife trafficking, proliferation and proliferation financing, theft, bribe, fraud.

“One of the most common ways to perform adverse media screening is using key words with Boolean operators together with customer’s name via the Google search. For example, “Gitanas Nausėda” money laundering OR terrorist financing OR tax evasion OR fraud, etc. Such way only one search with all desired key words can be performed rather than using separate searches. It is also a good practice to perform a separate search with only the customer’s name in the quotation marks to check person or legal entity’s digital presence.

It is important to note that adverse media screening results should be kept for 8 years after terminating the business relationship with the customer. Records should be time-stamped – if screening is performed via Google search, results should be saved as screenshots or option “Save to PDF” used making sure there is a date” – says Austėja Viederytė, our AML expert.

ECOVIS ProventusLaw reiterates that negligent customer risk assessment may lead to fines, restriction of activities or revocation of a license, that is why it is critical to have adequate AML/CTF documentation and processes. Our team is ready to assist in all of the AML/CTF compliance questions.