What Is AML Screening & Why Is It Important?

What Is AML Screening?

AML (anti-money laundering) screening is the process of carrying out the required checks to help determine whether customers pose a risk of carrying out money laundering operations. This process includes verifying identities and cross-checking them against relevant watchlists.

It is part of a working AML framework that will also include monitoring transactions, measuring the risk associated with that transactional data, and reporting anything deemed risky.

The AML screening process is carried out differently depending on the methods, policies, and preferences of the organizations doing them, as well as the jurisdiction of where the AML checks take place.

The Objective of AML Screening

The chief objective of AML screening is to detect and combat illegal transactions and other activities, including money laundering, terrorism financing, and fraud. AML screening is usually administered as a customer is onboarded, to better prevent illegal activity before it can even take place.

On top of this, AML screening is also administered out of necessity, not just ideality. It exists as a form of regulatory compliance to ensure that individuals and organizations follow AML laws and regulations.

At a more granular level, the objectives of AML screening include:

• offering safety, security, and peace of mind to all entities in the process, such as individuals, organizations, customers, and prospective customers
• protecting the reputation of any entities who carry out their AML screening operations
• ensuring the information applied to the AML checks is kept up-to-date, so companies can stay compliant with evolving legal mandates as entities are added to relevant sanctions lists

A working AML compliance program should address these micro and macro functions of AML screening processes, to fundamentally ensure financial stability, security, trust, and organizational intelligence and compliance.

How Does The AML Screening Process Work?

The AML screening process works by gathering and analyzing customer information, including identities and transactions, and using those resources to determine the extent to which customers are legitimate or suspicious.

Such an identification process is chiefly achieved by cross-checking verified customer information with the sanctions lists defined by financial authorities or other government agencies.

If the company’s industry is regulated by AML legislation, new users that approach the website should have the AML screening process carried out on them. The registration data they submit should be inputted and referenced against watchlist databases.

If the watchlist has the prospective customer down as a known money launderer, this would be an example of a customer who would fail the AML screening process. Put simply, such a process ultimately works best by obtaining as much customer information as possible and cross-checking it with the most authoritative databases available.

3 Facets of AML Screening in Practice

There are many bases that have to be thoroughly covered during the anti-money laundering screening process. Let’s take a look at three major examples of them.

PEP Checks

Politically exposed person (PEP) checks are performed to identify persons with prominent, highly visible positions in government or other public sectors. These persons, including their close relatives and associates (CRAs) are those who have been identified as being more likely to:

• conduct money laundering activity owing to their political connections, money, status, and so on
• represent a risk due to their association with adverse media coverage
• susceptible to being targeted themselves by money launderers with bribes or blackmail, owing to (among other things) the vulnerability that comes from being in the public eye

PEP checks, after all, aren’t just carried out to expose suspicious political figures, they are also done to help organizations understand the wider risks that come from dealing with politically exposed persons.

Crime and Watchlist Screening

Crime and watchlist screening is the process of checking an individual’s details against one or more databases, all of which provide names of people who are registered as known or suspected criminals.

Crime and watchlist screening represent a major part of the AML screening process, so it is worth identifying how the two work individually:

• Crime screening involves checking for people who are known or suspected of financial crimes, such as money laundering.
• Watchlist screening involves checking for people who are associated with more high-risk activities, such as terrorism financing.

These lists in particular are having names added to them all the time, so a major part of AML screening due diligence is making sure the referenced database is up-to-date and preferably checked in real-time.

Sanctions Checks

Sanction checks are the process of cross-checking an individual’s details on specialized databases that cover government sanctions.

Government sanctions are instances of penalties and/or restrictive measures that one or more governments have placed against someone’s name. Someone who has been considered a threat to national security or another type of malicious entity is an example of a person who may be placed on a sanctions database.

Some sanctioned persons may not be named on lists themselves, but are sanctioned by their association to a named entity, including family and business associates. Partnerships between businesses also must have their ownership structures scrutinized for sanctioned persons, according to OFAC’s 50 percent rule.

The Importance of Conducting Proper Screening

Conducting proper AML screening is crucial because it helps to achieve valuable business metrics such as:

• ensuring the safety and overall security of your organization and its customers
• maintaining your compliance with AML regulations, improving reputations and dodging noncompliance punishments
• being a contributor to the international effort to combat money laundering, terrorism, and organized crime by curbing it on your own domain and adding to the international crimefighting knowledge base

In other words, those who conduct the proper anti-money laundering processes are more likely to bring further safety, efficiency, and AML intelligence to individuals, organizations, and even nations.

After all, it is important to remember that the AML screening processes that you have at your disposal are not just the product of authorities who have reported suspicious behavior. They are also the product of individuals and organizations, big and small, who carry out their own routine checks, including those related to customer due diligence (CDD), KYC, and so on.

Who Should Do AML Screening?

Depending on local jurisdiction, AML screening should generally be carried out by entities dealing with financial transactions, or in other high-value verticals that are commonly leveraged by money launderers.

Major market governments like the US require all companies that would do business on US soil or with US entities (or involving US persons abroad) to have AML frameworks with screening processes.

Specifically, organizations that especially should do AML screening are those that are responsible for particularly large sums of money, such as:

• financial institutions, such as banks and mortgage providers
• stock traders
• casinos and iGaming companies
• forex businesses
• investment companies
• insurance companies
• real estate agencies
• high-value retailers such as art dealers

Regardless of the nature of your organization, your security against money laundering is not just ideal, it is also a fundamental necessity and a legal requirement. 

If you are unsure of whether your organization could be a likely target for money launderers, it is worth remembering that money laundering methods grow and change over time, and an increasing number of unsuspecting legitimate businesses can be targeted as a result.

Regardless of whether or not you do in fact become a target, regulated verticals may be scrutinized for good AML practice by lawmakers anyway. This is just one reason why your safest course is to assume your organization may be subjected to money laundering operations and act accordingly.

The Consequences of Not Doing AML Screening

Those who do not perform AML screening will not only make their organization more likely to be targeted by money launderers, but they will risk facing fines, audits, and damaged reputations as a result of their oversight and/or negligence. Particularly egregious offenders may even find themselves named on an AML-associated list themselves.

Organizations of all shapes and sizes that are obligated to carry out AML screening should do so – but the more established businesses who fail to do their anti-money laundering checks may face harsher penalties. All in all, the phrase, ‘The bigger they are, the harder they fall’ springs to mind!

How Can SEON Help with AML Screening?

When integrated into your existing software stack, SEON’s AML API can be the tool that risk teams use to achieve compliance. SEON allows companies to screen their customers’ names against a comprehensive, constantly updated number of applicable watchlists. These lists hit all the major compliance targets, including PEP checks, sanctions checks, and crime watchlists.

SEON can also help support your AML framework beyond the screening process. AML regulations require continuous monitoring and accurate reporting of risky transactions and behavior, both of which can also be facilitated by SEON’s platform.

Though there is no software that can fully automate an AML framework, the manual workload can be reduced drastically by using SEON’s always-on behavioral monitoring, as well as by utilizing the transaction reports that the program generates for filing Suspicious Activity Reports (SARs).

Related Articles

• AML Toolkit: What to Know And How to Build Yours
• AML Automation: What Is It? Do You Need It?
• What Is AML Transaction Monitoring & How to Set It Up
• AML Compliance Officers: What They Do and Why They’re Crucial

Sources

• Veriphy: What is a Politically Exposed Person?
• Sanction Scanner: What is Watchlist Screening?