What Is AML Screening & Why Is It Important?

AML screening is essential for entities in financial transactions or high-value industries. Governments like the US mandate AML frameworks for businesses operating domestically or with US entities. Organizations handling large sums, such as banks and casinos, must prioritize AML screening as money laundering methods evolve, ensuring safeguards and compliance.

Failing to conduct AML screening increases the risk of money laundering, fines, audits, reputational damage, and even being listed on AML watchlists. Larger businesses face harsher penalties, proving “the bigger they are, the harder they fall.”

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 in which 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 involves gathering and analyzing customer information, such as identities and transactions, to assess whether customers are legitimate or potentially suspicious. This is primarily done by cross-referencing verified customer data with sanctions lists provided by financial authorities or government agencies.

For industries regulated by AML legislation, new users must undergo AML screening during registration. Their submitted data is compared against watchlist databases, and if a match is found – such as a known money launderer – the customer would fail the screening. The effectiveness of this process depends on collecting comprehensive customer information and cross-checking it with authoritative sources.

Main Types 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 major examples of them.

Sanctions Screening

Sanctions screening is a process that compares customer data to government sanction lists, checking names, birthdates, and social security numbers to ensure individuals or entities aren’t prohibited from conducting transactions.

Government sanctions are penalties or restrictions imposed on individuals considered threats, such as those deemed a national security risk, and listed in a sanctions database. Sanctioned individuals may not be directly listed but are sanctioned through their association with named entities, including family and business partners. Business partnerships must be checked for sanctioned ownership per OFAC’s 50 percent rule.

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.

Adverse Media Screening

Adverse media screening is a key part of CDD and KYC, monitoring for risk based on a person’s media exposure, whether positive or negative. This exposure increases the risk of bribery or blackmail.

Adverse media for risk management comes from publicly accessible news outlets. A comprehensive screening program should cover all sources, with tools like social media lookups, reverse phone/email services, or media scanning aiding the process.

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.

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.

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).

AML Related Articles

• What Is AML Transaction Monitoring & How to Set It Up
• AML Verification: How to Not Get Fined
• How to Reduce the Cost of AML Compliance
• Top AML Software & Tools in 2024

Sources

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