Customer Screening

Customer screening is a core part of anti-money laundering (AML) compliance. It allows businesses to identify potential risks before they become costly problems, ensuring operations remain secure, compliant and efficient. Because screening is such a frequent and high-stakes process, getting it right is essential for protecting both reputation and revenue.

This article will cover:

• What customer screening involves and why it matters in AML
• The key steps to conducting effective customer checks
• When and how often screening should take place
• Common customer screening challenges
• How technology can make customer screening faster, smarter and more reliable

What is Customer Screening in AML?

Customer screening in AML is the process of evaluating individuals and businesses to identify potential financial crime risks. It involves comparing customer data against sanctions lists, politically exposed persons (PEP) databases and adverse media sources to detect links to money laundering, fraud or other illegal activities. A key component of this process is customer risk assessment, which helps financial institutions determine the level of scrutiny each customer requires.

Why Is Customer Screening Important for AML

By proactively screening customers, businesses can ensure compliance with AML regulations, reduce exposure to financial crime and protect their reputation. Here’s why it matters:

• Reducing financial crime risks: Businesses can proactively mitigate risks by identifying customers linked to sanctions, fraud or other illegal activities, preventing exposure to money laundering, terrorism financing and other financial threats that could lead to severe consequences.
• Ensuring regulatory compliance: Compliance with AML laws and KYC regulations is essential for avoiding hefty fines and legal repercussions. 
• Protecting reputation: Failing to screen customers properly can lead to associations with bad actors, damaging a company’s credibility and stakeholder trust. 
• Improving operational efficiency: A seamless, automated screening system ensures legitimate customers can onboard quickly while flagging high-risk individuals for further review. Finding the balance enhances the user experience while strengthening fraud prevention efforts.

Customer Screening Requirements

Customer screening is required for any organization involved in financial transactions or handling customer funds. Regulations such as the EU’s 6th Anti-Money Laundering Directive (6AMLD) and the Bank Secrecy Act (US) set standards for customer due diligence, identification, ongoing monitoring and reporting suspicious activities, and apply to both individual and business customers.

AML and KYC regulations apply across multiple industries, including iGaming, fintech, payments, insurance and real estate.

• iGaming: Online gambling is a high-risk sector for money laundering, as rapid deposits and withdrawals obscure fund origins. Real-time customer screening helps operators detect high-risk players, flag suspicious betting patterns, and comply with AML rules without slowing legitimate activity.
• Fintech: Every new account or transaction can expose fintechs to fraud and AML breaches. Regulations require screening across the full customer lifecycle, not just at onboarding. AI-driven tools now help manage high transaction volumes, reduce false positives, and strengthen compliance.
• Payments: Payment providers, acquirers, and remittance firms operate at high speed and scale, making them prime targets for illicit flows. Screening protects networks by blocking sanctioned individuals and stopping illicit transactions across borders.
• Insurance: Life insurance, annuities, and high-value policies can be exploited to launder large sums over time. Screening verifies customer identities, checks sanctions and PEP lists, and keeps insurers aligned with global AML requirements.
• Real estate: Property deals are often used to launder money through opaque ownership structures. Screening uncovers hidden beneficiaries, sanctioned entities, and PEPs before transactions close, helping firms meet AML obligations and prevent misuse of assets.

How Is Customer Screening Conducted

Customer screening involves collecting and analyzing information to assess legitimacy and potential risks. This typically starts during the onboarding process, where new users’ registration data is submitted and cross-checked against various watchlists and databases.

At the heart of the process is comparing verified customer information with sanctions lists issued by financial authorities and government agencies. If a potential customer is flagged as a known money launderer or linked to other illegal activities, they’ll fail the AML screening. The more comprehensive the customer data and the more thorough the cross-checking against trusted databases, the more effective the screening process becomes.

Here’s a breakdown of the typical steps involved:

• Collecting data: Gathering customer information, including identity details, address, date of birth and other relevant data points.
• Watchlist screening: Cross-referencing the collected data against criminal watchlists to identify potential matches.
• Sanctions screening: Checking customer details against databases covering government sanctions to identify individuals or entities subject to penalties or restrictive measures.
• PEP screening: Identifying politically exposed persons (PEPs) and their close associates due to their higher risk of involvement in money laundering or corruption.
• Adverse media checks: Scanning media outlets for individuals or entities linked to criminal activity, corruption or other reputational risks.
• Continuous monitoring: Regularly updating and re-checking customer data against updated watchlists and databases to ensure ongoing compliance.
• Assessing risk: Evaluating the overall risk associated with a customer based on the screening results and other factors, such as transaction history and red flags indicative of fraud (IP address fro high-risk country, lack of social media profiles, etc.)

When Should Customer Screening Be Conducted

Customer screening isn’t a one-time check at onboarding — it’s an ongoing requirement. A customer who passes initial verification can still become high-risk later due to regulatory changes, new sanctions, or shifts in financial behavior. To stay compliant and avoid penalties, banks and financial institutions should conduct screening at key points in the customer lifecycle:

• During onboarding: Screening before granting access ensures new customers are legitimate and not linked to sanctions, PEPs, or criminal activity.
• Before high-risk transactions: Real-time checks during payments or fund transfers help prevent money laundering and terrorist financing.
• On a periodic basis: Regular re-screening (monthly, quarterly, or annually, depending on risk exposure) captures new threats and regulatory updates.
• After sanctions or watchlist updates: Lists maintained by bodies such as FATF, OFAC, or the EU are updated frequently, requiring immediate re-screening.
• When customer information changes: New addresses, employers, or ownership structures can all alter a risk profile and trigger fresh checks.

By aligning screening with these critical moments, compliance teams can keep risk assessments accurate and demonstrate to regulators that they’re applying a proactive, risk-based approach.

Common Customer Screening Challenges

While customer screening is essential for AML compliance, it comes with challenges that can weaken effectiveness if not addressed. Many of these difficulties stem from poor-quality data, outdated tools or operational bottlenecks, making it harder for businesses to keep pace with evolving risks.

Key challenges include:

• Data quality: Misspelled names, incomplete records or inconsistent formats reduce accuracy, leading to missed matches or false negatives.
• Outdated watchlists, PEP and sanctions data: Without regular or real-time updates, newly flagged individuals and entities can slip through undetected.
• False positives: Overly sensitive systems often generate false matches, forcing time-consuming manual reviews and slowing down onboarding.
• Infrequent re-screening: Many institutions rely on ad-hoc schedules or manual updates, creating blind spots and delaying response to regulatory changes.
• Rigid rule logic: Static screening systems may overlook context-driven risks, such as location changes, VPN usage or other red flags tied to behavior rather than static data.

Advanced technologies like AI and machine learning are increasingly used to overcome these challenges. By improving accuracy, reducing false positives and enabling real-time updates, they make AML screening both more efficient and more effective.

How Can SEON Help

SEON’s customer screening software empowers compliance teams to enhance their customer screening efforts and maintain AML compliance more effectively. It simplifies the process by integrating a constantly updated portfolio of sanctions lists and other relevant watchlists. The platform automatically flags potential matches based on customer data (like names and addresses), making it easier for compliance officers to conduct swift manual reviews.

Going beyond basic data matching, SEON also leverages real-time digital footprint analysis and device intelligence. These features create a detailed profile of each flagged individual, helping compliance officers make informed decisions about whether a match is legitimate, thereby reducing false positives. With continuous monitoring and transaction screening capabilities, SEON provides a comprehensive solution for businesses looking to strengthen their defenses against financial crimes and stay on top of regulatory requirements.