High-Risk Individuals: How Should You Deal With Them?

Identifying and monitoring high-risk individuals is crucial to ensure AML compliance.

But that’s easier said than done. What do you do when you’re operating in a new market? Or if your information is out of date? And how should you deal with these high-risk individuals anyway? All the answers are below.

What Are High-Risk Individuals?

High-risk individuals, also known as high-risk customers, are labeled as such because they are more likely to try to launder money through your organization. Identifying these individuals is a crucial part of the anti-money laundering process (AML), which is a legal requirement for a number of industries. 

The AML process legally binds companies to check where there is a potential risk of money laundering. Part of it involves verifying identities, specifically by checking names on specific lists, such as PEP lists, sanctions lists, and watchlists. 

Identifying high-risk customers is also part of the enhanced due diligence process (EDD), which is prevalent in banking and finance but also increasingly deployed by other verticals such as iGaming, real estate, lending, or BNPL, among others.

Why Should You Identify High-Risk Individuals?

Identifying high-risk individuals is a crucial part of the AML process – therefore it’s worth investing in proper risk management software to aid this. Failing to do so will result in:

• AML fines
• legal issues
• further investigation by regulatory bodies
• damaged reputation with customers, stakeholders, or even employees

In 2022 alone, fincrime fines – which include AML fines for companies who failed to identify high-risk individuals – reached a total of $5.27 billion.

The UK’s Financial Conduct Authority, for instance, handed out $226/£184 million worth of fines to companies as varied as global financial organizations and privately owned brokerage firms. 

What Makes an Individual High-Risk?

Because AML regulations aren’t universal, what makes an individual high risk may vary from one country to the next. However, most jurisdictions tend to have regulations targeting people who are:

• politically exposed persons, also known as PEPs: this is verified via a PEP check
• people based in a country on a sanctioned list
• customers working in industries found on sectoral sanctions lists
• users whose transactions, including payments, deposits, or withdrawals, exceed the AML threshold (set at $3,000 in the US, for instance)

It is worth noting that people or even companies can become high-risk after establishing a working relationship with your company.

A change in PEP status, for instance, is a common occurrence when someone gets promoted as a head of state, member of the judiciary, or senior executive at a state-owned enterprise.

Because even family members can automatically become PEPs, it’s crucial to regularly check your customer base against the most up-to-date lists. 

5 Solutions to Identify High-Risk Individuals

While identifying high-risk individuals may seem like a daunting task, there is no shortage of options to help you do so.

1. Manual Screening

You can take a customer or business entity’s name, and begin investigating them yourself. This constitutes a form of manual screening, which may rely on Open Source Intelligence Techniques (OSINT).

For most people, this may look like a Google search. But there is a surprising amount of additional information you can find when you start digging further. News sources are a great way to search for politically exposed persons, for instance, and there are specialized databases out there, too.

2. Automated AML and PEP Checks

AML and PEP checks are tricky to automate. You must use suitable databases, and ensure they are always up to date. This becomes exponentially more challenging when you deal with customers in multiple regions. 

A common solution for modern businesses is to rely on a third-party software solution. The tool will automatically keep track of the latest database changes from official sources, and even perform fuzzy searches to ensure you’re not getting false negatives. 

The key advantage, of course, is the ability to screen at scale. Manually reviewing the names and locations of every new customer is time-consuming and costly. Letting software do it for you helps.

3. Transaction Monitoring 

Sometimes, you might miss potential AML risk at the onboarding stage. But it all may be revealed once you start looking at the movement of funds between a customer or company and your business. 

This is why transaction monitoring is so essential, not just as a tool to ensure compliance when looking at payments above the AML threshold, but also to catch any potential misdeeds.

4. Digital Footprint Analysis

A key way to identify high-risk individuals digital footprint analysis. This involves finding out more about the owner of an email address or phone number starting with just those as primary data.

Thanks to data enrichment from 50+ sources, including social media and crowdsourced information platforms, SEON can gauge how long an email address has existed, how believable their presence is online compared to that of a legitimate customer from their country, and so on.

For example, an email address that does not have any social media presence whatsoever would be highly suspicious for several purposes – including AML, especially if it ostensibly belongs to a younger person.

You can try this below by entering a phone number or email address:

5. Device Fingerprinting 

Often, you can get a good idea of who someone is by studying their software and hardware configuration, and comparing it to what you know about them. This way, you can find out if their setup appears manipulated, spoofed, or otherwise suspicious. This points to risk, and that risk may be AML-related.

Here is an example of what may be considered suspicious onboarding. 

1. You acquire a new customer, and they pass the KYC checks.
2. You identify that their IP address and declared home address point to different locations.
3. They connected via a virtual machine. 
4. They deposit funds just under the AML threshold.

Clearly, the identity verification part of the KYC process could be at fault. Maybe they used a stolen ID to create a synthetic identity? In fact, it looks like they are purposefully obfuscating their real location and setup.

While this isn’t necessarily enough to label them high-risk individuals in AML terms, it’s certainly enough to raise red flags from a KYC or fraud prevention standpoint.

How Should You Deal With a High-Risk Individual?

If you’ve identified a high-risk individual trying to do business with your company, your first step is to internally notify upper management, and document the fact you have escalated this. 

You will also need to attempt to determine the source of the high-risk customer’s funds. Legally speaking, you must also monitor their transactions and log them as part of your Suspicious Activity Reports (SARs). Depending on the situation and jurisdiction, it may be a crucial part of the SAR process to be careful not to “tip them off”. 

If your concerns escalate, you can also use a government service or authorities to accelerate the process of submitting your SAR.

How SEON Can Help You Identify High-Risk Individuals

SEON’s fraud prevention and risk mitigation suite includes several anti-fraud APIs. We streamline identity verification and help monitor transactions. Recently, this set of tools was also augmented with an AML screening tool, which bridges the gap between your compliance needs. 

With SEON, you can benefit from unique digital footprint analysis, robust device fingerprinting, pre-KYC checks to reduce KYC costs, transaction monitoring, customizable risk rules, and the option to check PEP, watchlists and sanctions lists – all from the same dashboard.

FAQ

Sources

• AML Intelligence: Global FinCrime fines drop to €5BN so far in 2022
• Financial Conduct Authority: 2022 fines