AML requirements request that companies check if their customers and business partners appear on specific databases, including crimes and sanctions watchlists.
But what are these watchlists exactly, and how can you streamline the process to ensure compliance without adding too much friction for your customers and operational burden for your employees? Let’s break it down in this post.
What Is AML Crime and Sanctions Watchlist Screening?
Watchlist screening is a crucial part of an AML compliance program. Companies expected to comply with anti-money laundering regulations must ensure that they know whether the names of their customers or business partners appear on specific databases.
These databases contain the names of criminals, suspected terrorists, sanctioned individuals, and politically exposed persons – as the latter are deemed more likely to be targeted for bribes and corruption.
Watchlist screening is often used as a term to refer to crime and sanctions list checks. Both criminal and sanctions databases are maintained and updated by governmental and law enforcement agencies. Some examples are Interpol’s Red Notice, the EU Consolidated Sanctions List, and the FBI’s Most Wanted & Fugitives.
As with all kinds of name-matching technology, it is crucial to ensure that AML crime list screening tools are adept at understanding phonetic similarity, transliteration, spelling, and semantic similarity.
This is to ensure that you do not accidentally block or refer an innocent person whose name is the same as a criminal’s, which would result in a false positive.
Importantly, this also allows you to prevent false negatives, which would mean a criminal is not flagged because their name has spelling variants, or because the script their ID documents is written in can be transliterated in more than one way.
Why Crime Watchlist Screening Is Important
If your company is subjected to AML requirements, crime list screening is your regulatory obligation. Failing to perform appropriate checks at the onboarding stage could result in the following:
- Hefty compliance fines: AML fines are designed to be prohibitive for financial institutions, which is why AML costs are often measured in hundreds of thousands of dollars.
- Becoming instrumental in money laundering: You must also consider the legal and operational consequences of allowing criminals to use your product or service – which means you are helping money laundering.
- Reputational damage: Getting caught not being AML compliant will hurt your reputation in the eyes of investors, business partners, employees and stakeholders – even your public image.
However, a key challenge of watchlist screening is understanding how to do it properly without adding too much friction to the onboarding journey. You want to minimize false negatives, as they amount to non-compliance, without getting too many false positives, which can interrupt the customer journey and clog up your workflow, as each has to be checked by a human.
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Examples of AML Crime and Sanctions Watchlists
While certain companies offer subscriptions to their proprietary watchlists, or bundle access to them with their AML software, governments and law enforcement agencies usually make their databases public. Examples of crime and sanctions watchlists include:
- Interpol Red Notices: A Red Notice is a worldwide request to locate and arrest an individual, pending legal action.
- FBI’s Most Wanted: The Federal Bureau of Investigation makes its Most Wanted list public on its website.
- SECO: A list of people, addresses, legal entities and vessels managed by the State Secretariat for Economic Affairs (SECO) of Switzerland. The list is designed to enforce embargoes against unwanted trading partners.
- EU Consolidated Sanctions List: This aggregates all the entities, persons and groups under EU sanctions.
- Financial Crimes Enforcement Network watchlists: Lists kept by FINCEN, originally designed to meet requirements for the Bank Secrecy Act (BSA).
You may find hundreds of other watchlists online, especially when you begin digging into smaller countries, whose government agencies may make their records public.
How to Check Crime and Sanctions Watchlists
There are different ways to check whether someone’s name appears on AML watchlists, from manual searches to more sophisticated tools that sometimes integrate more functionality.
The simplest is to look for it manually. Because so many watchlists are publicly available, it’s as easy as reading the list yourself. While this is something you could automate by building a script or tool internally, it isn’t exactly a scalable process, especially as you need to go over dozens, if not hundreds, of crime and sanctions lists.
This is where AML tools will come in handy. Simply entering the name into a search field will let your AML solution match it with potential entries in numerous databases.
Note, however, that you should consider the following points when deciding on a tool to invest in:
- Does the tool scan databases that are relevant to you? This is easy to get wrong, especially if you are only looking at large databases in the wrong location. For instance, a global AML vendor may only have US and UK databases, which could be a problem if you operate in the APAC region.
- How does the tool handle names? A key challenge with name searches is to find spelling variations, different alphabets (Chinese or Arabic characters, for instance), and even nicknames.
- How effective are the tool’s algorithms? Most AML solutions will rely on fuzzy matching, which is designed to reduce false negatives stemming from spelling variations. But you could also benefit from confidence scoring functionality, which tells you how confident the system is that a given result was accurate. This lets you manually automate your next AML steps and know who to manually review.
- Is there additional functionality you require? Depending on the vendor, you may get the chance to perform AML watchlist screening at the same time as your PEP, KYC and/or fraud checks, helping you to save on operational costs and reducing data silos during onboarding.
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How SEON Checks AML Crime Lists
SEON is a fraud management system that enables you to learn as much as possible about your customers with minimal friction. This helps weed out fraudsters and reward good customers with the best possible experience. Part of our solutions is SEON’s AML screening module, as well as additional AML functionality.
The AML API can be combined with one or more other modules to optimize workflows. You can check customers against crime lists, sanctions lists, high-risk names, and PEP lists, all available in multiple character sets and with fuzzy matching.
You can also do AML transaction monitoring, as well as weed out fraudsters before you conduct ID document verification, thus significantly reducing IDV and KYC costs thanks to SEON’s dynamic friction approach.
Using the same dashboard for fraud prevention, customer profiling and AML, SEON allows companies to streamline their risk management and compliance processes without sacrificing efficiency or safety.
Ready to get started? Get in touch to learn more about our AML module today, or sign up for a free trial with SEON today.
Known AML crime lists include Europol fugitives, Interpol’s Most Wanted List, and the FBI’s Most Wanted & Fugitives.
Crime watchlists focus on individuals who have been convicted of crimes, while sanctions watchlists contain the names of individuals who are prevented from doing business in certain countries. Note that these watchlists are often checked at the same time – especially when you’re doing so with automated AML tools.
AML tools must check for names on databases. Unfortunately, names are a difficult type of data to handle, because of spelling variations, namesakes, and various alphabets. This is why an AML screening tool will usually let you perform a fuzzy search for names that include phonetic similarity, transliteration differences, or hyphenation. In essence, this helps provide more accurate results.
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Gergo Varga is SEON’s Product Evangelist. With more than 10+ years of experience in the Hungarian and international risk management sphere, he has developed an astute knowledge of RiskOps and Open Source Intelligence. He is the author of SEON’s Fraud Prevention for Dummies guide.
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