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Navigating The Complexity of Ownership From The Lens of Sanction By Extension

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Lapses in UBO Identification, Sanctions Compliance, and Corporate data

Tuesday, 30th April. 13:00 - 14:00 London Time (GMT+1)

HOST

Mark Bain

Speaker

Louie Vargas

Speaker

Michael Harris

Watchlist Screening

05 April, 2024

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Watchlist screening is identifying criminals by cross-checking their information from various databases. It is most frequently used in financial institutions because they encounter scammers and fraudsters more than other entities. However, other businesses that want a secure environment must comply with watchlist screening. 

Watchlist Screening- Overview 

The practice of finding people and organizations engaged in money laundering, financing of terrorism, fraud, or other illicit activities is known as watchlist screening. These watchlists are made by governmental entities such as security agencies, regulatory authorities, and third-party organizations. Watchlist screening is essential for companies under AML/CFT compliance or who must verify their business partner’s identity. 

In the sanctions list, there are Politically Exposed Persons (PEPs), the United Nations UN, the Office of Foreign Assets Control (OFAC), Anti-Money Laundering, Special Interest Persons (SIEs), and the European Union (EU). These are mainly authorities that control or manage the watchdog list. These sanctions lists add biodata about individuals and businesses exposed to money laundering, corruption, financial crimes, terrorist funding, etc. 

Watchlist Screening- History 

In the early 1970s, the US government was obliged by the Bank Secrecy Act (BSA) to report suspicious activities of individuals for a transparent financial check. This marks the initial framework for the companies to report high-risk entities and prevent money laundering. 

After that, in the 2000s, the watchlist database was manually grown by international law enforcement agencies such as FATF, FinCEN, and the United Nations to combat terrorist funding. This shift change unveiled the company’s complex ownership structure. 

After the Panama Papers, Offshore leaks, and Pandora papers in the 2010s, watchlist screening expanded from only checking individual customers to identifying the company’s Ultimate Beneficial Owners (UBOs). In the era of globalization, machine learning technology or artificial intelligence adoption evaluates the watchlist screening. Furthermore, the 6th AMLD regulation from FATF forced countries to implement a technology-powered, risk-based approach. 

Watchlisting

Types of Watchlists

There are various watchlist sanctions that companies have to check to ensure the business is legitimate. The enterprises must ensure the partner business is not involved in transactional scams or sanctions lists.  A list-agnostic capability can do this, especially crucial watchlist screening, which can seamlessly integrate any format and make the business owners quickly available for screening and compliance purposes.  Below are the main watchlists used in compliance:

Global Watchlist 

Sanctions lists are created by international watchdogs such as the Financial Conduct Authority (FCA), Financial Actions Task Force (FATF), European Union (EU), United Kingdom (UK), United Nations (UN), Securities and Exchange Commission (SEC), Financial Crimes Enforcement Network (FinCEN), and other countries law enforcement agencies. The intergovernmental and state-specific databases created the global sanctions list by sharing information. 

PEPs Watchlist 

The politically exposed person watchlist mentions all international corrupt politics. These are all the individuals who are involved in illicit activities or keeping tainted funds. The government and third-party bodies created this watchlist to prevent their laundered money from entering the global financial system. PEP screening ensures that the company carries out detailed notes on screening to expose the bad actors in the initial step and secure the dignity of the international economy. 

International Wanted Persons 

The US Federal Bureau of Investigations (FBI) created a list of the “international most wanted” individuals. They assess the AML, CFT, and PEP data from which they design the FBI sanction watchlist. The number of individuals varies depending on the country’s policies and regulations. This helps financial institutes and other entities take a risk-based approach and calculate the associated risk according to their involvement in money laundering and terrorist financing. The FBI’s list is updated with new criminals added or removed over time.  

Adverse Media Screening 

The adverse media database contains negative news about people involved in illicit activities. It indicates the involvement of the company and its owner. The negative news can be about illicit activities, controversies, and illegal events. Participation of their name in these areas increased the risk associated with them. Adverse media watchlist screening provides insights into companies and their relation with other businesses, securing the reputations of the onboarding entity. 

How Does Watchlist Screening Work? 

Watchlist screening is crucial in identifying criminals in the initial phase and protecting businesses from money laundering. It also ensures global compliance to expand business worldwide. The screening process starts by collecting information about companies and their owners. For watchlist screening, they must submit essential documents such as government ID, driver’s license, financial statement, business registration number, or other papers according to the country’s obligations. 

Then, verify these documents by data validations and checking security features. Once the identity is proven, you have to screen the data against various watchlists to ensure the legitimacy of the company and owners. This process can be done manually or automated; 

Manual Watchlist Screening 

For that, businesses must submit the required data manually to the financial organizations or their partner company. Now, the person collects this data and reviews the documents one by one. It is a high-level risk and time-consuming. Manual data verification is error-prone and costly because it needs a hefty budget and expertise. Especially when the company is verifying a significant and complex amount of data

Automate Watchlist Screening 

On the other hand, advanced watchlist screening uses machine learning and artificial intelligence. This assesses the document remotely and instantly verifies the customer’s identity. Automation gives companies the upper hand in reducing costs and time. The machine learning technology quickly analyzes and identifies the data with the watchlist to provide fast and accurate results. The automated screening can process a large volume in a shorter time. Automation has become increasingly popular due to minimizing the risk of financial crimes.

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