AML Screening: A Complete Guide

With the fast increase of digitization and new technologies aiding commerce and cross-border transactions, the global economy is expanding at an unprecedented and alarming rate. However, despite its great benefits, this rapid growth and the growing digital nature of transactions make room for more risks like money laundering, terrorism financing, organized crime, fraud, and other illicit activities. This makes the AML screening and monitoring process an important process in banks, Fintechs and non-financial institutions.

Governments and international organizations, like the Financial Action Task Force (FATF) and the Office of the Comptroller of the Currency (OCC), have implemented measures to mitigate these risks. Many legislations, like the Bank Secrecy Act, the USA Patriot Act, the Proceeds of Crime Act (POCA), etc,  have also been made to combat these illicit activities. Tools and procedures have also been created to support these measures and abide by Anti-money laundering legislation.

Among the most effective tools is Anti-Money Laundering (AML) screening process, a critical process for financial institutions and businesses that plays an important role in detecting and preventing financial crime.

What Is AML Screening?

AML screening usually entails identifying and flagging suspicious financial activities that could be related to money laundering or other illegal activities. This process involves monitoring transactions, customer onboarding procedures (Know Your Customer or KYC), and screening individuals or entities against sanctions lists, watchlists, and databases of Politically Exposed Persons (PEPs).

AML watchlist screening is a crucial part of AML screening and monitoring and ensures that institutions identify whether a person or entity is on any risk-related lists, including;

• Sanctions lists (e.g., OFAC, UN, EU)
• Politically Exposed Persons (PEP) lists
• Criminal watchlists (e.g., FBI, Interpol)
• Adverse media reports

When Is AML Screening Required?

So, when is AML screening required? There are several crucial situations or scenarios that may require an AML screening process. 

It is important to keep in mind that the major aim of AML screening is to combat money laundering and other related illicit activity, that is, to reduce or stop them even before they happen. 

AML screening forms part of a robust risk-based approach to compliance policy. 

AML screening is required when:

1. There Is An Ongoing Customer Onboarding Process 

When a new account is opened by a new customer, or a new customer begins the process of initiating a new relationship. AML screening is required as part of KYC or onboarding procedures. This ensures that the individual or entity is duly identified or verified, assessed for risk, and not involved in any criminal activities.

2. When A High-Value Transaction Is Made

AML screening must be done when customers initiate high-value transactions, above a particular limit (e.g., $10,000 in the U.S. or €10,000 in the EU). These limits depend on the host country, and any transaction above the limit may warrant the need for enhanced due diligence.

3. When A Cross-Border Transaction Is Initiated 

When transactions are made across international borders, especially between countries with different financial regulations, AML screening is required to ensure compliance with global and local laws and to detect potential illicit activity. 

This is mandated by the travel rule,  which requires financial institutions to collect and share certain information about both the originator and the beneficiary of a cross-border transaction. Details like address,  full name, transaction details, and account numbers should be collected and shared.

4. When a Suspicious Activity Occurs

AML screening is essential when a customer's account shows abnormal or suspicious behaviors, such as noteworthy changes in transaction patterns, large cash deposits, or transfers to high-risk regions. These usually lead to further investigation and, if needed, the appropriate officer and personnel filing a suspicious activity report (SAR).

5. When Continuous or Ongoing Monitoring Is Undertaken

AML regulations regularly require ongoing monitoring of existing customers and their transactions, especially for high-risk clients. Regular AML checks are performed to make sure that customer profiles remain up-to-date and no new risks have emerged.

6. When There Are Changes in Regulations or Sanctions Lists

Whenever sanctions lists, such as those from OFAC, the EU, or the UN, are updated, AML screening and monitoring must be performed to ensure that customers, partners, or counterparties are not on them. This is also necessary for entities categorized as Politically Exposed Persons (PEPs).

7. When There Are Large Cash Transactions or Deposits

AML screening is needed when customers make large cash transactions, whether they are deposits, withdrawals, or exchanges. Many jurisdictions or oversight bodies of specific regions require financial institutions to report cash transactions exceeding specific thresholds.

8. When There Is An Initiation Of A Wire Transfer

AML screening is required for wire transfers, especially international transfers or those involving high-risk countries or individuals. These transfers are scrutinized to ensure compliance with AML laws.

9. When There is a Merger or Acquisition

In corporate finance, AML screening and monitoring is often required during mergers, acquisitions, or partnerships to verify that the entities involved are not linked to financial crime or illicit activities. 

Why Is AML Screening Important?

Is AML screening and AML watchlist screening important? Definitely. Why are they important?

AML screening isn't just important because it is mandated by oversight bodies. It provides for a thorough anti-money laundering process and makes sure that money laundering or identity theft processes are stopped even before they happen.

Here are reasons why Anti Money Laundering Screening is very important:

1. AML Screening Protects The Financial System 

AML screening and monitoring is the barricade or wall that protects or maintains the integrity of the global financial system. It prevents unwarranted breaches; these are transactions made by unscrupulous actors for malicious means. Anti-money laundering screening protects the global financial system by preventing it from being used to launder money or finance terrorism.

2. AML Screening Helps Financial Institutions With Their Regulatory Compliance

Financial institutions and businesses need to comply with global and local AML regulations to avoid hefty fines, legal consequences, or even criminal liability. 

Non-compliance can lead to reputational damage, as well as loss of trust and penalties.

3. AML Screening Helps In The Reduction of Risks

AML screening helps companies identify high-risk customers ( e.g, PEPs), transactions, or companies early or before they occur as a result of transaction monitoring and AML watchlist screening. This allows businesses to manage risks even more effectively and avoid unintentional involvement in criminal activities.

4. AML Screening Enhances Customer Trust

AML practices help demonstrate a company's commitment to preventing and not aiding fraud and financial crimes, and it can help improve customer confidence and improve the business's credibility.

Types of AML Screening Process: How AML Screening Process Works

There are different types of AML screening, and each one plays a different role in the streamlined or arranged process of combating financial anomalies, from onboarding to ongoing monitoring.

The different types of AML screening include:

1. Know Your Customer (KYC) Screening 

Know Your Customer (KYC) screening is the first wall of defense in the AML process. It involves identifying and verifying a customer’s identity even before allowing them access to their services. This is basically the first thing to do before onboarding.

 This screening makes sure that institutions are aware of their customers' identities and backgrounds. Information and documents like ID (passport, utility bills), Address Verification, screening against sanctions, watchlists and PEP lists, and source of funds (for high-risk customers will be collected. 

2. Sanctions Screening 

Sanctions screening checks individuals and entities against global sanctions lists issued by organizations like the United Nations, European Union, Office of Foreign Assets Control (OFAC), and others. This process helps ensure compliance with international laws by preventing business with sanctioned entities.

Customers' names are cross-referenced with sanction lists; if found in the lists, the sanction matches will be reported to regulatory authorities as well.

3. PEP Screening

PEP stands for Politically Exposed Persons, and PEP screening basically identifies individuals who hold or have held prominent public positions in the past, e.g., a president, a minister, a statesman, a senator, a mayor, or a head of public service. PEPs are considered high-risk because they are prone to bribery, kickbacks, embezzlement, or corruption.

When high-risk individuals and their relatives or close associates are identified, enhanced due diligence is initiated for the relatives or close associates. This means that PEPs will be continuously monitored for changes in their risk status. 

4. Adverse Media Screening 

Now, as the term implies, Adverse media screening involves checking for negative news or media coverage about individuals, businesses, or companies that may show or indicate their involvement in criminal activities such as fraud, corruption, or money laundering. The media regularly reports accurate and candid details about cases like fraud, even if they may not be high-profile or popular cases. 

Adverse media screening will hinder malicious individuals from assessing services or initiating transactions under the radar as they may not be able to present correct and original IDs, may not be politically exposed persons, and may not be on global sanction lists. 

With adverse media, speedy searches of news articles and databases are automated. When there is a detection of adverse media reports, that is, involvement in criminal involvement, further investigation will have to take place.

5. Transaction Monitoring

Transaction monitoring entails continuously analyzing customer transactions to detect unusual patterns or suspicious activity. Automated systems flag transactions that fall outside normal behavior, such as unusually large amounts, frequent transfers to high-risk countries, or rapid movement of funds between accounts.

6. Cross Border Screening

As a result of FATF’s Travel Rule, Cross-Border Screening is now a very important component of AML screening. The Travel Rule requires the sharing of information between financial institutions. Cross-border AML screening concerns transactions that involve the movement of funds across different countries, especially jurisdictions with varying AML regulations. This type of screening ensures compliance with global and local AML regulations. 

Information that must be obtained and screened includes the identity of the sender and recipient, screening of the involved parties against sanctions and PEP lists, and Enhanced Due diligence for high-risk jurisdictions are also conducted. 

7. Ultimate Beneficial Ownership Screening 

Ultimate Beneficial ownership screening tracks for or aims to identify the ultimate individuals or entities that control or benefit from a business or account. It prevents money launderers from hiding behind layers of ownership to conceal their real identity. Commonly, money laundered is known to launder money through “fronts.” This enhanced screening can help combat that.

8. Ongoing Screening 

AML screening is not a one-time process; institutions must regularly rescreen customers, transactions, and entities. Ongoing screening or monitoring allows companies to capture changes in risk profiles, such as a customer being newly added to a sanctions list or becoming a PEP.

7. Watchlist Screening 

Watchlist screening is a particular type of AML screening that involves checking individuals, companies, and entities against various global watchlists to identify potential risks, like sanctions violations, involvement in financial crimes, or relation with politically exposed persons (PEPs). 

It is an important part of compliance programs in financial institutions and other regulated industries to make sure they aren't doing business with high-risk or illegal parties.

The Importance of AML Watchlist Screening: Why AML Watchlist Screening Process is Important

Anti-Money Laundering (AML) watchlist screening is an important component of compliance programs for financial institutions and other businesses. 

It plays a vital role in preventing and detecting illicit activities such as money laundering and terrorist financing. It also helps to protect the reputtion of a business that may lead to significant finacial losses.

AML screening and monitoring process allows banks and financial institutions comply with legal regulations such as the Bank Secrecy Act (BSA) in the United States, and the Proceeds of Crime Act (POCA) in the United Kingdom. Hence, helping them avoid penalties.
 

How To Automate Your AML Screening Process With Youverify

AML screening software makes AML screening much easier, as manual AML screening may be overwhelmingly tedious and monotonous. AML (Anti-Money Laundering) screening software is essential for businesses and financial institutions to comply with regulatory standards, detect suspicious activities, and prevent financial crimes. 

Youverify offers cutting-edge AML screening software that streamlines the process of identifying and mitigating risks associated with money laundering, terrorism financing, and other illicit activities.

Youverify offers a variety of software tools that cater to different AML screening types or processes. They include;

• ID Document Verification  
• Adverse Media Screening 
• PEP and Sanction Screening 
• Criminal Check 

This allows for real-time verification of a customer’s criminal records.

• Business Verification (UBO screening)

This software can be leveraged to uncover hidden threats to businesses early on in third-party relationships or customer relationships for B2B product companies. With this software, businesses can perform registry, customer, board, and ultimate beneficial owner screening. It is a very robust software solution that provides comprehensive or extensive reports. 

• Transaction Screening
• Business Identity Verification 

With this software solution, the identities of key business stakeholders, including Ultimate Beneficial Owners, Directors, Shareholders, and Employees, can be verified promptly.

With growth and advancements in AML screening software, like the compliance software tools provided by Youverify, the process becomes more efficient. This allows businesses to stay ahead of threats and maintain integrity in the fairly global economy. 

By implementing a thorough AML screening process, companies not only ensure compliance with regulatory requirements but also mitigate risks, protect their reputation, and improve or raise customer trust. Book a Free Demo with our compliance expert to see how it works.