Screening

Screening

Screening is a broad term encompassing the process of searching for a particular element of risk within a counterparty. In today’s digital world, screening often involves the use of an automated software tool which minimizes manual work. From the results of a search, existing and potential issues can be identified and flagged, and if needed, analysts can further investigate for validation.

Types of risks that are screened include:
• Adverse Media
• Politically Exposed Person (PEP)
• Sanctions

But if the screening is to be super thorough, then companies should also screen for these additional items:
• Watchlists
• Fitness and Probity lists

Adverse Media

Adverse Media is a broad term for any negative coverage about a counterparty that is published in the media. This can include reporting on and allegations of a counterparty’s involvement with illegal activities such as but not limited to money laundering, exposure to sanctions and corruption.

Adverse Media Screening

Adverse Media Screening is the search for adverse media and negative news about a person or a business. A critical part of KYC processes, Adverse Media Screening allows organizations to see if there will be any potential issues with a counterparty before the start of the business relationship. Sources that are searched typically include news sources, business and trade journals, local / regional / national newspapers.

Politically Exposed Person

PEPs are important when performing KYC - as these individuals are vulnerable to forms of corruption such as bribery. A PEP is a Politically Exposed Person is an individual who has been entrusted with a prominent public function such as being a politician, government official or head of state - or having significant influence with their position within the military or the judicial system. PEPs can be foreign or domestic. Individuals can also be a PEP if they are related to a politically exposed person via marriage or familial associations.

Politically Exposed Person Check

With a list of key individuals within your counterparty, a Politically Exposed Persons Check can be done to ensure that they are not included in any databases containing PEPs. To comply with Anti-Money Laundering AML regulation (specifically a Financial Action Task Force (FATF) recommendation), it is a legal requirement to ask about PEPs, so most KYC questionnaires will explicitly ask their counterparties if they have any senior officers who are PEPs or who are related to a PEP. This can also be known as a PEP Screening.

Politically Exposed Person Screening

The term Politically Exposed Persons Screening is used interchangeably with Politically Exposed Persons Check - as defined above.

Sanctions

Sanctions are restrictions or punitive actions - in the form of financial penalties, restrictions on trade, diplomacy or the like - which are placed on individuals or groups which can include corporations, industries or countries. Typically, sanctions are placed to curtail illegal activities.

Sanctions Screening

Sanctions Screening is a search performed on a counterparty to see if it is on any sanctions lists.

This is the rigorous and methodological process of checking whether your client or third party are on any of the main global sanctions lists. A thorough sanctions screening protocol should include clear information on when sanctions screening must take place, how the evidence of the steps taken during sanctions screening will be saved and stored, and how red flagged names will be handled and reported.

Autonomous Sanctions

An Autonomous Sanction describes a sanction which has been issued by a single country. This can also be known as an Unilateral Sanction.

Unilateral Sanctions

An Unilateral Sanction describes a sanction which has been issued by a single country. This can also be known as an Autonomous Sanction.

Multilateral Sanctions

A Multilateral Sanction describes a sanction issued together by multiple countries that are acting together. For example, the EU and the UN include a number of member states, so when these organizations issue a sanction, the sanction is a multilateral sanction.

Sanctions List

A Sanction List is a database for a particular sanction citing all of the individuals and/or organizations (companies, legal entities and countries) which it is illegal to be involved with. Sanctions Lists are dynamic and are updated regularly. Examples of global and relevant sanctions lists include but are not limited to those issued by the Office of Foreign Asset Control | OFAC (United States), His Majesty's Treasury | HMT (United Kingdom) and Office of Foreign Asset Control | OFAC (United States) and the Specially Designated Nationals And Blocked Persons List | SDN (United States). Note that the legal requirement and risk appetite to avoid organizations on any given sanctions list will vary from company to company and from country to country. For example, a certain sanctions list may be applicable to companies in Germany but not to companies in Japan.

Passthrough Sanctions

With KYCC, companies would look into the likelihood of any Passthrough Sanctions via their counterparties. A breach with this type of sanction can occur even if your vendor, supplier or counterparty is not specifically on a sanctions list. You would be at risk and bear significant responsibility in the form of fines, penalties and reputational damage if your counterparty is doing business with a sanctioned individual or organization.

Watchlist

A watchlist is a list that has been issued by a regulatory group such as a law enforcement agency of individuals and/or entities who are involved with illegal activity or a form of non-compliance at an international level. Those on a watchlist require screening and potentially additional monitoring as they may represent a higher risk. Some examples of who would be on a watchlist include but are not limited to: suspected money launderers, human / arms / drug traffickers, and terrorists, PEPs, scammers and fraudsters.

There is a difference between a watchlist and a sanction - as watchlists are not used as a method by government agencies or diplomacies to accomplish foreign policy objectives and the like.

Fitness and Probity Lists

Fitness and probity lists contain individuals and legal entities who have been involved with any problematic activity - for example breaching regulations or a code of conduct. While the problematic activity may not necessarily be considered as an offense, nonetheless it should raise questions and concerns for an organization before getting into a business relationship together with the counterparty.

Automated Screening Tool

Without an Automated Screening Tool, screening can be an exhaustive process - even with the availability of and access to digital databases. When it’s integrated KYC software like Avallone, this is a powerful and effective way to minimize the risk of your organization. With provided information for counterparties and any associated individuals, an automated screening tool will be able to see if there are any matches - typically to sanctions lists, PEP databases and adverse media articles / posts - and if there are matches, to flag and allow an analyst to research and confirm not just the match, but the severity and risk.