We all watch the news and see countless exposés that reveal the criminals behind the crimes that have been committed. You’ve probably also seen negative news stories about political officials and heads of state in your country. While to the average person this is just another day, to financial institutions this is extremely important information.
Adverse media is at the heart of anti-money laundering (AML) and counter-terrorist financing (CTF) measures that financial institutions are required to have in place. In this article we cover what adverse media is, why it is important, the different types of adverse media, and best practices.
What is adverse media?
Adverse media, also referred to as negative news, is any kind of unfavorable information found across a variety of news sources. This includes both traditional news outlets, such as newspapers or television programs, as well as unstructured sources such as social media. Conducting business with persons or organizations who have an adverse media profile presents a number of risks that a financial institution needs to be prepared for.
Prior to the digital age, adverse media primarily originated from traditional news media. However, thanks to the rise of the internet and social media, adverse media can now come from a wide range of sources. Adverse media sources now include blogs, online forums, and social media platforms such as Facebook and Instagram.
Why is it important?
Identifying and monitoring adverse media should be an important part of any financial institution’s customer due diligence process. When breaking news reveals that a client has been involved with an unethical or criminal activity like money laundering, organizations need to be able to identify and access those stories as soon as possible. This needs to be done in order to reassess the risk that said client poses and additionally, to protect the financial institution from reputational damage and possible legal repercussions.
Monitoring adverse media is also a major part of working with Politically Exposed Persons (PEPs). A PEP is an individual who is currently or has previously been entrusted with a prominent public position. PEPs are considered to be higher risk customers to both financial institutions and Designated Non-Financial Businesses and Professions (DNFBPs) because they are more likely to acquire assets through illegal means, such as bribery and corruption.
As such, working with PEPs requires constant monitoring and due diligence. For monitoring purposes, the media is a useful tool and one that should be taken advantage of, and this includes adverse media. It is vital for a financial institution to know if a PEP (or any other high risk individual) has been implicated in an illegal activity or scandal, in order to properly assess the risks they present. Additionally, it is important to stay on top of any negativity for both regulatory and PR purposes.
The different types of adverse media
Despite what you may think, adverse media goes far beyond financial crimes. Here are the ten types of adverse media:
- Financial crimes – This covers a wide range of activities including money laundering, fraud, bribery, and terrorist financing. Financial crime is a very broad and complicated field that may be covered by both traditional and unstructured sources.
- Violence – Violence involving clients, whether directly or carried out on their behalf, can generate a lot of adverse media, particularly when it is related to a criminal enterprise. Violent crimes can range from political and/or workforce disputes to human rights abuse.
- Terrorism – Financing any terror-related activities will create a significant amount of adverse media for a client. In this case, terror-related adverse media ranges all the way from distributing terrorist literature to the direct perpetration of terrorist acts.
- Fraud – Fraud has a very broad definition and as such, can be perpetrated in a number of different ways. It can be both a civil and criminal offense, and may also involve immigration or property.
- Narcotics – Narcotics offenses include not only the use and/or sale of drugs, but also drug production and trafficking. Narcotics crimes are often tied to financial crimes, including money laundering and terrorist financing.
- Cybercrime – Cybercrime is a pretty broad term but it involves any criminal activity involving a computer or networked device such as a mobile phone or tablet. Generally, cybercrime involves activities used to facilitate other offenses like fraud and money laundering.
- Regulatory – Non-compliance or regulatory misconduct may be a crime in and of itself, or it could be an indication that a client is involved in other illegal activities. Adverse media stories that cover regulatory offences regularly crossover with financial crime.
- Property – Adverse media regarding property can involve activities such as burglary, arson, and theft. Property offenses constitute both civil and criminal misconduct, and may vary greatly in scope.
- Trafficking – Trafficking is a serious criminal offense that involves the transport of humans for the purposes of sexual exploitation or forced labor. It can often be related to other offenses such as terrorism and financial crimes.
- Sexual crimes – This includes a wide range of activities, ranging from the transmission and/or possession of illegal imagery to abuse and rape. Typically, sexual crimes are often related to other offenses including cybercrime.
Categorizing adverse media is more important than you think, especially since the Financial Action Task Force (FATF) states that financial institutions must understand a client’s reputation. Naturally, adverse media is a part of that. Adverse media categorization takes a mass of information and breaks it down into bite-sized chunks. Given the range of crimes and the severity, not all adverse media is the same, and having a system to categorize it means that the risk levels of a client can be adjusted as needed.
As an example, let’s take a news story breaking about a client laundering millions of dollars. This behavior is far more risky than a client who wrote a bad cheque. Being able to determine the risk level of each type of adverse media allows for effective monitoring and compliance.
Best practices for adverse media screening and monitoring
Firstly, adverse media can involve incredible amounts of data, which can make the process extremely time intensive and laborious. It’s virtually impossible for one person or a group of people to be able to manually check all local, national, and global media (possibly in multiple languages) for any signs of adverse media.
Financial institutions also need to be able to quickly prioritize and process any relevant information and make decisions quickly. As a result, in order to efficiently process data, it is considered a best practice to combine automated screening with manual screening.
Naturally, automation is faster than a human being and can be tailored to an organization’s needs, but it does have its limits. Manual elements are needed to do things like set and update parameters, and to review the information to ensure that the results are not a false positive. Automated adverse media screening is most productive when it is combined with a manual strategy.
Secondly, ongoing monitoring is vital when it comes to adverse media. Adverse media screening can only provide historic information about a client, and if that information is never updated then huge problems can arise. In a worst case scenario, it could lead to massive reputational damage and large fines for a financial institution. Ongoing monitoring ensures that information is regularly updated and remains accurate. Financial institutions may find that over time, with ongoing monitoring, they may need to upgrade or downgrade a client’s risk level based on adverse media.
Additionally, ongoing monitoring of adverse media helps organizations develop a better understanding of their clients over time. Patterns of behavior will start to emerge, and knowing what to expect will allow a company to act quickly if they notice a sudden change in activity. In some cases, this can stop a crime before it actually happens.
Adverse media screening and ongoing monitoring are essential to being compliant with both national and international laws and standards in money laundering and terrorist financing prevention. Not only that, but it also helps to protect the reputation of a financial institution, meaning that being compliant is a win for everyone involved.
In order to be compliant and to save themselves a lot of trouble, adverse media monitoring and screening is of the utmost importance for financial institutions. It is essential to stay ahead of the news cycle instead of trying to pick up the pieces in the aftermath. Staying on top of adverse media also means that the risk level of a client can be adjusted accordingly, to avoid a potential crime from occurring.
An automated adverse media screening tool is a necessity to carry out screening and monitoring effectively. Without it, it is impossible to keep up with both traditional and non-traditional news sources from all over the world. Manual screening is still needed to ensure that everything is running smoothly, but the effort needed is far less than solely using manual screening.
Screening and monitoring adverse media is one of the easiest and most effective ways for a financial institution to prevent financial crimes, be AML and CTF compliant, and avoid a PR nightmare.