A comprehensive guide on the AML screening!

 AML is a set of regulations, rules and procedures that are designed to prevent terrorist financing preventing criminals from getting illegally obtained money. AML contains a set of regulations to make dirty money look white or clean. AML screening portal is used to monitor the database, so that fraudulent illegal money laundering activities can be detected.

So, what is AML screening?

AML screening is the investigative process that is used to prevent money laundering activities. The process involves identifying the identity of the customer to prevent potential red flags.

What is the difference between AML screening vs KYC?

Here are a few factors that help in knowing the difference between AML screening and KYC.

• Focus

The full form of KYC is Know Your Customer. The goal of KYC is to verify the identity of a customer and his/her basic information. On the other hand, AML screening goes a step further and assesses the risk profiles that are associated with money laundering activities like financial terrorism and so on.  

• Process

The KYC process helps in collecting documents such as utility bills while AML screening uses details of persons whose profiles are at risk such as politically exposed persons and adverse media mentions. AML screening focuses more on the people who are prone to illegal activities related to financial terrorism.

Why AML screening is important?

• Identification of red flags

High-risk individuals or customers are identified using AML screening by checking their identity against sanction lists politically exposed person databases and adverse media. The process helps in detecting and avoiding high-risk individuals who might be associated with illegal financial activities such as money laundering.

• Regulatory compliance

There are strict AML regulations present all over the world that one has to follow. All the financial institutions, organisations and businesses throughout the world have to follow these AML regulations. One of the AML programs out of all is customer screening. If an organisation or business fails to work in compliance with these regulations then it can result in penalties, reputational damage and many other types of criminal charges. Therefore, it is necessary to follow all the AML regulations. This is when an effective AML screening helps an organisation to work with compliance so they can easily prevent penalties or hefty fines.

• A positive image of brand and trust

If an organisation works in compliance with the AML regulations then it leaves a positive impact on the consumers. As more and more consumers are interested in knowing about the practices that a business uses to grow, therefore to generate trust among these consumers, an organisation should work in compliance with AML regulations. Using an effective AML screening strategy helps in generating trust among customers by representing that the organisation takes financial crime and money laundering activities seriously and takes action against them.

What are the different types of AML screening?

AML screening uses several methods to identify and prevent the risks of money laundering. If you are interested to know the different types of AML screening then check out this content:

• Sanctions screening

Sanctions screening involves the process of checking the customer’s details such as name, aliases and other identification information against the sanctions list issued by the government. Sanctions lists are the lists that contain the names of individuals and companies that are at the highest risk due to terrorism financing, drug trafficking or other illegal activities. Like if a bank screens a new customer named ‘Nick Jones’ against the sanctions list. If there is name of Nick Jones present in the sanctions list issued by the government, then the bank will not open an account for them.

• Adverse media screening

In this type of screening, public records and news sources have been monitored to determine the negative information present about the clients. If such information is present in any of the news articles, then the advisor is obligated to report this. A financial advisor is required to screen the existing client against the adverse media as the name of the screening depicts. And if there is a match found and the client is associated with any financial criminal activity, then the financial advisor has to report this to the compliance department.

• PEP screening

PEP stands for politically exposed persons. In this PEP screening, politically exposed persons and their close associates such as family members and friends are identified. The PEPs acquire prominent positions such as ministers, the state head, or any legislature position. As they can access the public funds, therefore, they are at high risk of money laundering or terrorist financing. Like if an insurance company finds a new applicant who is a close relative of high high-ranking government official, then there is a need for PEP screening. In this, the customer due diligence is assessed to identify if there are any risks associated with the individual.

• Customer due diligence

The customer due diligence verifies the identity of a customer and involves assessing the fund source and business activities of the customer. The process of customer due diligence involves collecting documents such as utility bills, passports and other documents for confirmation of the identity of the customer. The process is similar to KYC onboarding. Like, if a customer comes into a bank to open a new bank account, then the process of customer due diligence requires the customer to provide identification documents. KYC screening software is used to conduct the process. This process helps in checking whether the customer’s profile is risky or not.

• Enhanced due diligence

Enhanced due diligence is a further version of customer due diligence. In this process, additional information has been obtained regarding the customer such as the source of wealth, transaction patterns and business relationships. Let’s understand the process with an example. Like if a bank identified a high-risk profile as a customer because of their high transaction amounts, then EDD will be performed to access the sources of the funds that the customer transacts. The process has been done to identify that the customer is not linked with any kind of illegal activity.

These are the several types of AML screening.