Experienced AML professionals know that negative news is the most useful source to uncover risk. Transaction activity alone does not tell the whole story; negative news completes the picture.
Yet financial institutions direct enormous time, money, and people to transaction monitoring, while allocating a small fraction of attention to negative news. Why take such a risk?
A news report about a customer’s involvement in a corruption investigation tells an AML investigator a lot more than a transaction monitoring alert flagging a $25,000 wire transfer from New York to Bermuda.
Nothing grabs regulator and law enforcement attention faster than a news story about money laundering that names banks. AML history is stacked with examples of regulators reading about some alleged or real crime and then hunting down the banks where money was funneled.
Riggs, Wachovia, Washington Mutual, Citibank, JP Morgan, HSBC, Deutsche Bank and numerous others have collectively paid billions in fines and spent billions to re-build AML programs after regulators and law enforcement sprang into action based upon news reports.
Is Monitoring Negative News Possible?
Banks expend enormous financial and human resources on systems that monitor transactions. These systems constantly scour activity to find red flags and risk. Why don’t banks monitor negative news in the same way?
There are at least three reasons.
- A misperception that there is no way to monitor negative news in real time like is done with transaction monitoring.
- Fear among AML management that even if real-time monitoring of negative news was possible, the added work would overwhelm staff.
- Mistaken belief that “running batches” of names against a database is monitoring negative news.
Screening Databases is Not Negative News Monitoring
When banks take a list of names (a “batch” as many call it) and compare that list to a Risk Database, they are not monitoring negative news. Why?
Monitoring is defined as, “the continuous observation of an ongoing activity to gather information.” The key phrase here is “continuous observation of ongoing activity.” This is what transaction monitoring systems do, but not what negative news databases do.
Existing risk databases are not constructed to capture negative news in real-time and thus are not continuously observing ongoing adverse media for AML risk.
These databases add small numbers of negative news records well after the news has occurred. The significant limitations of these databases mean that 90% of the negative news needed by an AML investigator is not in these files.
So, when a bank “runs a batch” against a database thinking it is “monitoring negative news,” it is not. It’s only comparing a list of names to a small list of historical, and often outdated, records.
Real Negative News Monitoring
To properly monitor negative news, banks need to be looking at information as it is published.
To be considered truly effective, negative news monitoring must:
- Monitor in real-time all published information that identifies financial crime and reputation risk;
- Weed out irrelevant articles;
- Be presented in way that enables AML investigators to work quickly;
- Automate supporting documentation and evidence; and,
- Reduce work time of investigators and analysts.
Since AML began nearly 20 years ago, every analyst, investigator and manager knows that negative news is the best source of risk information.
Until now, effectively monitoring negative news has eluded AML. It is time that changed, and it has. Contact me to learn how.