Arthit Saeli, the owner of a commercial real estate company in Thailand, entered a local bank to open a new account. No red flags arose during the onboarding process. The account manager opened the account, shook Saeli’s hand and thanked him for choosing their institution.
Little did the bank realize that they just provided a conduit for Saeli’s payoffs as a middleman in a human trafficking ring.
Serious about sanctions
Regulated entities around the world have learned to take sanctions seriously. In 2019 alone, the Office of Foreign Assets Control (OFAC) levied nearly U.S. $1.3 billion in penalties on banks and other organizations for anti-money laundering (AML) and sanctions violations.
Southeast Asian institutions have had their own share of high-profile cases over the last several years, bringing fines and more intense scrutiny from regulators. In response, institutions in the region have stepped up their AML and sanctions compliance processes and controls.
Banks typically screen customers against readily available sanctions lists provided by the four heavyweights – OFAC, Her Majesty Treasury (HMT), European Union (EU) and United Nations (UN) – as required by the regulators of the jurisdictions in which they operate or as required by the financial institution’s correspondent banks. Some institutions supplement those lists with basic sanctions data from commercial software providers.
But is it enough?
Focusing exclusively on sanctions will meet anti-money laundering/combating the financing of terrorism (AML/CFT) requirements and certainly mitigate risk, but it still leaves gaps that can expose your institution to money laundering, arms trafficking, drug-related crimes, human trafficking and other illicit activities.
PEPs, REPs and Enforcement Lists
Screening for politically exposed persons (PEPs) and reputationally exposed persons (REPs),
also called adverse media or negative news, offers the enhanced due diligence (EDD) needed to close these gaps.
Due to the financial crime compliance (FCC) technology stack in many countries in APAC, the risk of financial institutions encountering a local criminal or someone with adverse media that is not on any sanction list is greater than missing a sanctioned entity or individual. It is therefore prudent to also screen against local enforcement data, which includes criminals, blacklists and lists of debarred companies released by the local regulators, authorities and law enforcement bodies of a particular jurisdiction. To capture changing risk, screening should be conducted at onboarding and on a continual basis.
COVID-19 has only increased the need for PEP and adverse media screening. Already the global hotbed of sex trafficking and slavery, South Asia and many South East Asian countries expect these and other crimes to worsen as a result of the pandemic. Lockdowns have pushed illicit activities further in the shadows, making it increasingly difficult for vulnerable parties to seek help. At the same time, more people are facing financial hardships that could force them into the arms of abusers out of desperation.
Sanctions screening alone isn’t likely to catch all the perpetrators of human trafficking and other humanitarian or financial crimes. A deeper, more complete view of the risk is needed – one that looks at connections and alternative sources of information, as well as provides a localized view of organizations and customers that do business with the bank. That is exactly what screening for PEP, adverse media and enforcement data bring to bear.
Had Saeli’s Thai bank screened him against a list of PEPs, REPs, or enforcements, it would have learned of his close ties with a senior-ranking government official indicted for conspiracy. That red flag should have been enough to deny his request for an account or designate it as high risk and subject to greater ongoing scrutiny.
In spite of the more complete picture of risk gained from screening against lists of PEPs, REPs and local law enforcement data, financial institutions in Southeast Asia have been slow to embrace this level of due diligence for several reasons:
Finding the right balance
The benefits of shoring up EDD are indisputable, but the reality of balancing cost and risk is a dilemma that institutions face every day. By equipping compliance teams with data and screening technology that is efficient and effective, banks will be better positioned to overcome hurdles and make enhanced due diligence a regular part of their compliance program.
How Accuity can help
With our industry-leading watch lists and advanced filtering solutions, you can improve detection, minimize false positives, prioritize risk, streamline investigations, and boost your operational efficiency.
Let us help you gain a deeper understanding of your customer accounts to better weigh the value of the business against potential risk.