Financial institutions must equip themselves from clients who may be participating in money laundering, terrorist financing, corporate fraud, wire fraud, embezzlement of government funds, and beyond. Facilitating money transactions or providing financial services to criminals tends to have damaging implications for the whole of society. It creates enormous inequality, corrodes the integrity of financial institutions, and disrupts the global economic system. Financial crimes cause billions and trillions of economic losses per annum. The global economic system loses $1.6 billion due to money laundering alone. These staggering figures put immense pressure on government agencies and international organizations to mandate Anti-money regulations like AML/KYC requirements for financial institutions to abide by.
How Watchlists Aid the Financial Industry?
Watchlist screening enables financial institutions to stay away from conducting business relations with fraudster clients who may be involved in financial crimes. Since financial institutions stand on the frontlines to prevent financial crimes. Therefore, they must protect their businesses from getting embroiled in the financial wrongdoing scandals of their clients. By using watchlist Monitoring services, financial firms can cross check their clients against the watchlists to confirm they are not dealing with clients that may be involved in financial wrongdoings. Watchlists are the digital records of criminals that may have adverse media, or they could be politically exposed persons from high risk countries or high-risk industries like gambling, finance industry, cryptocurrency, auctions, insurance, etc.
How Watchlists are Composed?
Watchlists containing data on financial criminals or high-risk clients are composed of government agencies and international institutions or financial regulators monitoring financial crimes like the Financial Action Task Force (FATF). These lists are meant for financial firms like banks to cross-check the names of clients against a watchlist before initiating any business relationship with a potential client.
Watchlist Issuing Bodies
Watchlist screenings are usually issued by government institutions, law enforcement agencies, and international regulatory bodies. These watchlist databases are made public to prevent financial crimes. Some regulatory tech firms sell their own exclusive watchlist screening system and provide data along with their compliance tech tools. Some common examples of public watchlist databases maintained by law enforcement agencies and regulatory bodies are:
Consolidated Sanctions List Maintained by the European Union: This list comprises names and all essential data of individuals, groups, and countries from all around the world that are sanctioned in line with European Union foreign policy and regulatory guidelines.
State Secretariat For Economic Affairs (SECO): This list is maintained by Switzerland’s regulatory authorities and it comprises the names, and business profiles of all unwanted trading partners which mostly contain criminals, money launderers, terrorist financiers, corporate fraudsters, corrupt individuals, and beyond.
The International Criminal Police Organization, frequently known as Interpol: this global organization is the world’s biggest crime petrol, and it has databases containing the names and background information of individuals that pose a threat to international peace and defy international law or may be involved in heinous crimes.
The Federal Bureau of Investigation also frequently known as FBI: A United States domestic security agency has its database of individuals that defy United States law and pose a risk to national security.
What If Financial Firms Neglect Watchlist Screening Requirements?
Global watchlist Screening is an essential part of Anti-Money Laundering regulatory requirements and financial firms around the globe are obligated by government agencies and international regulatory bodies to act by financial regulations including watchlist screening. Neglecting watchlist screening not only results in damaging implications in destabilizing the global economic system, but it has dire consequences for the financial firm itself too. When found in noncompliance with AML regulations and neglecting sanction and watchlist programs, financial institutions become the legitimate target of hefty financial fines, from millions to billions of US dollars.
Providing financial services or facilitating the fund transfer of fraudster clients means directly taking part in money laundering operations and letting your business participate in criminal activities. This makes a firm prone to costly lawsuits by government agencies, regulatory authorities, and other stakeholders.
Reputational damage is another nightmare for any business. Non-compliance with Anti-Money Laundering regulations could plague your business with deadly reputational damage. A financial firm with a damaged reputation suffers the loss of its credibility hence resulting in loss of profitable investors, business relationships, and even employees. Millions of dollars are spent every year by financial firms to build their brand image and protect their reputation, however, a simple neglect in Anti-Money Laundering requirements could ruin all the economic investment spent in marketing and building credibility.
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