The good news is your negative media screening is working; the bad news is your client is in the headlines.
The discipline of “know your customer/client” (KYC) has grown beyond the verification of a name, address, ownership, and control. Nowadays it is an ongoing process, a living thing. Many regulators now expect firms to apply ongoing negative media screening to all high-risk client relationships. Moreover, financial crime compliance officers and anti-money laundering (AML) professionals need to demonstrate that they react to and manage negative media alerts relating to their clients.
In a recent enforcement action against Commerzbank, the U.K.’s Financial Conduct Authority criticized the bank for poor AML controls applied to high-risk client relationships and stated, “almost all of the higher risk files had inadequate EDD [enhanced due diligence], with deficiencies such as: limited evidence of meetings with customers; and inappropriate disregarding of negative press coverage (emphasis mine).”
What is an appropriate process for considering negative media alerts relating to clients? Furthermore, how does the financial crime compliance professional deal with relationship managers who seek to discredit such negative media alerts and defend their clients? It is one of those areas that commonly leads to confrontation and disagreement. While the AML professional suggests such negative media alerts give rise to suspicion, relationship managers demand facts and ask that their client be given the benefit of the doubt.
Innocent until proven guilty?
Many negative media alerts reference allegations or charges in advance of court proceedings and any findings of guilt. Thus, the relationship managers assert such allegations or charges are not proven and should therefore be disregarded. Often, they will say their clients are innocent until proven guilty, but is this actually correct? A person is guilty of committing an offense at the time of doing so, not when a jury determines he/she did so. Prisons are full of people who were apparently innocent until they were proven to be guilty, but the fact is they were always guilty. Of course, there are innocent people who are wrongly accused and there are guilty people who escape justice because prosecutors fail to produce sufficient evidence to demonstrate their guilt.
I recollect an instance when upon assessing some negative media alerts I challenged a private banker regarding his African-based politically exposed client, who had twice been acquitted of charges of corruption. His client was a parliamentary private secretary; a civil servant; a government employee. In his bank account in London, he held excess of $2 million. I asked the banker if the money in the account was the missing evidence that would have convicted his client of the charge of corruption. The banker said it was family money but failed to produce any evidence of either the client’s source of wealth or the source of the funds. I filed a suspicious activity report (SAR) and recommended the closure of the client relationship.
In another instance I was presented with negative media reports that stated a beneficial owner of a correspondent banking client in Latin America had been charged with money laundering. I wrote to the relationship banker and U.S.-based compliance colleagues seeking a risk management proposal for the client relationship. The head of correspondent banking for Latin and South America wrote back and immediately dismissed the allegations made within what he referred to as a “spurious media article.” I replied that the article was actually referencing the charges and quotes from a court extract in the United States. The head of correspondent banking did not reply. I closed the London accounts for this bank and filed another SAR.
So how do we assess, measure, and manage negative media alerts? Below are some questions you may wish to consider when you next confront a relationship manager who disagrees with you and seeks to defend his/her client:
- How old is the media report?
- How many media reports are there?
- What is the nature of the negative media?
- Does the media group have a known political bias that may be relevant to the assessment?
- What are the implications for your firm, if any allegations made within the media alerts are true?
- Are the media reports local, national, or international?
- What is the profile, standing, and reputation of the reporting media organization/s?
- Has the media source previously been found to have published false stories or allegations?
- Is the client litigating the media source for publishing the negative media story or false allegations?
- What parts of the media alert align with what your firm knows about the client?
- Has any regulator or government agency taken any action pursuant to the negative media?
- Is there reference to any litigation against the client, either civil or criminal?
- Does the negative media alert propose funds your firm holds that may be subject of a third-party interest, such as the victim of a fraud?
- Has the client already brought the negative media and/or allegations to the attention of your firm and offered a logical explanation?
- Does the negative media suggest your firm does not know the client sufficiently?
- Does the negative media alert suggest the client may have misled your firm?
- Is it possible your firm is holding funds for the client that might be tainted by the negative media alert and/or allegations?
- Given these matters are in the media, in the public domain, has the client satisfactorily answered any questions you may have posed, pursuant to the negative media alert and/or allegations?
- Does the negative media alert give you, the AML professional, reasonable grounds to suspect the client may be using your firm to launder money?
Now ask yourself this question: What would you do if as an innocent party you or your firm were the subject of spurious, negative media reports and/or false allegations? Has your client done what you would do?
Doing nothing with negative media alerts is not a good strategy. For sure, some reports can be expediently dismissed, because of political motivation or the minor nature of some allegations, but all negative media alerts need to be resolved and be seen to have been resolved, appropriately.