The role of AI in Watchlist screening: Past, Present, And Future

Why Should Regulatory Compliance Embrace AI-Driven Tools?

Given the evolving technologies, and the rise of artificial intelligence has touched all the sectors of modern human society. All parts of human civilization including education, health care, manufacturing industry, retail sector, entertainment industry, hotel management, customer service in various industries are embracing artificial intelligence. The world of financial crimes and compliance is now also welcoming AI-driven regulatory technologies to detect financial crimes and avoid regulatory fines. AI-driven watchlist screening softwares are now readily available in the regtech markets all over the world.

Which Industries Are Required To Run Watchlist Screening?

Watchlist screening is an extension of Anti-money Laundering regulatory compliance.The regulated business sector usually comes under the domain of Anti-money Laundering compliance obligations. Financial corporations like trust firms, banking sector, brokerage firms, payment processing firms and many more are held accountable for conducting business relationships with clients (individual, organization or brand) that may be involved in any criminal activity such as money laundering, terrorist financing, corruption, bribery, embezzlement and beyond.

Financial firms are mandatory to make sure that their business partners and their customers are not involved in financial crimes such as counterfeiting and forgery, money laundering, bank frauds, tax evasion, identity theft, corruption, embezzlement of state funds, terrorist financing, bribery, or any kind of cybercrime. 

Why Financial Firms Are Mandated To Run Watchlist Screening?

Financial firms are at the forefront of dealing with financial criminals and fraudsters, who employ sophisticated fraudulent strategies to bypass the compliance procedures and fool the financial firms by hiding their criminal activities. Therefore, firms must employ AML watchlist monitoring to detect clients that may be involved in illicit financial activities. 

What Do Actually Watchlists Comprises?

Watchlists consist of data regarding individuals and organizations that are involved in illegal activities threatening the integrity of the international financial system, national security, and the social stability of countries and the whole global system. Watchlists help regulated businesses like the financial industry to determine the risk rate of their clients before conducting any business relationship with them. Watchlist screening helps run effective Anti-Money Laundering (AML) regulatory guidelines. 

Some Authorized Sources of Watchlists From Around the Globe

The databases of watchlists consist of the profiles of sanctioned individuals, which are sanctioned by the various governments around the world such as the United States, United Kingdom, Switzerland, Australia, Canada, and other transnational organizations like the United Nations Security Councils, Grey list and black list released by Financial Action Task Force (FATF). It also comprises individuals in the most wanted lists of the “International Criminal Police Organization” (Interpol) and “European Union Agency for Law Enforcement Cooperation” (Europol). Lists of politically exposed persons from law enforcement agencies, government organizations and regulatory bodies across the world are also an essential part of the global watchlists. Some of the common sources of watchlists are: 

• Sanctions List released by the United State’s “Office of Foreign Assets Control” (OFAC).
• List of Most Wanted Individuals in the world maintained by the International Criminal Police Organization (Interpol). 
• The High-Risk Jurisdictions List maintained by the global Anti-Money Laundering watchdog Financial Action Task Force (FATF). 
• The Consolidated Sanctions List released and updated by the European Union. 
• Specially Designated Nationals (SDN) and Blocked Persons List released by the U.S Department of Treasury.
• The international Sanctions List maintained by the United Nations Security Council.
• The Debarred Entities List released by the World Bank consists of ineligible firms and individuals. 
• The “Entity List” released and updated by the United State’s “Bureau of Industry and Security (BIS)” outlines and explains the license criteria strictly imposed on the listed individual. 

How Watchlist Landscape Becomes Complex?

Generally, government organizations in smaller countries release hundreds of watchlists. These watchlists are usually made public and are made easily available to online audiences to have a wide scale impact. However, this ends up increasing the complexity of the watchlist world. An effective global watchlist screening includes extensive sources of the publicly made watchlist records.

Non-Compliance With AML Watchlist Requirement

In the world of finance, compliance is the foundation of an ethical society. It is an umbrella term used for observing the industry standards, following legal requirements and abiding all ethical guidelines. Compliance is another word for justice, fair business dealings and creating order in the chaotic financial world. 

The already chaotic financial world gets destabilized when a single firm or an individual chooses to neglect AML regulatory guidelines. Therefore, the financial world as a whole must have extensive realization of the far-reaching and damaging consequences of noncompliance that damages the integrity of the international monetary system and destabilize our economies, institutions and communities. 

Deliberately neglecting or accidently failing to implement Anti-Money Laundering (AML) watchlist screening requirements can destabilize the financial institutions like banks, investment firms and others as well as the international economic system. It leads to an increase in financial crimes that further disrupt the stability of economies, institutions and eventually communities. For the financial firm itself, it damages its costly reputation which leads to loss of massive revenue, sales, business partners and even employees.