Donor due diligence:
What’s negative news screening, and why is it important?
It’s been slightly over a year since The Wolfsberg Group, an association of 12 global banks combating financial crime, released a FAQ document outlining key considerations for negative news screening (NNS). But what exactly is negative news, why do organizations need to perform negative news screening, and how can it be done effectively?
What is negative news screening?
In simple terms, negative news is damaging information about someone or something, which can take on multiple forms, ranging from printed and televised sources to online content like websites, blogs, and social media. Today, this adverse information can be presented online as structured news stories or even in entirely unstructured formats like video or online forums.
Negative news screening involves the process of evaluating a current or new client or donor against this negative content. But as these sources grow, a challenge emerges: understanding the context of negative news. This includes figuring out if the content is fair and balanced or biased and confirming the accuracy of facts and claims in the articles.
Traditional methods of NNS typically involve external consulting or in-house manual techniques along with additional tools. However, both of these approaches have their downsides. External consulting often comes with a high cost, whereas in-house methods can prove inefficient. Especially when subjects have a large online presence, as important information might not surface if it doesn’t rank high in search engine results.
Why is negative news screening important?
The Financial Action Task Force (FATF) recommends that organizations perform negative news screening as part of an Enhanced Due Diligence (EDD) process. However, organizations can derive valuable insights by screening clients or donors during the Customer Due Diligence (CDD) process. This helps build a thorough profile of their vulnerability to Anti Money Laundering (AML) and Counter Financing Terrorism (CFT) risks.
Read more: 5 simple steps to adverse media checks
While database checks and corporate registry searches might fulfil this, they only scratch the surface. News media, on the other hand, can provide detailed insight into a subject’s background and network. It can uncover any connections to fraud, money laundering, tax evasion, terrorism, or other financial crimes, affecting the subject’s overall risk profile.
Similarly, risk levels can change. And when that happens, organizations need to know immediately. Official sources, such as government reports or the Financial Action Task Force, can be slow to respond. Whereas news content gives real-time updates with context-rich insights that empower organizations to respond swiftly.
Who needs negative news screening?
The regulatory and enforcement focus on money laundering, financial crimes and greenwashing is intensifying. And it only takes seconds for an organization’s reputation to be damaged by association. That’s why any organization working with a third party should build negative news screening into their due diligence process.
This becomes even more important when working with high-net-worth individuals, politically exposed persons (PEPs), large enterprises, or financial institutions. Here are some scenarios of how different sectors can use NNS to protect their organization.
A global bank is considering onboarding a new high-net-worth client from a foreign jurisdiction. Through NNS, the bank discovers negative news articles linking the client to financial irregularities in their home country. The information has not yet been added to AML databases, which prompts the bank to conduct a more thorough investigation and ultimately reject the client, avoiding potential financial and reputational risks.
A university is considering accepting a substantial donation from a philanthropic person. NNS uncovers negative news about the potential donor’s association with a controversial organization linked to opioids. Armed with this information, the university decides to reassess the acceptance of the donation, protecting its reputation and ethical standards.
A nonprofit organization is evaluating potential donors for a major fundraising campaign. NNS uncovers negative news about a prospective donor’s connection to a supply chain involving child labour. By rejecting this donor’s contribution, the nonprofit ensures that its mission and reputation remain untarnished.
A law firm is representing a corporate client in a high-stakes case. During the due diligence process, NNS identifies negative news articles linking the opposing party to a history of fraudulent business practices. Armed with this information, the law firm strengthens its case, leading to a more favorable outcome for its client.
The challenges with traditional NNS
When conducting NNS, especially on high-profile individuals or organizations, manually searching through millions of search engine results or news articles can be overwhelming. It’s not only time-consuming but also leads to information overload, making it challenging to identify relevant negative news.
Manual NNS often leads to missed risks, as analysts may have a cut-off point in their research or may inadvertently skip over important information buried deep within search results. This can expose organizations to unforeseen reputational and financial risks.
The human element in manual NNS can lead to inconsistencies. Different analysts may approach the task differently, resulting in varying results. Inconsistencies and human errors can potentially allow risks to slip through the cracks.
Employing a team to perform manual NNS is expensive. Organizations must allocate budgets for salaries and training. The time and effort required for manual NNS can divert resources away from other critical compliance and risk management activities.
Manually searching through vast volumes of data from various sources, including news articles, blogs, and social media is a slow process. It demands significant human resources and can take hours or even days to complete for a single entity or individual.
The shift to AI for negative news screening
AI has emerged as a disruptor to traditional methods. It can quickly process vast amounts of information, which results in a more efficient and reliable approach to NNS. Here’s what organizations should look for when introducing an AI-powered tool.
Your subject might be referred to by nicknames, aliases or alternative spellings. Look for a tool that offers name matching and minimizes false positives.
Multilingual capabilities are essential in today’s global landscape.
You’ll save yourself time if you can define search parameters, search depth, and result filtering.
You don’t want to waste time sorting through results. Look for a tool that sets them out for you, so you can move on to the decision-making stage.
Traceability is essential for audits and compliance. The best tools will visibly trace every piece of information they deliver back to the original source at the sentence level.
This is vital for compliance, so you can demonstrate to the regulator how you reached a conclusion about accepting, or not accepting, a partner, client or donor using the tool.
When faced with pages of information that need distillation, you require a tool capable of summarising this substantial content into easily digestible and categorised sections.
Why use Xapien for negative news screening
Xapien overcomes the traditional challenges of NNS while enhancing the speed and quality of research. It has all of the capabilities mentioned above (and more).
Breadth of information
Xapien’s AI-driven system goes beyond traditional keyword searches. It searches a vast range of data sources, including news articles, media publications, blogs, public records, and sanction lists. What sets Xapien apart is its ability to not just scan texts for risk words but to “read” and extract potential risk information like a human analyst would.
Accuracy and relevance
Traditional keyword-based searches often result in false positives, where irrelevant information is flagged as a risk. Xapien’s Natural Language Processing (NLP) allows it to consider context, negations, and even slang meanings of words. This means it can differentiate between a casual mention of “court” in a sports context and a legal issue, providing more accurate and relevant results.
Standardization and consistency
Xapien ensures a consistent and standardized NNS process. Unlike manual research, which can vary from one analyst to another, Xapien’s results are uniform and free from the biases of human interpretation. This standardization ensures trustworthy results and helps organizations maintain compliance with regulatory requirements.
Efficiency and speed
While manual research can take hours or even days, Xapien can generate detailed, sourced reports in minutes. This enables organizations to onboard clients, donors, or partners much faster while ensuring a thorough NNS process.
In today’s globalized world, the ability to conduct NNS in multiple languages is essential. Xapien can translate results from over 130 languages, ensuring that organizations don’t miss risks in non-English sources. This capability is particularly valuable when dealing with international subjects or entities.
Full audit trail
Xapien provides a comprehensive audit trail, documenting every step of the NNS process. This not only ensures transparency but also serves as concrete evidence of due diligence.
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Search engines are great but they are only the starting point. Finding, reading and condensing the full picture is slow, hard, and painstaking work. Xapien can help.