The shift from ‘Can we?’ to ‘Should we?’

The US ENABLERS Act will mandate the kind of values-led decision making that the public now expect from businesses.

Know who you are doing business with.

Xapien’s core purpose – enabling you to understand who you are working with – has been a fundamental requirement for banks in the United States for more than 50 years. Legislation has prevented them from working with money launderers, terrorists, warmongerers and others.

But in June, Democrat and Republican lawmakers in Washington fast tracked an anti-money laundering law that will require a larger section of ‘middlemen’ businesses to know who they are doing business with too – after more than two decades of calls to do so, and several preceding bills widely considered ineffective.

Businesses that have never before needed to conduct due diligence will now be required to do so – and will face serious penalties for facilitating money or reputation laundering, be it accidental or deliberate.

What’s new

The Establishing New Authorities for Business Laundering and Enabling Risks to Security Act (the ENABLERS Act) was created following the revelations of the Panama Papers, and the outrage that followed.

It will make it compulsory for investment advisers at private funds, lawyers, trust companies, real estate brokers, accountants, art and collectibles dealers, public relations firms, and third-party payment service providers to conduct due diligence on sources of funds.

“It closes the biggest remaining loopholes in our laws that allow crooks and kleptocrats all over the world to hide their money and property in the United States,” said Rep. Tom Malinowski (D-N.J.), one of the drivers behind the act’s implementation.

“It’s way too easy to use accounting firms, lawyers and others to launder money in ways that are hard for our sanctions enforcement agencies to see,” he added.

“By proposing very simple, straightforward due diligence requirements, we exponentially increase the effects of the sanctions program.”

‘Can we’ becomes ‘should we’

The introduction of Enablers Act following years of delay builds on the growth of conscientious customers and consumers who are paying ever more attention to how businesses make decisions.

“In a digital world, public profile is everything and if you get something wrong, it can be a permanent black mark on your digital footprint – the shop window for any institution,” Daniel Secretan, co-founder and COO of Xapien said in June.

Even businesses not covered by the act increasingly need to consider the ethical requirement of looking into their business partners’ backgrounds – be they suppliers, donors, applicants or associates.

They also need to consider the reputational consequences of not doing so.

A British parallel

In the UK, legal professionals found themselves in a similar situation after the British Government imposed sanctions on Russian entities following Russia’s invasion of Ukraine.

Although several industries, including accounting and public relations, were banned from working with Russian clients, law firms were not. Instead, they had to ask themselves whether, given the strength of anti-Russian sentiment, it would be an ethical mistake to work with them.

What they needed was a way to conduct thorough background checks that could differentiate between the subtleties of types of association.

A need for holistic, nuanced background checks

Businesses in the US, the UK, and elsewhere, now, more than ever before, need a way to conduct holistic, nuanced and rapid background checks on potential clients. Existing compliance tools such as PEPs and sanctions look-up tools only provide ‘yes’ and ‘no’ answers about known risky customers. They cannot identify players who are about to be sanctioned, or close associates of those who have.

Carrying out the checks manually would be a huge strain on resources, taking hours, if not days, per potential client. Manual checks also make it highly likely some problematic associations will be missed.

The huge amount of information available in the public domain has transformed the transparency and traceability of sources of funds and fraudulent or corrupt activities, but it is an overwhelming amount of information for risk and compliance analysts to trawl through.

Without the right tools and practices for background checks, companies face two major risks:

1. Missing red flags associated with a client during the intake process. This can lead to poor ethical conduct, media and public scrutiny and potentially crippling financial consequences.
   
2. Inefficient compliance processes leading to long delays in client intake, poor customer experience and missed opportunities.
   

AI-powered background check platforms like Xapien solve the challenges of the deep research process that is essential for ethical client intake decisions.

Existing compliance tools check only records and watchlists. Xapien collates knowledge from across the internet and commercial data sources, processing millions of online corporate records, media and news articles, and sources of shareholder data. Its use of publicly available online data ensures that all information retrieval is done under KYC compliance and regulations.

Xapien’s natural language processing algorithms extracts meaningful knowledge about assets, wealth, sources of wealth, associates, and key ownership structures as intuitively as a human would, but thousands of times faster. The automated, easy to use background reports take five to 10 minutes, saving businesses days’ of research by analysts.

Book a demo to find out more about how Xapien can help you run swift, effective due diligence that helps you protect your reputation.