False Negative in the matter of financial crime and money laundering is either (1) a ‘hit’ identified during the screening process as a potential alert, but is dismissed, when in fact there is a match to a target named on a sanctions list; or
(2) screened activity that would have generated a hit if the screening process had been calibrated to catch such activity, such as a target match that is unidentified because thresholds are too high.
In cases of the first (1) definition outlined above, gross negligence is more likely to be an issue in the offending financial institution, intermediary or obliged party.
This was laid bare by revelations made in the ‘FinCEN Files’, a financial investigation launched by independent journalists (whose prior claim to fame in financial crime circles was the release of the ‘Panama Papers’), which detailed that compliance officers and Money Laundering Reporting Officers (MLRO) had raised issues on many multiples of thousands of transactions, but were ignored. Cases of this form of financial gross negligence is either due to outright corruption of due to the mistaken belief that the risk/reward ratio of ignoring risk indicators is favourable.
In cases of the second (2) definition gross negligence is statistically less likely than in the first (1) definition but (2) may have more fault in the systems of the financial institution, intermediary or obliged party. To remedy this, a robust AML (Anti-Money Laundering)/KYC (Know Your Customer)/CFT (Combatting the Financing of Terrorism) system must be in place.
To find out how to build a robust AML/KYC/CFT system Contact Coinfirm today.
