Global verification and international compliance

What is the meaning of global compliance?

Organised crime, such as drug trafficking, human trafficking, arms smuggling and terrorism, is a pervasive issue affecting all regions across the world. Organised crime groups generate substantial profits from their illegal activities, and therefore, money laundering is an integral part of organised crime, as it enables those involved in these illegal activities to legitimise their illicit gains.

International criminals have no respect for global boundaries or regulations; they create complex structures to launder money and to conceal their crimes. According to the UN, the estimated amount of money laundered globally each year is between 2% to 5% of global GDP – that’s between $800 billion and $2 trillion.

Therefore, to identify and prevent money laundering – and disrupt organised crime - on a global scale, global anti-money laundering (AML) compliance is needed. This means giving businesses the ability to ascertain exactly who they are working with, no matter where in the world that individual or entity is from. Global compliance differs from domestic compliance as, in addition to meeting the regulatory standards of the UK, it also involves understanding and complying with international laws and implementing standardised practices that meet those global regulatory standards. 

What are the international AML regulations?

Financial Action Task Force (FATF): Established in 1989 to combat money laundering and terrorist financing, the FATF sets global AML standards known as FATF Recommendations –monitors member compliance and promotes international cooperation.

European Union (EU): The EU implements AML measures through EU AML Directives (which have been transposed into UK law post-Brexit). It regularly updates directives to address emerging threats, influencing global AML frameworks.

United Nations (UN): The UN enforces AML measures through various conventions including the UN Convention against Illicit Traffic in Narcotic Drugs, Transnational Organized Crime, and Corruption, and promotes international cooperation and harmonizes AML regulations globally.

What are the risks of international individuals, and why are they high risk?

For regulated firms, international individuals pose all the same compliance risks as domestic individuals, but with a number of additional risks, the key ones are:

Identity verification risks

• Common risks: Fake and forged documents, insufficient information, biometric data manipulation. 
• Additional risks: As UK firms may not be as familiar with international IDs, it is potentially easier for international individuals to get away with using forged identity documents. 
  
  

Know Your Customer risks 

• Common risks: Hidden criminal backgrounds, involvement in complex corporate structures, unusual transactions, sanctions evasion and the risk of being targeted for fraud and bribery if they are a Politically Exposed Person (PEP).
• Additional risks: International individuals could be from a sanctioned country or one with high levels of corruption or political instability, they could themselves subject to sanctions which can be harder to ascertain from the UK, they may also be able to facilitate money laundering activities more easily by exploiting differences in AML regulations across jurisdictions.

Other factors that make international individuals riskier that domestic customers are:

• Poorer regulations: Different countries have varying levels of regulatory enforcement and AML standards, as well as different rules when it comes to privacy, meaning it can be much easier for international individuals who are involved in financial crimes to conceal their identity and their illegal activities.
• Limited access to data: Verifying the identity and background of international individuals can be challenging due to limited access to reliable global data sources, making it more difficult for firms to know exactly who they are working with.

• Complex financial and corporate structures: International individuals often have complex financial arrangements, or are tied up in multiple layers within corporations making them harder to  identify, verify and monitor. A common example of this is the use of shell companies within tax havens. While these are legal and often used by wealthy individuals trying to shelter their wealth from tax, they are also manipulated by money launderers trying to hide their own identities and the source of illicit funds.
• Escalating geographical tensions: Geopolitical events, such as the conflicts in Ukraine and Gaza, often result in increased sanctions and the displacement of people, both of which can complicate verification and screening. Heightened geopolitical tensions can also lead to increased cyber-attacks, targeting financial data and systems.
  
  
• Language and cultural barriers: Differences in language, data handling and even cultural practices can complicate the verification process of international individuals.
  

  What is an International AML Check?

An international AML check involves verifying the identity of a non-UK resident and ensuring that they are not involved in money laundering activities.

How to verify identity internationally:

Identification and verification: this involves checking government-issued IDs like passports or driver's licenses and cross referencing the data against reliable global databases to authenticate the documents and ensure they match the individual providing it. For the most accurate check, it will also include using biometric data - fingerprints, facial recognition etc.

Screening against sanctions and Politically Exposed Persons (PEPs): Checking if the individual is on any international sanctions lists and if they hold a prominent public position that could pose a higher risk of corruption.

Enhanced due diligence: Following the initial verification and screening process, if a risk is identified- for example, the individual is a PEP – enhanced due diligence (extensive additional checks, including building up a comprehensive adverse media profile) must be completed.

Ongoing monitoring: Once the international AML check has been run, the information should be saved and then regularly monitored ensure awareness of any changes to their risk.

Is it difficult to implement global compliance?

Implementing global compliance can be challenging. For example, the free flow of data across borders is essential for economic growth and effective global compliance. However, tensions arise from differing data privacy laws. Over recent years, privacy law fragmentation has significantly complicated the global landscape. For instance, the UK's Data Protection Act, the US's CCPA, and India's new law allowing the government to blacklist certain countries from receiving data exemplify this fragmentation.

Governments naturally prioritise data privacy to protect their citizens. However, this approach creates challenges in balancing the free movement of data with security concerns. The resulting fragmented data laws adversely impact global trade and investment by creating barriers and uncertainties for international businesses.

Despite these challenges, harmonised laws like the GDPR and USMCA demonstrate that it is possible to facilitate safer and easier international trade. These regulations enable secure data flows, which are crucial in regulated sectors to prevent fraud and enhance service delivery. Thus, while difficult, implementing global compliance can be significantly eased by striving towards more unified and collaborative international data privacy standards.

How SmartSearch can help with global compliance and international individual verification

Understanding the risks associated with international individuals is crucial for regulated firms and financial institutions. Implementing robust ID verification and AML checks, adhering to global compliance standards, and staying informed about international regulations and geopolitical issues are essential steps in mitigating these risks.

As discussed throughout this whitepaper, international customers are higher risk, but businesses often find it more difficult to access the information needed to carry out due diligence to the same standard as the checks they are able to run on UK customers. 

In response, leading digital compliance specialist SmartSearch has developed its 'International Individual Check' service; a huge step forward for identification and verification solutions. 
By leveraging cutting-edge technology, data analysis, artificial intelligence and global data partnerships, SmartSearch is able to offer unparalleled coverage, encompassing individuals from over 40 countries initially, with plans for further expansion.

Partnering with leading global financial markets infrastructure and data provider LSEG -SmartSearch is able to ensure access to global high-quality data and offer industry-leading match and pass rates. When combined with in-depth local knowledge, the service is able to offer robust and accurate verification of an individual’s name, address, date of birth, and national ID against best-in-class reference data.

Key features and benefits

Comprehensive Coverage: With access to over 40 countries and plans to expand to more than 200, SmartSearch's International Individual Check solution offers unmatched global coverage, mitigating the heightened risk associated with international customers.

Enhanced Verification: Through advanced technology and local registry sources, SmartSearch conducts in-depth verification, providing clients with accurate and reliable results. 

Regulatory Compliance: As with UK checks, SmartSearch’s new Individual International checks include screening for politically exposed persons (PEPs) and sanctions to protect the businesses against financial crime risks and ensure clients meet their regulatory requirements. 

Ongoing Monitoring: SmartSearch’s International solution – as with the UK individual checks- also includes continuous monitoring and alerts, using real-time data from the Dow Jones Watchlist, the most accurate, complete, and up-to-date PEP and Sanctions list in the world. This means that if there is any change to an individual's status, the client is alerted immediately, ensuring they always maintain a fully compliant position.

Seamless Integration: Like all of SmartSearch’s market leading services, Individual International checks can be seamlessly integrated with clients' existing systems using the latest API technology, streamlining the customer onboarding process, improving client experience and reducing costs. 

Batch upload: SmartSearch’s batch upload service be used in tandem with the new International Individual Check solution, enabling businesses to retrospectively check their entire database of international customers to ensure a clean and compliant position.

Conclusion

Escalating geopolitical conflicts emphasise the importance of robust verification measures for Individual Internationals, but the tension between protecting customer data and being able to access sufficient information to be able to run proper due diligence makes global compliance challenging.

SmartSearch's International Individual Check service not only addresses these challenges but also streamlines the onboarding process, saving businesses time and resources. By integrating with existing customer databases, SmartSearch further enhances operational efficiency, facilitating seamless adoption and implementation.

For businesses looking for a reliable international customer due diligence service that can both ensure compliance and streamline their operations, SmartSearch's Individual International Check service offers the solution.