On May 11th, the four pillars of AML were joined by a 5th. The long-awaited legislation introduces the need to identify the beneficial ownership of legal entities for consumer due-diligence. As such, US financial institutions have introduced enhanced internal customer checks and additional measures to prevent criminals from using the financial system by proxy. Whilst the legislation aims to improve customer due diligence, underlying challenges remain.
These extra measures are conducted internally, allowing room for error that could prove costly to institutions. Rather than building a relationship with external partners, financial institutions are becoming reliant on potentially incomplete databases and are as such not objectively evaluating the report. Know Your Customer (KYC) policies are only useful if the data used to action them is valid and representative.
The use of open source intelligence (OSINT) can provide additional insight and reassurance for AML checks to prevent these expensive mistakes from happening, ensuring that you’re getting the whole picture. No doubt, the implementation of the 5th pillar brings benefits and is a step forward for KYC, but the question still remains: What more can be done? Why are the additional insights of open source intelligence not being used?
AML checks have advanced, yes. But used in isolation they only provide a part of the story. The use of OSINT alongside traditional AML checks provides enriched information that can be used to identify beneficial ownership. In addition, OSINT allows the information to be validated and checked externally, eliminating the risk of internal checks missing ownership issues that might prove costly in the future.
The influence of open sources can empower the 5th pillar by allowing external validation of ownership structures, thus providing much needed reassurance. The 5th pillar is a step in the right direction for financial institutions aware but the use of OSINT can strengthen its power.