Regulatory Compliance and Risk Management

Today's compliance teams face a challenging task: identifying fraud, money laundering, terrorist financing, and more amidst evolving financial crimes and increasingly sophisticated criminals. As threats grow, so do the consequences of non-compliance, including significant fines and potential jail time. Let's not gloss over that last point. Non-compliance leads to substantial fines and jail time. It’s not a check-the-box exercise; to avoid penalties, your screening system must help your team accomplish two objectives: managing risk and meeting regulatory requirements.

Managing Risk

Continuously evolving challenges with new sanctions, geopolitical changes, and the complexity of global financial and trade networks require a sophisticated compliance screening system that can adapt to a changing risk landscape. Relying on outdated, inflexible screening systems that do not accurately and quickly integrate new regulatory changes is as costly as approaching compliance as a check-the-box exercise. Consequences may include:

• Criminal prosecution and costly fines: Failure to comply with sanctions is a criminal offense and can lead to hefty fines. Binance was subject to the largest-ever fine against a crypto business in November 2023 to the tune of $4.3 billion, and the average fine in 2022 issued by the US Office of Foreign Assets Control was $32 million.

• Reputational risk: Organization’s reputation with customers and investors is damaged when public disclosures reveal that inadequate screening led to an organization facilitating money laundering or terrorist financing.

• Increased operating costs: Inaccurate, low-priced compliance screening systems cost more over time. By producing more false positives, organizations have higher alert volumes that compliance teams must legally review. For example, Castellum.AI reduced one client’s alert rate by 88%, saving them 93% on annualized operating costs for transaction screening. 

Countries issue different sanctions lists or other watchlists under local regulatory regimes that organizations must integrate into their compliance screening process. As a result, organizations must have a flexible screening system that matches their regulatory requirements and risk exposure across borders. Each watchlist has specific criteria and areas of emphasis, including distinct types of sanctions, financial regulations or trade controls. These differences underscore the value of comprehensive coverage to meet international compliance standards quickly and effectively. A robust screening system provides more than a basic AML/CFT framework. Unfortunately for compliance teams, not all systems are equal, and the bare minimum rarely covers an organization’s risk profile. 

Prioritize reliable vendors with strong regulator relationships (especially US regulators who are most likely to issue penalties). Castellum.AI has relationships with regulators globally. It helps that our patent-pending data collection process is so accurate we automatically detect data errors from governments. We’ve issued corrections to over 15 different sanctions issuing authorities, including: