An Expert Guide to Know What is Wealth Screening?

It’s quite challenging for organizations, especially the non-profits, to conduct thorough financial due diligence on donors when it comes to fundraising. This process of identification is done not only to learn the donor’s name but to verify their identity and the funds they are offering.

However, failing to perform proper due diligence doesn’t just increase operational challenges; it can trigger regulatory scrutiny. In the past, several NGOs have faced investigations, financial penalties, or loss of public trust because they accepted donations without verifying the legitimacy of donors and their funds.

For instance, the UK Charity Commission’s review of the Mahfouz Foundation clearly explains how a lack of donor screening can lead an organization to serious governance and weak financial management. In that case, the Mahfouz Foundation did not conduct appropriate due diligence checks on its donors and the source of funds they received. As a result, the payments were not used in line with the charity’s stated purposes, which reflected inadequate oversight.

Organizations are required to perform wealth screening of their donors to avoid being a part of such governance issues. This helps them in doing the due diligence of donors  before they actually receive any contributions.

Let’s discuss in detail what wealth screening is and what information is required for organizations in order to perform authentication checks on the source of funds and donor verification.

What is Wealth Screening?

Wealth screening assesses third-party or publicly available data to find out whether the donor is legitimate, has the financial capacity to provide funds, and is not a high-risk entity associated with money laundering and terrorist financing. This procedure is not limited to verifying only the financial capacity of donors, but it also assesses the legitimacy, source of funds, and potential risks of donor associations with PEPs and sanctioned entities.

In short, wealth screening assists organizations in finding the appropriate donors who don’t have any shady backgrounds. Additionally, it helps organizations engage only with donors who comply with legal regulatory requirements.

What is the Process of Donor Wealth Screening?

How exactly does this donor wealth screening work? Let’s take a step-by-step look:

Data Gathering

The first step is to collect data from the donor. At this stage, organizations learn about the donor’s identity, source of funds, and contribution record. This is done to ensure the legitimacy of the client and the funds they are offering.

Donor Scoring and Classification

After getting the relevant information, the next step is risk mitigation. In this step, an organization’s wealth screening tools check the risk score of the donor across PEP databases, adverse media, sanctions list, and watchlists, and segment them according to their risk level. Assessing the risk helps ensure that the donor is not associated with any terrorist entity or (more specific words which can indicate high risk)

Establishing a Tailored Outreach

Once the professionals have completed segmentation, they generate an outreach strategy depending upon the donor’s financial history, risk score, and capacity.

Record Keeping

When the donor wealth verification goes through all these three steps,

What Kind of Information is Collected for the Purpose of Wealth Screening?

Organizations collect different data points and information to do robust wealth screening. These types include:

• Personal Identification details such as the donor’s name, date of birth, nationality, profession, and contact details.
• Source of Funds
• Business Affiliations

All these details are required to learn whether the donor is legitimate and is a good fit for the organization.

Role of Wealth Screening in Data Protection Compliance

Wealth screening plays a key role in data protection and compliance risk management by helping institutions identify potential donors. According to the CASE Guidelines on GDPR Compliance (2019), it enables organizations to use publicly available data to assess donors’ financial capacity and philanthropic interests while ensuring transparency, fairness, and accountability. Under GDPR, organizations, especially non-profits, must document their lawful basis, often “legitimate interest”, through a Legitimate Interest Assessment (LIA), and conduct a Data Protection Impact Assessment (DPIA) to manage privacy risks. Clear privacy notices, opportunities to object, and ensuring human oversight in automated decisions are essential to maintaining compliance and protecting individuals’ rights.

Key Trends in Wealth Screening for Future

Wealth screening isn’t designed to assess a counterparty’s or donor’s wealth. It’s designed to assess the legitimacy of the donors, understand their behavior, financial history, and assess potential risks associated with them. The use of automation has made the process of wealth screening faster and more effective. Sanctions, PEP, and criminal watchlists are evolving with time; it is necessary for the organizations to integrate such wealth screening softwares that offers updated regulatory data across jurisdictions. Organizations can secure their sustainable growth only if they work with an effective wealth screening platform that balances automation with best compliance practices.

Financial Action Task Force (FATF’s 2023 report) on “Combating the Abuse of Non-Profit Organizations” focuses on a risk-based approach to prevent non-profits from being exploited for terrorist financing, prompting them to integrate calibrated due diligence measures and ongoing donor audits.

Elevate Your Donor Screening Process With AML Watcher

Many organizations rely on incomplete public data and risk accepting funds from unknown sources. Is your organization operating globally, including some of the high-risk jurisdictions, and struggling to verify the donor’s legitimacy?  Your NPO organization is surely in dire need of a NPO wealth screening solution that can help it avoid the risk associated.

Let AML Watcher enhance your donor due diligence process by helping you detect high-risk associations before receiving donations.

Here’s how AML Watcher strengthens the wealth screening process for Organizations:

• Global sanctions, PEP, and adverse media checks to assess legitimacy and compliance.
• Ongoing monitoring to save organizations from reputational and financial risks.
• Customized risk scoring to categorize the donors based on their risk levels.
• Automated risk alerts to ensure financial transparency and timely escalation of potential concerns.