8 Employee Background Checks For Every Business

“An ounce of prevention is worth a pound of cure,” said Benjamin Franklin. This adage of Franklin can be reflected in protecting a business operation where finding the right person for your team needs vigilance.

Levied with a $100,000 fine by the FinCEN (Financial Crimes and Enforcement Network), a BSA compliance officer of a credit union (NYSEFCU), Gyanendra Kumar Asre surpassed AML controls and facilitated the flow of illicit funds worth millions of dollars.

Having an efficient AML compliance program is imperative, but what if the internal controls get bypassed by the very individual who is supposed to practice those measures and protect firms from the legal and monetary consequences of AML violations?

Serving the said purpose, Employee background checks carry the inherent characteristic of filtering the river of debris and nuggets which prohibits businesses from onboarding individuals with criminal history.

It protects organizational motives of staying compliant with anti-money laundering (AML) requirements. Employee background screening helps businesses verify every employee before allowing them to access the controls and ensure employee due diligence (EDD).

This digital paper aims to highlight the essentials of comprehensive background checks and how you can secure your business and the future of employees while fostering an AML-compliant culture.

Will You Hire Financial Fraudsters or Money Launderers?

The 9/11 incident was a wake-up call that gave birth to the inevitability of screening measures for protected business practices. The unfortunate event not only triggered law enforcement and regulatory bodies to develop strict laws and guidelines but also required businesses to be more vigilant about AML & KYC (anti-money laundering & know your customer) compliance.

Therefore, firms are obliged to conduct AML screening measures including criminal background checks to verify the employee’s background and identify any red flags associated with the individual. Let’s grab on the idea of why these comprehensive background checks are crucial in today’s unforgiving compliance environment.

Safeguarded Business Reputation

Business reputation is a conjunction of your employees and clients’ reputation in addition to value-added services. Businesses with a solid reputation tend to draw higher talent. These companies are valued more highly by the market and have lower costs of capital with their potential to generate consistent profits and future expansion.

In an economy where reputation is directly related to factors such as goodwill, intellectual capital, and brand equity, businesses are more likely to be affected by the mere announcement of investigations to violate compliance standards.

Particularly, for money laundering and associated predicate crimes, many organizations have paid the price for overlooking AML/KYC protocols where the employees were involved in facilitating prohibited transactions and engaging sanctioned bodies.

Note: Read more about AML Compliance shortfalls for leading banks in this blog.

Ensured AML Regulatory Enforcement

Interpreting Benjamin Franklin, investing an ounce in preventive measures can save your business from spending thousands of dollars on compliance penalties and fallen integrity costs.  Failed employee background checks can lead to surpassed AML controls which caused total financial remedies of more than $4 billion, collected by the SEC (U.S Securities and Commission) in fiscal year of 2023.

Securing the top spot in AML-related penalties, the U.S. issued fines worth $2.3 billion, followed by the U.K. with AML enforcement actions, analyzed by the Encompass Corporation. Compliance history also saw one of the hefty fines, imposed on BNP Paribas, France’s largest bank, for financially engaging with countries sanctioned by the U.S.

It is imperative to know who you are allowing to access your financial books and controls when every single transaction is liable for your business compliance future. Employee background screening enables you to implement AML measures at the hiring stage while building a team that plays a significant role in creating a compliant business culture.

To effectively implement AML checks, it is important to understand the types of employee background checks and how they can affect your in-house compliance program.

Eight Employee Checks Every Business Should Be Aware Of

Criminal History Check

Employees should be checked for any criminal records to verify their involvement in crimes like money laundering, financing for terrorism, tax evasion, or fraud.

Credit History Check

AML risks associated with your business should be assessed by checking the credit history of employees. An insight into their financial and debt management reveals their financial stability or potential to commit fraud.

Employment History Verification

Identification of any gaps and hidden activities should be verified through employment history verification for effective compliance implementation.

Education Verification

Crucial for AML compliance, an employee should be checked and verified for their educational credentials and background.

Professional License Verification

If you are going to hire an accountant or a lawyer, professional licenses should be acquired and verified to ensure compliance with AML regulations.

Reference Checks

Cross-checking the ethical and professional conduct of employees by engaging with their former employer allows businesses to gather valuable information on employees’ backgrounds and meet compliance requirements.

Global Watchlist Check

To support businesses in meeting regulatory demands, law enforcement bodies maintain organized lists of sanctioned and barred entities. Screening your next candidate against the global watchlists allows your compliance officer to spot connections of candidates with financial crime enablers.

Politically Exposed Persons (PEP) Check

Integrating AML compliance into the hiring process should not overlook your candidate’s connection with politically exposed persons (PEPs), who can potentially exploit financial systems by leveraging their public office power.

Finding a balance between AML compliance and protecting the rights of employees is what every business should strive for. As reported by the U.S Equal Employment Opportunity Commission (EEOC), more than 87% of employers conduct background checks for employees to avoid workplace violence and protect their clients and businesses from non-compliance apprehensions.

Implementation of employee background checks comes with responsibilities and failing to which can pose employers with lawsuits and financial losses. Let’s take a look at case studies where flawed employee background screening brought companies reputational and financial damages.

Employee Checks Went Wrong: Case Studies

In the U.S., employers have faced lawsuits ranging from $1 million to $40 million slapped by employees and candidates for not conducting standard background checks and causing emotional and career traumas to individuals.

Drake & Scull International – Managerial and Financial Losses

Totaling a financial loss of approximately $857.5 million, a Dubai-based company, Drake & Scull International faced significant business losses, substituting background checks of employees. After a management transition in the company, it was found that the former executives and board members were involved in criminal activities. Failure to implement robust ongoing monitoring, the company was tagged with non-compliance to several financial and managerial standards.

Inaccurate Background Check – Job Seeker Sues ADP’s Arm

Reported in Washington, D.C., ADP Screening & Selection Services Inc. (SASS) was sued by a candidate for reporting the job seeker as a convicted murderer. Along with overlooking FCRA (Fair Credit Reporting Act), SASS did not utilize appropriate procedures to check employee backgrounds for instance public court records. The absence of absolute screening measures not only caused the business a legal cost but the candidate went through an emotional trauma.

Major U.S Employers and Legal Consequences of Improper Checks

As revealed by a corporate watchdog group, renowned US employers such as Amazon, Uber, and Wells Fargo have violated FCRA and unlawfully conducted criminal background checks on candidates. The vetting of hundreds of employees went wrong when companies faced a number of lawsuits resulting in settlements worth $174 million by employers and $152 million by screening service providers.

In the wake of said challenges where businesses are required to be vigilant about who they are hiring, they also need to be cautious about the third-party services for background checks. A safe and AML-compliant business operation needs to implement standard and globally recognized practices for employee background checks. Let’s delve into some of the best-known practices that can empower your business operations with efficient AML measures.

Three Globally Recognized Practices for Employee Background Check

Adverse Media Screening

Adverse media checks should be considered one of the best AML practices for employee screening, especially when hiring for senior-level or managerial positions where the stakes are high. The individual in such a role can potentially impact the institutional infrastructure, thereby entangling the corporate entity in a compliance nightmare.

To this end, adverse media screening can be regarded as an additional layer that assists in identifying and eliminating potential bad hires by providing the necessary tools to make informed decisions.

Watchlist Screening

Watchlist screening is unquestionably a must-have for ensuring AML compliance in employee screening. The watchlists typically encompass politically exposed persons (PEPs), individuals and entities sanctioned by governments, and those involved in illegal arms or drug trafficking.

This approach is one of the tried-and-tested methods to eliminate obvious risks, addressing individuals who pose high risks for various reasons or find themselves on the wrong side of the law. Now, if the screening procedures are efficiently followed in the onboarding process, it is important to understand that compliance is not a static issue; it is not fixed.

If an employee’s background checks come clear, that does not mean they can never get involved in illicit financial activities, including but not limited to money laundering and terrorist financing. For this purpose, two more practices are an absolute must for the internal compliance department: periodic monitoring and training/awareness programs for the employees.

Periodic & Ongoing Monitoring

In addition to periodic monitoring, ongoing monitoring is an effective way to proactively manage AML risks. The employment of screening tools embedded with ongoing monitoring and risk profiling enables businesses to keep a closer eye on the status of employees and detect any suspicious behavior linked to fraudulent activities.

A Food For Thought

A vulnerable financial system attracts fraudsters to exploit the financial and ethical boundaries which not only affects the economies but brings chaos to the sustainable goals of a peaceful society. It’s not only the law enforcement and regulatory agencies that need to be active against financial abusers but businesses and individuals are obliged to implement controls at the grassroots level.

Commitment to a sustainable financial ecosystem requires accountability where AML compliance is maintained through employee background checks. AML Watcher, with its mission to make compliance easy and impactful for everyone, empowers your business through its simple yet efficient, regulatory-aligned, and technology-leveraged screening tools.

Connect with our tech and compliance experts and let your business thrive in a strict compliance environment.