What causes a failed AML check?

A failed AML check can feel like an administrative headache, and often, the reasoning behind the failure is blamed on a typo or a missing document. However, this is rarely the case. We live in a world where money laundering and financial crimes are becoming more and more prominent, and in order to keep up with the times, AML checks are designed to pick up major red flags.

For businesses operating within finance and other regulated industries, it is important to have an understanding of the true causes of a failed AML check. Here, we’ll go through the reasons behind failed AML checks so that you can keep on top of managing client relationships and the functionality of your business.

Reasons for failed AML checks

There are a number of reasons for failed AML checks. Let’s discuss these in more detail below. 

1. Inconsistent or unverifiable KYC information

Being able to verify a customer’s identity is one of the most crucial parts of an AML check. This is also known as Know Your Customer (KYC), and it allows firms to understand a customer’s background in more detail. So, where does the issue lie with KYC information? 

The main issue with KYC information causing a failed AML check is when there are identity discrepancies. For example, if the name, date of birth or primary address does not consistently match up with multiple, authoritative government or financial records. 

Further to this, an AML check will fail if the structure of the ownership of a business is deliberately complex and involves multiple shell companies in high-risk jurisdictions. Another reason for failed AML checks is if the ultimate beneficial owner cannot clearly be identified and verified. 

Also, if any documents provided have been tampered with and have failed authentication checks, the AML check will fail. Ultimately, if the firm cannot confidently identify who the customer is, it will result in the AML check failing, as the regulatory and financial crime risk is too high. 

A sign that says 'AML - anti-money laundering' on it with a sheet of figures and a magnifying glass in the background.

2. A sanctions list match

The second reason why an AML check might fail is due to there being a match on a global sanctions list. In fact, this is the most definitive and non-negotiable reason for a failed AML check. Sanctions lists will either be published by the European Union (EU), the United Nations (UN) or the US Office of Foreign Assets Control (OFAC). These sanctions lists identify individuals, entities and countries with whom a form is legally prohibited from doing business.

Suppose there is a conclusive match of a person’s identity with a person, organisation, or vessel that is on a sanctions list. A sanctions list match includes the customer being owned 50% or more by a sanctioned individual or entity, too.

The reason behind a failed AML check with regard to a sanctions list match is that it is a criminal offence that will result in an immediate freezing of funds, huge fines and potential legal actions.

3. Politically exposed person (PEP) escalation

Thirdly, a failed AML check can also be due to a politically exposed person (PEP). A PEP is an individual who is entrusted with a prominent role in the public. This can include a politician, a judge, or a high-ranking military official. PEPs are considered high-risk due to their potential vulnerability to corruption and bribery.

It is important to note that a PEP match does not automatically mean that the AML check has failed. It just means that a mandatory enhanced due diligence (EDD) check will have been triggered. The AML check will only fail if the customer fails the EDD. 

As part of the EDD, the firm will need to verify the source of the customer’s wealth, as well as the funds they intend to transact. The check will fail if the source of the money is inconsistent, suspicious or unverifiable with the known income or profile. 

Furthermore, the check will fail if the client is a family member or close associate of a known PEP and their financial activity cannot be reasonably explained without corrupt ties. 

Without the ability to verify legitimate wealth and funding sources, firms will assume there is a high likelihood of illicit funds or corruption, which they will actively avoid facilitating. 

4. Adverse media and reputational risk

An AML check will have failed if the reputation of a customer or associated entity is damaged. This will include firms analysing global news and reputational databases for any negative information about the customer.

Serious allegations will be in these reports, for example: 

  • Money laundering or terrorist financing
  • Fraud, embezzlement, or bribery
  •  Organised crime or drug trafficking
  • Serious regulatory enforcement actions (fines, investigations)

It is important to note that, even if the person or entity has not been sanctioned or convicted, the severity of the negative media reports will still create a reputational risk for the firm. 

A sign that says 'reputation risk' on it with a cup of coffee.

The takeaway for compliance

A failed AML check can be taken as a successful preventive measure against the risk of potential financial crime. The reasons behind a failed AML check are often complex and interconnected, but there is also a difference between a simple error and a critical red flag. 

In order to manage the risks effectively, firms need to implement effective screening solutions that monitor continuously for all red flags. This moves compliance from a tick-box exercise to an effective risk management function. 

To summarise, these red flags can include the following: 

  • KYC inconsistency: If the customer is hiding their UBO structure
  • Sanctions match: The legal name of the customer matches an entity on sanctions lists
  • PEP fail: A PEP can’t verify the source of their funds
  • Adverse media: If the customer is subject to ongoing fraud investigation reports (in this case, it is the reputational damage that comes into play)


Be sure to prevent your business from illegal financial activity and harm with thorough AML checks. At Creditserve, our AML checks allow you to thoroughly verify the identity of a customer while complying with AML regulations. Contact us today for more information on our AML packages on 01992 414222.