False negatives occur when a system or process fails to detect legitimate risks or suspicious activities, incorrectly identifying them as harmless. In the financial crime compliance space, a false negative can have serious consequences, as it means that potentially illicit transactions or behaviours go unnoticed, allowing criminal activities like money laundering, fraud, or terrorist financing to proceed undetected. 

For example, if an Anti-Money Laundering (AML) system or process fails to flag a transaction tied to an illegal activity, this would be considered a false negative. Compliance teams work to minimise false negatives by refining detection algorithms, improving data quality, and enhancing risk assessment protocols. Reducing false negatives is crucial to ensuring that financial institutions comply with regulations and effectively prevent financial crime, protecting both the organisation and the broader financial system from abuse.