The anti-money laundering dilemma
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While fraudsters and money laun-derers have been innovative in adapting their techniques over the years, the technology approaches by banks have unfortunately not been as innovative. These approaches have often been limited to manual inspection of records or programming systems to flag out transactions above a certain amount - a fact borne out during interviews with regional banks.
For example, the IT head of a tier 1 bank in Taiwan concedes: “We don’t check the background of our individuals. We write programs as part of our core banking applications to flag out transactions above one million NT and above, and also to calculate if the sum of transactions are over one million NT and we report such instances to our HQ and financial department."
The IT head added that its current monitoring primarily focused on transaction amounts and suspicious individuals. The bank revealed that its applications for monitoring are primarily in-house developed.
Expectably, the global banks seem to be more diligent in this area, thanks to their more global nature of their risk exposure. HSBC Brunei’s manager for technical services, Silvia Chong highlighted that the bank utilizes a mix of in-house developed and third party applications. She emphasizes that technology plays a critical role in it: “Technology does help a lot – because we have automated systems to filter out (irrelevant) information and highlight the required information that we want to see.”
Chong revealed that besides transaction amounts, frequencies and monitoring against a list of suspicious individuals, HSBC’s methods also included monitoring transactions from high-risk countries and classifying customers.
An ROI question
One solution provider expressed a fundamental dilemma impeding banks: “When you have projects like CRM, which deliver returns on investment…. if the regulators are not going to penalize you (for system deficiencies in detecting laundering), you won’t rush off to do compliance first.”
"No country wants to be known as the country to launder money."
This individual pointed out that with many of the money laundering scandals across Asia, the focus had often been on catching and punishing the money launderer himself, rather than turning a critical eye on the systems and infrastructures in place at target banks.
However, the increasing occurrence of money laundering, regulatory push in the form of the Patriot Act and Sarbanes-Oxley and the huge cost of reputation risk in the face of banks’ efforts to IPO are pressuring Asia financial institutions to accumulate data on suspicious individuals and transactions more judiciously. Organisations such as World-Check and Factiva are seizing the opportunities here. Both organizations provide profiles of high risk and potential high risk persons, such as politicians, terrorists, and other individuals linked to fraud, organized crime and laundering.
Factiva’s CEO Clare Hart says: “No country wants to be known as the country to launder money. Let’s face it, because there are too many risks associated with that from an investment perspective. I think the regulatory environment has actually helped us quite a bit with. Bad behaviour is really helping us.”
Factiva leverages its archives of news reports, to provide a product called ‘public figures and associates’, a database which the company claims includes 350,000 politically exposed persons, and a further 100,000 of their relatives, friends or close aides. The database also includes a black list of 4,600 individuals that financial institutions are barred from doing business with, under the advice of national regulators or international bodies.
According to Hart, “Public figures and associates was in direct response to European banks coming to Factiva, who already had strong relationships with us… these bankers came to Factiva because for compliance purposes, they needed to have database of information about people, and at one point, they were looking at building their own database amongst themselves and decided that this (public figures and associates) fits right into their strategies.”
Asia’s track record
Asian banks are under the spotlight today. Three out of the six “non-cooperative countries and territories” identified by Financial Action Task Force, an inter-governmental body against money laundering and terrorist financing, are in Asia – Indonesia, Philippines and Myanmar. Generally, Asian banks have not had a good track record in money laundering, thanks in part to the fact that they have not faced the same sanctions as European and North American banks do for negligence in this area.
However, Simon Alterman, vice-president of content for information company Factiva, believes that this is changing: “Over the last year or so there has been a real change of pace in the Asia Pacific region as far as compliance issues are concerned… when we started to do this years ago, it was almost impossible to get their attention.”
Staying one step ahead
However, Leong Mun Tong, Asia Pacific sales director for financial services at Mantas, which specializes in behaviour detection software, says that many monitoring systems across banks in the region continue to utilize a rule-based approach, engineered to detect actual fraud rather than suspicious patterns of behaviour.
He adds: “Neither viral or money laundering pattern is static. The money launderer is going to get smarter and smarter to avoid detection. So, software solutions must be one step ahead of the evolving techniques that money launderers use.”
Yet another challenge is in knowing the various money laundering patterns to look for. Leong elaborates: “For example, what constitutes suspicious behaviour and how do you identify them in a sea of data that is made up of complex customer relationships, diverse monetary instruments, transaction channels and international reach?
For example, the IT head of a tier 1 bank in Taiwan concedes: “We don’t check the background of our individuals. We write programs as part of our core banking applications to flag out transactions above one million NT and above, and also to calculate if the sum of transactions are over one million NT and we report such instances to our HQ and financial department."
The IT head added that its current monitoring primarily focused on transaction amounts and suspicious individuals. The bank revealed that its applications for monitoring are primarily in-house developed.
Expectably, the global banks seem to be more diligent in this area, thanks to their more global nature of their risk exposure. HSBC Brunei’s manager for technical services, Silvia Chong highlighted that the bank utilizes a mix of in-house developed and third party applications. She emphasizes that technology plays a critical role in it: “Technology does help a lot – because we have automated systems to filter out (irrelevant) information and highlight the required information that we want to see.”
Chong revealed that besides transaction amounts, frequencies and monitoring against a list of suspicious individuals, HSBC’s methods also included monitoring transactions from high-risk countries and classifying customers.
An ROI question
One solution provider expressed a fundamental dilemma impeding banks: “When you have projects like CRM, which deliver returns on investment…. if the regulators are not going to penalize you (for system deficiencies in detecting laundering), you won’t rush off to do compliance first.”
"No country wants to be known as the country to launder money."
- Clare Hart, Factiva's president & CEO
This individual pointed out that with many of the money laundering scandals across Asia, the focus had often been on catching and punishing the money launderer himself, rather than turning a critical eye on the systems and infrastructures in place at target banks.
However, the increasing occurrence of money laundering, regulatory push in the form of the Patriot Act and Sarbanes-Oxley and the huge cost of reputation risk in the face of banks’ efforts to IPO are pressuring Asia financial institutions to accumulate data on suspicious individuals and transactions more judiciously. Organisations such as World-Check and Factiva are seizing the opportunities here. Both organizations provide profiles of high risk and potential high risk persons, such as politicians, terrorists, and other individuals linked to fraud, organized crime and laundering.
Factiva’s CEO Clare Hart says: “No country wants to be known as the country to launder money. Let’s face it, because there are too many risks associated with that from an investment perspective. I think the regulatory environment has actually helped us quite a bit with. Bad behaviour is really helping us.”
Factiva leverages its archives of news reports, to provide a product called ‘public figures and associates’, a database which the company claims includes 350,000 politically exposed persons, and a further 100,000 of their relatives, friends or close aides. The database also includes a black list of 4,600 individuals that financial institutions are barred from doing business with, under the advice of national regulators or international bodies.
According to Hart, “Public figures and associates was in direct response to European banks coming to Factiva, who already had strong relationships with us… these bankers came to Factiva because for compliance purposes, they needed to have database of information about people, and at one point, they were looking at building their own database amongst themselves and decided that this (public figures and associates) fits right into their strategies.”
Asia’s track record
Asian banks are under the spotlight today. Three out of the six “non-cooperative countries and territories” identified by Financial Action Task Force, an inter-governmental body against money laundering and terrorist financing, are in Asia – Indonesia, Philippines and Myanmar. Generally, Asian banks have not had a good track record in money laundering, thanks in part to the fact that they have not faced the same sanctions as European and North American banks do for negligence in this area.
"Software solutions must be one step ahead of the evolving techniques that money launderers use.
However, Simon Alterman, vice-president of content for information company Factiva, believes that this is changing: “Over the last year or so there has been a real change of pace in the Asia Pacific region as far as compliance issues are concerned… when we started to do this years ago, it was almost impossible to get their attention.”
Staying one step ahead
However, Leong Mun Tong, Asia Pacific sales director for financial services at Mantas, which specializes in behaviour detection software, says that many monitoring systems across banks in the region continue to utilize a rule-based approach, engineered to detect actual fraud rather than suspicious patterns of behaviour.
He adds: “Neither viral or money laundering pattern is static. The money launderer is going to get smarter and smarter to avoid detection. So, software solutions must be one step ahead of the evolving techniques that money launderers use.”
Yet another challenge is in knowing the various money laundering patterns to look for. Leong elaborates: “For example, what constitutes suspicious behaviour and how do you identify them in a sea of data that is made up of complex customer relationships, diverse monetary instruments, transaction channels and international reach?
posted by we_d_living @ 1/12/2005 02:15:00 AM
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