Perspective

Effective AML Demands Centralization

Bank Technology News | Sunday, June 1, 2008

By Chris Belthoff

You were just notified that your anti-money laundering/case management vendor has decided to sunset its application at the end of 2008. After cursing in your parents’ native tongue, you realize you can view the situation as a glass half full, or a glass half empty.

You could simply replace the application with something similar, or you could take the opportunity to move toward a financial intelligence unit (FIU) model.

Indeed, it’s the perfect opportunity to create a new environment with a better-educated and equipped workforce (people); more efficient operations (processes); and more effective rules and regulations (policies). Taking steps to establish an FIU has many benefits and few, if any, downsides.

Banks need a concerted and comprehensive effort in place to collect, sift through, and evaluate financial information to conduct money laundering and fraud investigations.

However, the effort is being hampered by decentralized operations and applications that do not utilize the latest technology and processes. Banks must begin to employ the concept of financial intelligence and its increasingly important role in the control and management of enterprise financial crime.

A top consideration is the infrastructure for an FIU. Unless you maintain the existing application yourself or outsource it, you have to replace the application, so you may as well make it worth your while in several respects. Your application is no doubt a departmental case management application; you now have the opportunity to support the creation of an an enterprise-wide application.

The FIU concept was originally established for use by countries to combat money laundering and terrorist activities, with The Egmont Group of Financial Intelligence Units (Egmont Group) being the international standard setter for FIUs.

An FIU shares three core functions that assist in the overarching investigation, case management, and resolution of illicit activities; receives information from various bank databases, applications, and staff; analyzes this information for illegal transactions and relationships; and disseminates this information to combat money laundering, fraudulent activity, and terrorist financing.

When changing AML case management systems, it is also the perfect time to re-evaluate staffing needs, cross-train staff, introduce new, talented individuals to the mix, and reassign inefficient employees.

Moving toward an FIU also affords a fresh look at the current AML processes and often uncovers areas for efficiency improvements. Your staff will most likely suggest policy changes due to their raised level of awareness and investigative experience.

With the FIU, the bank will have a more flexible process in place now that the staff is more involved in the entire operation and more knowledgeable. They can use their experience and knowledge to improve the “intelligence” of the application by enhancing the rules associated with the decision-making process of the application.

New processes lead to improved policy changes and closer adherence to regulatory and legal issues. Your AML program should include written policies and procedures for uncovering and acting upon transactions for possible OFAC violations, designating a day-to-day compliance guru responsible for establishing and maintaining strong lines of communication between departments of the bank, and an annual in-depth audit of OFAC compliance.

The compliance program should also include procedures for maintaining current lists of blocked countries, entities and individuals. This information should be readily available to trusted bank employees and disseminated throughout the bank’s domestic and international operations.

In addition, the basic blocking and tackling should not be overlooked. New deposits, loans, trust accounts and discount brokerage accounts should be automatically screened and records kept of the outcomes. Compliance programs are more efficient and more effective within an FIU than in a decentralized environment. If you are faced with a sunsetting application, leapfrogging to an FIU allows for stricter adherence to policies and better success demonstrating that to the regulators.

FIUs are more than databases for financial information required to be submitted by legislation or national regulatory authorities. FIUs must analyze the data they receive because so many suspicious transaction reports (STRs) and other financial disclosures often appear to be innocent transactions. Ordinary deposits, withdrawals, fund transfers, or the purchase of a security or an insurance policy may, however, be important pieces of information in detecting and prosecuting money laundering and terrorist financing.

Only through examination and analysis can FIUs detect criminal financial transactions. Distinguishing truly suspect transactions from those that are only benignly unusual requires informed analysis. Without it, the most sophisticated data gathering in the world will not be productive.