As concerns about terrorism and fraud intensify, money laundering has become both a compliance and a competitive issue, with attendant consequences. To respond effectively, banks must adopt a culture that fosters AML practices in addition to technology solutions.
Michael Zeldin, Global Practice Leader for AML Services, Deloitte (Washington, D.C.)
Saskia Rietbroek-Garces, Executive Director, ACAMS (Miami)
Mark Moorman, Vice President of Financial Services Practice, SAS (Cary, N.C.)
Simon Moss, Chief Executive Officer, Mantas Inc. (Herndon, Va.)
Q. What challenges do banks face in terms of their anti-money laundering (AML) practices?
Michael Zeldin, Deloitte: The biggest challenge facing banks is the enhanced Bank Secrecy Act targeted examination that focuses principally on transaction monitoring and the implementation of "know your customer" procedures. The bank examiners are not only looking to see how banks are able to know their customers and monitor their transactions for suspicious behavior on a day-to-day basis; they are also looking at how banks have done this over the previous two years. If examiners find deficiencies - if the bank does not adequately monitor its transactions or know its customers - they are ordering banks to conduct transaction reviews.
Saskia Rietbroek-Garces, Association of Certified Anti-Money Laundering Specialists (ACAMS): Detecting terrorist financing probably is one of the most challenging tasks for both small and large banks. The 9/11 Commission found that little has been learned since Sept. 11 about how Al Qaeda gathers, controls and moves its money and finances its operations. If the government doesn't know this, how are banks supposed to detect funds that flow through their accounts that are used to finance terrorist acts? Terrorists generally move smaller amounts than "traditional" money launderers, which makes it very difficult to detect.
Mark Moorman, SAS: The greatest challenge facing banks is the optimal allocation of human and monetary resources to best comply with regulatory guidelines and manage risk within their institutions. This overarching challenge truly is a series of smaller challenges. First, the proper investigative resources must be organized to monitor multiple lines of business and customer segments. Second, the bank must determine which transactions and customers pose the greatest risk of money laundering. Third, the investigators' time must be optimized.
Simon Moss, Mantas: Regardless of size, banks face four challenges. Cultural - AML is seen in many institutions as a problem to be solved at the business unit or geography level. This is a fundamental mistake. Money laundering is a cross-geography, cross-branch and cross-business challenge. Regulatory - The lack of data and uniformity across the market will always lead to systemic weaknesses. Training and Process - Technology is irrelevant if processes are not implemented and followed. Once these three challenges are addressed, a technology decision can be made. The result is better selection of a solution, better ROI and better compliance.
Q. What is the status of regulations governing AML?
Zeldin, Deloitte: Globally, countries are updating their AML regulatory regime, which means that global financial institutions have a greater challenge to ensure that they are complying with the regulations that govern their worldwide activities. Many of the laws that various countries are passing are very prescriptive, whereas [U.S.] laws are much more risk-based. For example, many Asian and South American countries have adopted regulations that prescribe the specific information that must be obtained to satisfy account-opening and know-your-customer requirements. Often, these specific requirements exceed the information gathered in the ordinary case in the U.S. (e.g., proof of source of wealth and beneficial ownership issues). These laws, therefore, are challenging for multinational financial institutions that are endeavoring to establish a single global standard governing their client acceptance practices.
Rietbroek-Garces, ACAMS: Regulations and laws vary by country. There are international standards, which are not mandatory, such as the Paris-based Financial Action Task Force's 40 Recommendations. The FATF is a global AML watchdog that issues these standards, which have become a blueprint for money laundering laws and regulations around the world.
Q. What are the key tools for detecting and preventing money laundering? Are there new technologies available for anticipating threats and/or identifying possible money laundering activity?
Zeldin, Deloitte: The key tools are transaction monitoring systems. Banks large and small really must implement these systems. However, this is easier said than done. There are many systems on the market and they do different things. Banks need to figure out what their needs are and how the systems integrate into their current IT environments. The key is to choose a system that will get you the best result for the best price. For instance, a retail bank will need a different system than a wholesale bank. Banks have different requirements than their brokerage subsidiaries. Insurance products pose different challenges. A bank really needs a team of IT, business and compliance professionals to make the determination of which system will work best for that institution.
Rietbroek-Garces, ACAMS: Technology can be a big help in detecting suspicious transactions. AML software comes in all sizes and shapes, but generally it's not cheap. Compliance officers must justify a project proposal for buying the software by building a compelling case for spending those dollars, and that's not always easy, especially because compliance is seen as a cost center. However, tracking customers' behavior with AML technology can actually give you information that can help your business sell more. An unexpected change in a customer's profile to a customer with a higher profitability grade is not always a sign of malfeasance; it can also lead to a business opportunity for the institution.
Moorman, SAS: The greatest advancement is a movement away from event-based detection and toward dynamic risk assessment. This means that the best software packages will incorporate understanding of the characteristics that are indicative of money laundering. Skilled money launderers know abnormal behavior will attract attention and adjust their transactions accordingly. However, there are characteristics of money laundering and terror financing that cannot be hidden by simply changing the sequence, amounts or types of transactions. Technology that analyzes these subtle indicators of risk is a potent weapon against costly investigations of legitimate transactions.
Q. What are the roles of internal policies, procedures, training and communications in AML efforts?
Zeldin, Deloitte: Train early and often. You can never train enough in the area of money laundering. Training has to be built off of sound policies and procedures. Compliance needs to become part of the year-end evaluation for all employees. Meeting financial goals can't be the only criterion by which people are evaluated; how well they execute their compliance responsibilities also must be included in the evaluation. Without a clear tone at the top that compliance really matters, banks will sooner than not find themselves on the wrong side of a regulatory examination.
Moorman, SAS: Constant knowledge transfer at a financial institution is essential to prevent the obsolescence of that institution's compliance standards, identify areas with a need for additional training, reinforce the truism that every individual plays a vital role in the mitigation of risk and lead to enhanced risk-assessment of customers. The policies implemented should facilitate the upward transmission of requests for additional guidance or improvements in procedures.
Moss, Mantas: A bank needs documented policies and procedures for employees to interpret regulations and place them in the context of its business mix, organizational structure and operation. This includes both operational procedures such as verification upon account set-up and specific procedures relating to software applications. The FDIC will be issuing due diligence guidelines to banks for selecting AML software. One of the areas of focus is quality of product installation.