AML Scrutiny HeightenedUpheaval in Libya, Egypt, Spurs FinCEN Alerts
On Feb. 16, a similar precautionary bulletin was issued for transactions involving political figures from Egypt. FinCEN identified misappropriated assets, illegal payments and public corruption proceeds as the top three concerns.
These alerts hammer home the point that recent global unrest calls for banking institutions to turn up the heat on their own anti-money laundering practices.
Specifically, transactions involving senior foreign political figures that could be connected to illicit activity, money laundering, terrorist financing, or any other violation of federal law or regulation, must be reported via Suspicious Activity Reports, FinCEN says. The alerts also note institutions' obligations under the USA Patriot Act to monitor and report any suspicions of money-laundering related to private banking accounts held by non-U.S. citizens.
Hugh Jones, CEO and president of AML solutions provider Accuity, says banking institutions may be challenged in these tasks by language barriers, outdated account-screening practices and lack of automation in fraud detection. "It's hard to screen in a micro-categorized way," Jones says. "There are enormous operational difficulties, which makes it hard to catch everything. And if a good PEP [politically exposed person] suddenly becomes a bad PEP, what protections can you put in place?"
AML and Fraud DetectionMost AML solutions and off-the-shelf fraud detection software are not capable of automatically screening PEPs; but a blend of best-in-class systems designed for AML and enterprise-level fraud management can control money laundering fraud, Jones says. "Financial institutions are realizing that just having check-the-box compliance does not really keep you protected when the world is in upheaval," he says.
Doug Johnson, vice president of risk management policy at the American Bankers Association, says banks are looking for solutions that integrate AML and fraud detection systems. "There is an expectation, I think, going forward that those two types of products are going to be better integrated," he says. "I see those kinds of integrations occurring to help anti-money laundering activities as well as fraud deterrence."
Most existing AML applications, Johnson says, are batched, which makes real-time detection of suspicious and potentially fraudulent activity impossible. It's the reason many bank executives have historically viewed AML tools as investments that add little overall value.
AML Alone: Not EnoughDr. Tony Wicks, director of AML solutions at NICE Actimize, which provides AML technology, says banking institutions will be scrambling to increase transactional scrutiny over activities initiated throughout northern Africa. "The whole situation is changing, so banks obviously need to do a lot of work at the moment to monitor and watch transactions from that region," he says.
Financial institutions for the last several weeks have been ranking risk for transactions to and from Libya and Egypt. Going forward, the focus will be on reviewing customer records, "to make sure they are not associated with anybody they should not be," Wicks says. "Banks should be putting increased scrutiny on PEPs, and they should be looking through and making sure they are not doing any transactions with any high-risk organizations."
When it comes to actually identifying PEPs, most financial institutions should not be too concerned, says Kevin Sullivan, a certified anti-money laundering specialist and former investigator with the New York State Police who now directs AMLtrainer.com. "I don't think that's much of an issue," he says. "All they are really being asked to do is be aware that there is political turmoil in a couple of countries and to increase their scrutiny of the transactions regarding PEPS/private banking in those countries and report any activity that might be out of the norm."
Wicks sees the PEPs issue being a bit more concerning. "The challenge with PEPs is actually identifying them," Wicks says. "To be able to identify Arabic names, for instance, most financial institutions have sanctions in place. The danger is that if it's done in the wrong way, such as if you're using the wrong technologies, you'll get false positives or could miss someone all together. This is why it's important to make the link between the risk of certain transactions and fraud."
Advice to banks and credit unions: Focus on KYC -- know your customer -- AML and data. Institutions also should pay especially close attention to non-conventional types of payment, such as credit cards or securities, which may be used move funds.
Some PEPs, for instance, will try to liquidate and move funds, which brings ACH and wire fraud into the picture, Wicks says. "In areas that have significant risks for these types of transactions, you really need to look at the individuals and watch where those transactions are going."