Posted by & filed under Research & Investigation.

A while back, I wrote an article with tips for evaluating a website when conducting online research.

While all of the information in the original article still holds true, I thought it was a good time to post another article with some additional investigative resources and techniques.  The first article covered three tools to help obtain background information on a website:

  • Whois Lookup
  • Internet Archives: Wayback Machine
  • Reverse Image Search

Below are three additional tools and techniques to gain additional insight into a website.

 

Map a site with Visual Site Mapper

Visualizing the layout of a website can help identify useful sections of a complex site that may have otherwise been overlooked.  Visual Site Mapper can quickly crawl and display a graphical layout of a website’s internal link structure.

Simply enter the URL of the website that you want to map, and press the “Get Map” button.  Each graph node represents a page of the website, and hovering over a node will highlight all of the other pages that page links to.

Website Graph

 

 

 

Link websites with Google Analytics code

Google Analytics is a popular service that allows webmasters to track statistics such as the number of website visitors per day, visitor location, and time spent on the site.  Webmasters are able to do this by including a piece of tracking code on the website.  The tracking code includes a unique Google user account number that can link multiple unrelated sites to a common owner.

The tracking ID can be identified in a webpage’s source code, which can be viewed by right clicking on the page and selecting “View Page Source”.  The user ID will start with “UA” and then contain a string of numbers, as seen below.

GA Code Snippet

Once you have obtained the ID, you can enter it into a lookup tool that aggregates website information, such as SpyOnWeb.com, to identify any other websites linked to that account number.  It is also possible to skip the above step, and just search the website URL directly in SpyOnWeb to obtain the Google tracking ID for the site, and other website information.

spy-on-webA more in-depth write-up on using tracking codes to link websites can be found here.  An interesting real-world case study using this technique as part of an investigation into news websites, can also be found here.

 

Scan a website for malicious content

The web can be a dangerous place.  VirusTotal provides an interface to scan a website URL against over 60 antivirus scanners and URL/domain blacklisting services, in addition to providing other URL analysis features.  A user can select a file from their computer to be scanned or enter a URL in the browser interface.  An API is also available to submit searches programmatically.

VirusTotalResults

Posted by & filed under AML General, Negative News.

Second in a series.  See part 1 here.

frustrated_office_worker_2

Searching for negative news is among the most inefficient, inconsistent, and risky parts of AML.

Whether new customer KYC, high-risk customer EDD, or suspicious activity investigations, negative news searching involves too many systems, too many manual steps, and too much likelihood something critical is missed.

No wonder every AML investigator remains frustrated about this part of their job.

 

Negative News is the Best AML Risk Indicator

Searching for negative news is often the best way to identify AML risk. A news story about a customer’s involvement in a corruption scheme tells us more about risk than a wire transfer to Brazil.

nsyncThere is no defensible explanation when an auditor, or worse, a regulator, finds negative news that an investigator failed to find. It may be the difference between a good exam and a disaster.

Yet searching for negative news has changed little over the past 15 years. AML investigators are using the same approaches today as they did when N’Sync said bye, bye, bye at their last group performance 15 years ago in 2002.

 

Breaking Down Negative News Inefficiency

Negative news searching is inefficient for three main reasons:

  1. Existing negative news databases are small and miss more information than they find.
  2. Because of this, every AML investigator ultimately relies on Google.
  3. Google (and Bing) are not designed for AML investigators.

 

Existing Databases are The Facade of Negative News

Negative news databases have been around for 20 years and most AML departments subscribe to one or more of them. Using these databases give AML officers and regulators a sense of comfort. Unfortunately, it is a false sense of comfort. Most know it and those who don’t should. Why?

I have asked this question hundreds of times to AML officers: “So, you use, (insert name of negative news database here) to find negative news. Do your investigators also use Google?”

Answer 100% of the time: “Yes. Of course.”

Let that sink in for a moment.

Banks spend significant money on these databases, in some cases hundreds of thousands of dollars a year, and yet everyone relies on free search engines because they know that the negative news databases fail to find needed information. (Here is the reason for this).

Despite the fact negative news databases contain few of the records you need, they still somehow generate piles of false positives.

And it is crazy that when negative new databases identify a potential match, the AML investigator still must go to somewhere else (Google) to finish their investigation. Database profiles are incomplete and the hyper-link to the original news report is typically no longer active!

Using multiple databases and search engines is inefficient, adds time to every piece of work, and still does not ensure negative news is found.

 

Search Engines are Inefficient AML Tools

Search engines are better than negative news databases and therefore everyone in AML uses them. However, search engines are not designed with AML investigators in mind. Because everyone fears they will miss information and later be blamed, investigators compensate by conducting multiple Google or Bing searches which just keeps adding more time to work.

There is no consistent approach to how to use search engines to find negative news. Attempting to bring a measure of consistency though, AML investigators use “search strings” hoping to target negative news and reduce irrelevant results.

Search strings help, but are still insufficient. Google places limits on the number of search words allowed in each string. This means investigators are faced with two unappealing options: (1) Hope the search string they used was good enough or, (2) conduct multiple searches using different search strings adding yet more time to their work.

 

Calculating the Inefficiency

Because of the problems with negative news databases and challenges using search engines, what should be a simple and fast process ends up take two, three, or four times as long. What is the impact of adding 5, 10, or even 15 minutes to negative news searching on every alert, every investigation and every EDD review?

Inefficiency builds slowly. One extra step here, another extra step there, and soon the AML officer is wondering, “Why does clearing an alert take so long?” and more concerning, “Am I going to have to hire more people again next year?”

 

Achieve Efficiency and Better Searching

Searching for negative news should be simple, fast, and encompass exponentially more information than existing negative news databases provide. Relying on creative Google or Bing search strings still leaves gaps and takes unnecessary time.

It is nuts that in 2017, investigators are still relying on tools built for an AML world that existed more than 15 years ago. It is time AML investigators were given tools that enable them to move faster and complete work with a stronger sense of confidence.

One or two searches in just one application should be all that is needed to find something negative, or, just as importantly, be confident there is nothing negative to find. Picture the productivity gains and improvement of AML if investigators needed to only conduct one search and know immediately if there was something negative or not.

Instead of adding 5, 10, or 15 minutes to each EDD, alert, or case investigation, you’d be reducing work by that much. This adds up significantly over a day, a week, a month, a year.

Using modern computer science, AML teams can now do this.

Next week we discuss the frustration and inefficiency investigators face when reviewing negative news search results.

Posted by & filed under AML General, Negative News.

This is the first post in a series addressing inefficiencies in current AML processes and practical solutions to the most prevalent issues.

frustrated_office_worker

I spend my days speaking with AML Officers, FIU Directors, and the investigators and analysts that spend their days completing EDD reviews, transaction monitoring analysis, and case investigations.

I can distill those hundreds of conversations over the past year to three words:

Tired

Of

Inefficiency

The cost of inefficiency is incalculable, and the most concerning impact of inefficiency is the opportunity cost.  What isn’t getting done because of outdated technology and the heap of manual work steps that keep piling up?

Inefficiency Harms the Real Purpose of AML

I have been in AML since 1996 (yes, AML is that old). Over those 20+ years I have seen a lot, and sometimes it is easy to feel a bit cynical.  But I still believe those in AML serve a vital purpose. We are part of a global effort to detect and help law enforcement combat evils like narcotics trafficking, human trafficking, crimes against children, and terror financing.

But when does this get done amidst all the checking of boxes, endless new work steps, and struggling with clunky old systems?

How AML Inefficiency Can Be Fixed

So much of AML is inefficient and there are a lot of reasons for this, but instead of dwelling on those reasons, let’s discuss what can be done now to reduce inefficiency.  One part of AML at a time.

Why one part at a time?

It would be nice if all the steps in complex AML processes like detecting suspicious activity could be solved at once.  There is a lot in today’s AML media suggesting that we are on the cusp of magical Artificial Intelligence (AI) that will do just that.  “My CEO said we need to wait for AI and then we can cut our AML costs,” is a sentence I hear often from AML officers.

That ain’t going to happen anytime soon.

Big problems, like big puzzles, get solved one piece at a time.  As an example, let’s look at a big problem Uber solved and how the same framework applies to solving AML’s big problems.

For Uber to exist, it relies on the success of multiple technology applications.  To click an app on your phone and watch a car drive to you, Uber first needed a lot of things to fall into place. To name just a few:

  • The internet
  • Reliable Wi-Fi
  • Mobile phones
  • Mobile phones with Wi-Fi capability
  • GPS to work on handheld devices
  • Mapping software that plot precision points on a map app.
  • Mobile payment systems
  • Payment security

It took years of trial and error to make each of these parts of the “stack” work.

Solving AML’s problems is similar.  Solutions to improve quality and reduce inefficiency of the many multiple parts of AML must be created, refined, and perfected a piece at a time.

AML is Riddled with Inefficiency

AML processes for Enhanced Due Diligence, transaction monitoring alert analysis, and suspicious activity investigation each involve similar, and often the same, steps. Broadly speaking those steps include:

  • Reviewing transaction or other triggering alerts.
  • Obtaining, documenting and reviewing customer KYC information.
  • Reviewing transaction records.
  • Reviewing prior alerts and SARs when they exist.
  • Searching public record information.
  • Searching negative news, sanctions, watch list, and PEP information.
  • Conducting analysis.
  • Making risk management decisions.
  • Recording findings.
  • Creating a file of supporting evidence.
  • Having that file reviewed by management
  • Having that file reviewed (perhaps) by Internal Audit or the regulator.

Completing EDD, alert, and case reviews can take anywhere from a few minutes to many hours.  That time is riddled with inefficiency for many reasons, one of which is that investigators must access multiple systems to search, find and retrieve needed information.

For anyone who does this work, having to flip from one system to another is monotonous and eats away at time.  Believers in Artificial Intelligence say that will no longer be necessary.

One day, those believers will be right, but to get to that day, each of these AML steps must first be substantially improved before the AML stack functions in unison.

Fixing Negative News Searching

In this five part series, Bringing Efficiency to AML, we will dissect one of these required AML steps – searching for negative news. We will illustrate how new approaches and new technology like Machine Learning (a necessary precursor to AI) are now being used to substantially reduce inefficiency and improve quality of work in this area.

In dissecting the problems with negative news searching today and how it can be improved, we will publish four additional articles, each addressing one of the elements of negative news searching. These four elements are:

  1. Searching for negative news;
  2. Reviewing and analyzing results;
  3. File documentation and record keeping; and,
  4. Quality control, Internal Audit, and examiner review of work product.

Look next week to read about the inefficiency and risk of negative news searching and how solving these problem is now possible.

Posted by & filed under AML General, Negative News.

aml-broker-dealerThe SEC and FINRA announced that broker-dealer anti-money laundering (“AML”) programs continue to be a focus and priority for 2017.

While most, if not all, broker-dealers likely have some form of AML program, this continued focus by the SEC and FINRA indicates that having just any program is not enough.

Key Aspects for an AML Program

Taking the SEC and FINRA announcements together, these are the key aspects for a broker-dealer to consider when implementing and reviewing its AML program:

  • How does a broker-dealer monitor for suspicious activity?
  • If suspicious activity has been found, have suspicious activity reports (“SARs”) been filed appropriately and timely?
  • Has a firm’s prior shortcomings identified by a regulator been remediated?
  • Has a broker-dealer’s AML program been tailored to the specific risks that firm faces?

The key takeaways appear to be that there is no “one size fits all” AML program.  AML programs must be able to be tailored, modified, and adjusted as trends and risks change.

Recent SEC and FINRA Actions

Recent SEC and FINRA enforcement actions further support this.

  • In June 2017, the SEC alleged that Salt Lake City-based brokerage firm Alpine Securities Corporation had violated securities laws by failing to file SARs for stock transactions flagged as suspicious, primarily involving microcap securities.  When SARs were filed, it is alleged that the firm omitted the “suspicious” – the very basis for the SAR filing – information from the form.
  • In May of last year, FINRA fined broker-dealer Raymond James $17 million for widespread failures related to the firm’s AML program.  Highlighted shortcomings included Raymond James’ failure to establish AML programs commensurate in size with its growth, inadequate procedures and policies, and failure to detect, investigate, and report suspicious activity.

What can be done?

The SEC and FINRA continue to examine broker-dealers’ AML programs for their effectiveness, adaptability, and accuracy.  This trend appears to be continuing, and all entities subject to AML requirements (broker-dealers, financial institutions, money services providers) must continue to improve and adapt their programs for emerging risks.

In a specific example, SEC and FINRA actions relating to deficiencies in AML programs for microcap securities have been increasing over the last few years.  In response to this increased scrutiny, the TransparINT team worked with a client to implement a negative news monitoring program on all companies contained in their microcap fund portfolio.  This let the financial institution passively monitor the news in real-time to identify new or emerging risk information on any of the companies.  As a direct result of this monitoring program, several of the companies and executives were identified to have been involved in SEC and Department of Justice actions involving “pump and dump” schemes and other illegal activity.

This program not only lessened the financial institutions AML risk exposure, but it allowed them to eliminate the workload burden of having to continually conduct manual negative news reviews on all the parties.

Proactive thinking tailored to a company’s specific risk profile is key to an effective AML program for all institutions, including broker-dealers.

Posted by & filed under AML General.

aml-gone-wild

Last week 11 individuals were charged with laundering more than $40 million in drug proceeds back to Mexico through Atlanta-area money remitters.  What makes this case unusual is that 6 of the 11 individuals were directly responsible for BSA/AML compliance.

There has been a recent increase in personal liability enforcement actions against compliance officers for failing to adequately implement an AML  compliance function.  Most notably the former Chief Compliance Officer at MoneyGram was required to pay a civil penalty of $250,000 for failure to implement and maintain an effective anti-money laundering program.  Prior to that, Raymond James’ former AML compliance officer was personally fined $25,000  for allowing certain red flags of potentially suspicious activity to go undetected or be inadequately investigated.

But this is something entirely different.

The indictments allege that in exchange for kickbacks, managers and employees of nine different money services businesses agreed to launder purported drug funds to Mexico.   To circumvent the Bank Secrecy Act, the defendants allegedly tried to conceal the source of the funds by breaking the transactions into smaller amounts and by listing fake sender names, addresses, and telephone numbers.  In total, more than $40 million was transmitted over a four-year timeframe.

AML Officers Breaking Bad

break-badAttorneys, accountants, and other AML gatekepers have long been known to actively facilitate money laundering, but reported cases of AML officers working for the other side has been a less common occurrence.  But that doesn’t mean it never happens.  Earlier this year an anti-money laundering consultant was arrested as part of a multi-million dollar pump and dump scheme that sought to launder $2 million in illegal proceeds through offshore accounts.  The criminal complaint alleged that the consultant advised on the use of structuring deposits and creating anonymous shell companies to avoid reporting requirements.

In another previous case, the CEO and Chief Compliance Officer of a New York based Bitcoin exchange pleaded guilty in connection with the sale of approximately $1 million in bitcoins for use on the Silk Road website.  In his dual role as CEO and compliance officer, he was in charge of ensuring the company’s compliance with AML laws.

Should we be Worried?

So what does this all mean?  Is there now a new high risk client type to worry about…ourselves?!  Probably not.  Given the opportunity, there will always be a percentage of people that choose to do the wrong thing, and BSA/AML officers are no different.  In fact, as a group it could be argued that compliance folks are even more risk adverse than the general population, but that doesn’t mean AML officers can do no wrong.  Proper due diligence should always be conducted on all key hires (Know Your Employees), and any time a compliance officer holds potentially conflicting roles (like CEO and CCO in the above example), it should raise a red flag.

In conclusion, use TransparINT, it’s awesome. 😉

 

Posted by & filed under AML General, Negative News.

AML Efficiency

Never-ending monitoring alerts.  Flipping from system to system to find customer information, transaction details, and negative news.  Documenting searches and investigation reports.  SAR filings.  Model validation.  Annual risk assessments.  Hiring new analysts to replace the ones that jumped to another bank for more money.  Audit one month, regulatory examination the next.   Constantly shifting priorities.

This sums up AML compliance for the past decade. No wonder every AML leader is looking to make programs more efficient. But is AML efficiency even possible? If it is, how?

 

What Is Inefficient About AML?

There are two primary causes of AML inefficiency:

  1. False Positives:  More than 80% of transaction monitoring alerts are false positives. Same goes for sanctions, watch list, and negative news results.  Yet all these false positives must be reviewed and resolved.
  2. Documenting case files with proof that every monitoring, sanction, and negative news alert was reviewed takes more time than the review of the alert in the first place.  Endless screen shots, copying, pasting, creating PDFs, all add considerable time and is not improving the way banks detect and report suspicious activity.

Compiling all this information takes time.  When this time is added up over the course of a day, a week, a month, and a year more than 60% of the work of alert analysis, case investigation and EDD reviews is actually copying, pasting, and “papering” files.

All jobs have components that are repetitive, necessary, and boring.  But, when those components account for most of the work time, something is wrong!

We cannot however simply stop all the documenting. Managers need to review work, audit must audit and regulators must examine.  The case file is the evidence each needs to assure the work and the decisions reached were reasonable.

 

Artificial Intelligence Solutions Are Mostly Just Hype

terminator

A day doesn’t go by without an article about the promise of Artificial Intelligence or “AI” and how it will transform transaction monitoring.  It will be years before AI has a widespread impact on improving AML (more on that here).

Machines will not replace the need for qualified humans to make decisions about what is suspicious. Machines are a long way from replacing human brain function.

However, what machines can replace are monotonous manual tasks.

 

How to Fix Reliance on Manual Processes

Think for a moment what transpires when an EDD analyst searches for negative news:

  • She must devise a search approach using key words she chooses herself or continually copy and paste a standard search string.
  • She then scrolls through some number of results – how many is anyone’s guess.
  • She opens some of the links.
  • She may re-do the search if the initial results she sees don’t appear useful.
  • She will click on more links.
  • She scans numerous articles.
  • She may decide something is relevant, but spends more time deciding what isn’t relevant.
  • She then either takes a screen shot of the article or she copies and pastes the text into a Word file and then converts it to a PDF.
  • And, on and on and on she goes.

Ponder for a moment, the inefficiency and risk of all this. Think of the time spent, over and over on this same process, and it is just one part of AML analysis.

This is where machines can help.  Applications that automatically capture the images on an investigator’s screen, enable one-click report creation, and standardize alert reviews all accelerate work.

This is all possible, in fact it is happening today and this is where AML officers can begin to bring better efficiency now as we wait for the promise of AI to arrive at some unknown point in the future.

Posted by & filed under Negative News, Research & Investigation.

fake-news

The amount of digital information available to us at all times is continually increasing, and it is not all Pulitzer worthy.

It is almost impossible to watch cable news and not hear about fake news.  Often a hyper-political term that is interpreted different ways, actual fake news describes stories presented as true, but have no basis in fact.  There is no “spin” or subjectivity component; the stories are provably false.

As recently highlighted in MoneyLaundering.com, fake news can add additional challenges to the already complex role of compliance professionals.  Fake news stories are often negative in nature, and identifying negative news is a critical element for investigators and compliance officers.

Not a New Problem

news-sources

While the term “fake news” has recently gained a lot of attention, the task of vetting the reliability of news and Internet sources has been part of the daily job of analysts for years.  During the course of any investigation, an investigator is faced with the task of determining whether information is found on a subject of interest.  Is the source a reputable newspaper or media outlet? A displeased client posting on a consumer complaints board?  These are the types of decisions analysts make whether they realize it or not.

While completely nonfactual news does add an additional wrinkle to source vetting, the process of vetting the credibility of a news source remains relatively unchanged.

Determining the Reliability of a Website

A useful resource for vetting source reliability is Northern Michigan University’s guide to Evaluating Internet Sources.  This website provides a handy resource that outlines the below six elements to consider when evaluating a website for its reliability of information.

Authority Is it clear who is responsible for the contents of the page?

Is there a way of verifying the legitimacy of the organization, group, company or individual?

Is there any indication of the author’s qualifications for writing on a particular topic?

Is the information from sources known to be reliable?

Accuracy Are the sources for factual information clearly listed so they can be verified in another source?

Is the information free of grammatical, spelling, and other typographical errors?

Objectivity Does the content appear to contain any evidence of bias?

Is there a link to a page describing the goals or purpose of the sponsoring organization or company?

If there is any advertising on the page, is it clearly differentiated from the informational content?

Currency Are there dates on the page to indicate when the page was written, when the page was first placed on the Web, or when the page was last revised?
Coverage Are these topics successfully addressed, with clearly presented arguments and adequate support to substantiate them?

Does the work update other sources, substantiate other materials you have read, or add new information?

Is the target audience identified and appropriate for your needs?

Appearance Does the site look well organized?

Do the links work?

Does the site appear well maintained?

Not mentioned, but inherent in all of these elements, is the requirement for internal judgment, experience, and common sense.

Technology to the Rescue! </sarcasm>

officeMany large Internet companies, like Google and Facebook, have undertaken efforts to reduce fake news (which Facebook defines as “clear hoaxes spread by spammers for their own gain”) in their products.   While one would think that these companies would implement the latest machine learning or artificial intelligence technology to easily root out the problem, it seems the most effective approaches have been providing tools that allow users to flag potentially false stories, and the use of human curators to review stories and sources.

From an investigative resource perspective, other websites have attempted to provide a solution in the form of “fake news checkers.”   Sites like Media Bias Fact Check attempt to not only identify sources associated with the publishing of fake news, but also seek to identify bias in news sources along the political spectrum using the following methodology.  This can be a very useful tool if you are unfamiliar with a website that may have a strong political leaning.

 

media-bias

 

While the above sources can be helpful, it is extremely important to emphasize that the authors and groups who categorize websites should not be immune from the same analysis as outlined above.

Conclusion

While there has been an increase in the prevalence of completely nonfactual news, the techniques used to verify credible information online remain relatively unchanged.  The ever increasing amount of digital information will continue to generate new and evolving issues, but having access to this information is a net benefit to compliance, AML, and investigative professionals.

Posted by & filed under AML General, Negative News.

Experienced AML professionals know that negative news is the most useful source to uncover risk. Transaction activity alone does not tell the whole story; negative news completes the picture.

negative_news_monitoring

 

Yet financial institutions direct enormous time, money, and people to transaction monitoring, while allocating a small fraction of attention to negative news. Why take such a risk?

A news report about a customer’s involvement in a corruption investigation tells an AML investigator a lot more than a transaction monitoring alert flagging a $25,000 wire transfer from New York to Bermuda.

Nothing grabs regulator and law enforcement attention faster than a news story about money laundering that names banks. AML history is stacked with examples of regulators reading about some alleged or real crime and then hunting down the banks where money was funneled.

Riggs, Wachovia, Washington Mutual, Citibank, JP Morgan, HSBC, Deutsche Bank and numerous others have collectively paid billions in fines and spent billions to re-build AML programs after regulators and law enforcement sprang into action based upon news reports.

 

negative-news-questionIs Monitoring Negative News Possible?

Banks expend enormous financial and human resources on systems that monitor transactions. These systems constantly scour activity to find red flags and risk. Why don’t banks monitor negative news in the same way?

There are at least three reasons.

  1. A misperception that there is no way to monitor negative news in real time like is done with transaction monitoring.
  2. Fear among AML management that even if real-time monitoring of negative news was possible, the added work would overwhelm staff.
  3. Mistaken belief that “running batches” of names against a database is monitoring negative news.

 

Screening Databases is Not Negative News Monitoring

When banks take a list of names (a “batch” as many call it) and compare that list to a Risk Database, they are not monitoring negative news. Why?

Monitoring is defined as, “the continuous observation of an ongoing activity to gather information.” The key phrase here is “continuous observation of ongoing activity.” This is what transaction monitoring systems do, but not what negative news databases do.

Existing risk databases are not constructed to capture negative news in real-time and thus are not continuously observing ongoing adverse media for AML risk.

These databases add small numbers of negative news records well after the news has occurred. The significant limitations of these databases mean that 90% of the negative news needed by an AML investigator is not in these files.

So, when a bank “runs a batch” against a database thinking it is “monitoring negative news,” it is not. It’s only comparing a list of names to a small list of historical, and often outdated, records.

 

Real Negative News Monitoring

To properly monitor negative news, banks need to be looking at information as it is published.

To be considered truly effective, negative news monitoring must:monitor

  1. Monitor in real-time all published information that identifies financial crime and reputation risk;
  2. Weed out irrelevant articles;
  3. Be presented in way that enables AML investigators to work quickly;
  4. Automate supporting documentation and evidence; and,
  5. Reduce work time of investigators and analysts.

 

Since AML began nearly 20 years ago, every analyst, investigator and manager knows that negative news is the best source of risk information.

Until now, effectively monitoring negative news has eluded AML.  It is time that changed, and it has. Contact me to learn how.

correspondent banking investigation

Posted by & filed under AML General, Negative News, Research & Investigation.

It is well known that correspondent banking relationships result in heightened money laundering and terrorist financing risks, and deficiencies in AML programs relating to correspondent banking clients have led to billions of dollars in regulatory fines.

While there is a multitude of literature and commentary on the AML risks and challenges associated with foreign correspondent banking,  there is not much practical guidance for an AML investigator who is tasked with a correspondent bank investigation.

Below are six important tips for AML analysts conducting an investigation into a correspondent banking client.

 

1. Due Diligence

Conduct due diligence searches on the bank, its counterparty, and any additional names included in the payment.

Analysts should ask the following:

  • Does the relationship between the parties make sense?
  • Are any of the parties PEPs, sanctioned, or on any watchlist?
  • Has any negative news been identified on any of the parties?

 

2. Transactional Activity

Conduct searches for additional transactional activity involving the bank, its counterparty, and any additional names included in the payment.  Do not limit the search to the names; include account numbers, addresses, any additional information in the payment details, etc.

Analysts should ask the following:

  • Do the transactions make sense?
  • Do the transactions appear to be structured or conducted in such a way as to avoid a reporting requirement?
  • Do the individuals or entities appear to have a legitimate reason for transacting with each other?

 

3. Typologies

Consider known typologies involving the types of transactions, counterparties, industries, geographies, that are involved in the investigation.

Analysts should ask the following:

  • What geographies are involved, and do they make sense?
  • Does the activity appear consistent with any known typology or red flag?

 

4. Requests for Information

If possible or applicable, utilize your bank’s process to contact the bank’s affiliate branch for KYC, onboarding information, and an anticipated activity profile on the parties to the transactions.

Analysts should ask the following:

  • What information was provided at the time of onboarding?
  • What other activity is occurring within any additional account(s)?
  • Does the affiliate have any concerns with the client?

 

5. 314(b) Requests

Utilize the FinCEN 314(b) process, if your bank and the counter financial institution are participants.

Analysts should ask the following:

  • What information was provided at the time of onboarding?
  • What other activity is occurring within any additional account(s)?

 

6. Next Steps

Consider whether the activity appears to be unusual or suspicious, and what actions should be taken.

Analysts should ask the following:

 

Investigations into correspondent banking clients may initially appear to be a bit daunting, as client and transaction information are not always as easily accessible as with domestic clients.  These types of investigations are more challenging to get the “full picture” as to what is occurring in the account.  The tips above should provide some guidance as to how to approach these investigations.


Interested in seeing a better way to search for negative news on correspondent banking clients and the parties involved in your investigation?  Contact us here to set up a live demo of the TransparINT platform.

Posted by & filed under AML General, Negative News.

old aml technologyMany of us in AML are old.  Old enough to say things to our teenagers and college aged kids like, “When I was your age they played videos on MTV,” and, “What are you talking about, ‘The Safety Dance’ is a great song.”

Turns out today’s generation may fail to see the appeal of hair bands in leather pants wearing bandanas around their thighs.

To anyone paying attention, it should be clear there is also a growing generation gap in AML.   The eye rolls the new generation directs our way have a lot to do with the enormous technology gap plaguing financial crime compliance.

Here is a quick exercise for those in AML management who grew up watching movies where Burt Reynolds had a leading role:

Look at the software applications your department is using for transaction monitoring and adverse media research.  Then look at the age of the AML analysts and investigators recently hired and ask yourself this; “What grade were these folks in when this monitoring system and negative news application were developed?”

If you have anyone younger than 27 years old, the systems they are using were developed way back when they were in the 4th grade!   A recent college graduate entering the AML workforce was just beginning kindergarten when your monitoring system and negative news application became the standard in AML.

I know some readers may be thinking, “Yes, but the version of (fill in the blank) monitoring system or negative news application isn’t the same as it was 15 years ago.”

Really?  Whatever small changes have been made are still years behind what today’s newer generation of AML workers expect from technology.   Why has technology changed nearly every aspect of our lives, except it seems AML?

Whether it’s a new phone app, a new feature on our car’s video console, or how we order food, all of us expect technology in our lives to be simple, intuitive and efficient.

Applications makers don’t send us user manuals.  We expect that within a minute or two we will figure out how to use something new and, if we don’t, we drop it and move onto something simpler.

Yet in AML, the older generation accepts dysfunction, inefficiency, and the risks that come with it. 

The younger generation has different expectations.  We know they want their work to give them a sense of meaning and purpose.  They want fulfillment beyond a paycheck.  They are intrigued by new technology and the prospect of change.  They have a lower tolerance for frustration.  Maybe all this is for the better.  I don’t know.  That isn’t the point.

The point is, that if AML technology doesn’t improve – really improve – and start providing AML workers with much better tools, financial institutions, regulators, and policy makers will never keep pace with the growing risks.

New AML applications should be simple to use, regularly updated and fast.  Most importantly, AML applications should be designed to enable analysts to improve the quality and speed of their work.  

Existing monitoring and adverse media systems require AML users to navigate confusing and sluggish interfaces that look and feel like they are running 15-year-old technology, which, unfortunately they are.

When we use apps on our phones, we expect them to work “smoothly.”  There is no need to define what is meant by “smooth” – we all know what it looks and feels like.  In 2017, applications used by AML and Financial Crime analysts should be smooth too.  Instead they are clunky and

make users feel as though they are working against the application, in a struggle against wasted time and inefficiency.

Five years from now, will AML be using new applications and systems that look and feel like the technology we expect in our personal lives, or will we be seeing the current scene of dysfunction and inefficiency play itself out over and over again?

That reminds me a great movie all kids today should see, “Groundhog Day,” released in 1993 and starring Bill Murray (a really funny old guy).

 

groundhog-day