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Thwart money laundering and demonstrate compliance by improving your suspicious activity reports

November 21, 2017 No Comments

Featured article by Debbie Fletcher, Independent Technology Author

Due to increasingly stringent regulations both in the US and abroad, costly fines for noncompliance, stinging reputation damage, and the possibility of inadvertently assisting terrorists and criminals – instead of your intended customers – anti-money laundering (AML) is becoming increasingly critical for all financial organizations.

Yet you can’t fight what you can’t see, which is why the cornerstone of AML is suspicious activity monitoring (SAM). Discriminating between normal financial transactions and criminal activity can be tough even for seasoned analysts. There are many different threats to be on the lookout for, plus adapting to the new and unknown tactics criminals employ as they try to stay one step ahead of the authorities. Somehow, your team must filter out the clues from the firehouse of data and quickly piece together the evidence as you progress from “Hmmm, that’s odd” to “This right here is money laundering”.

Which brings us to the suspicious activity report (SAR), the report which gets sent to the authorities after your firm concludes something criminal may be going on with a particular customer or account. From the evidence provided in the SAR, the authorities decide whether they will investigate the issue further.

Drying up the revenue streams of criminals requires a plan

Doing your part comes at a cost: the burden of compliance. It takes time, software, and headcount to conduct the necessary monitoring of all accounts, expert analysis by trained specialists, the necessary escalation to more senior analysts, and reporting to the required regulatory agencies.

As you formulate the AML plan for your business, keep in mind these 3 requirements:

- A detection process tailored to your products, market, and size
- High-quality alerting: consolidated alerts which prioritize the most important issues.
- Cost-effective reporting which minimizes the time spent on paperwork but maximizes the usefulness of the resulting SARs so that you can actually thwart money laundering while at the same time demonstrating your compliance. Think in terms of high signal-to-noise ratio.

The software solution you choose will have a big impact on how well you can meet all the above requirements.

Get a tool for the whole workflow

Here’s some general guidance: go with a comprehensive end-to-end solution designed to handle the whole pipeline: detected anomalous activity, prioritization of detected issues, concise and consolidated alerting on the highest priority issues and automated reporting through the auto-filling of those SARs. Such an integrated solution should also include workflow processing to guide you through each step of SAM and reporting process.

Integrated solutions are great, but only if each of the components do their job well. For example, flashy alerting and automated reporting are both useless if you’re unable to accurately detect suspicious transactions in the first place. This is why the software package you select must include an extensive array of detection models tailored to financial firms like yours. Any tool which must operate at the confluence of automation, big data, and the complex behaviors and patterns (both legitimate and criminal) which are at the heart of modern AML, must have a significant amount of built-in intelligence.

We mentioned a “high signal-to-noise ratio” in one of our three requirements. That’s no accident: out of fear of missing something (or being perceived as not compliant with AML regulations), financial firms file too many SARs. This flood of low-quality reports can mask any real criminal activity as well as tie up the regulators tasked with investigating and prosecuting financial crimes.

And there’s another problem quality AML tools can address: the fact that less-trained junior analysts are the first ones to look over the alerts generated by a SAM system, and thus are the first chance real evidence of money laundering can be missed by someone. Although software-generated alerts won’t completely replace human analysts, perhaps AML software can make the analysts’ job a little easier by combining suspicious activity alerting with sophisticated ranking and scoring of the detected issues. That way, the junior analyst would be presented with only the most important alerts, giving him ample time to give each one a more thorough and critical look – and less likely to miss signs of money laundering due to a flood of incoming alerts. The more likely these junior analysts are to catch the real fraud, the more likely those alerts will be escalated to the senior analysts who will ultimately file a SAR.

SAM tools form the foundation of a successful AML plan. After all, the whole point of looking for suspicious transactions is to report them. If you focus on tailored detection models, consolidated alerting, and automated reporting, you’ll be sure to end up with a robust SAM solution and your cost of compliance (and the cost of noncompliance) will be minimal.






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