Transcript IIBF Seminar on Anti Money Laundering & Know Your Customer

‘
IIBF Seminar
on
Anti Money Laundering
&
Know Your Customer’
Lucknow
14th September 2006
Vasant Godse
Background
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The process of transforming illicit funds into legal
capital. Involves Placement /Layering/Integration
Money laundered annually nearly 3 to 5 % of World
GDP or USD 500 billion to 1.5 trillion.
Organized crime groups becoming more global and
carrying on their activities far away from their
geographic region
Not only economically destabilizes a country but
also exposes to terrorist attacks,threatening its
integrity & sovereignty
Result: International organizations and regulators to
developing international standards and best
practices to address to money laundering issues in a
collaborative manner
Players/Detectors
Who are involved?
 Bankers
 Lawyers,
 Car dealers,
 Real estates builders,
 Accountants and
 Others, who allow their
businesses to be used by
someone to launder the
proceeds of a crime.
(23 industries covered in
USA)
Who is watching?
 FATF/UN
 European Union
Directives
 Basel II
 OFAC
 USA Patriot act
 BSA
 APGML
 Wolfsburg Principles
on Private Banking and
Correspondent
Banking
 All countries’
regulators
RBI Guidelines – KYC
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KYC guidelines to prevent banks from
being used, intentionally or
unintentionally, by criminal elements for
money laundering
Components
Customer Acceptance Policy
Customer Identification Procedures
Monitoring of Transactions; and
Risk management
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Two broad approaches to controlling
money laundering:
Know your customer and correspondent.
2. Monitoring the transaction flows.
(Correspondents yet to be covered in India)
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Data Information requirements
Compliance expectations
Bank must locate, extract, warehouse and assimilate data
Solution that can evaluate transactions at more details
Single view on customer activity
Data/Informational needs
 Data Acquisition from source system, transformation and
loading capabilities.
 Data analysis engines
 Analysis and detection capable of revealing pattern
 Identify behavior changes
 System in place to document all findings
 Ad hoc research capabilities
Technology Criteria
Any solution for AML compliance has to address to the
following issues: Monitoring of individual transaction
 Profiling of risk in respect of existing and new customers
 Referencing the transaction with regard to the watch list
 Marinating of records on customers, transactions,
regulations and their up-dates
 Analytics to assess and develop patterns of client
behavior
 Facilitating regulatory reporting and related requirements
 Providing alerts and
 Generation of audit trails
Technology Offers
KYC
Risk Assessment
• Maintains & monitors details
• Manage customer account
for customer
opening, acceptance &
• Profiling technique to
ongoing maintenance
evaluate customer &
• Risk based customer
transaction
modeling
• Creates customer behavior
pattern
• Risk class based on risk
factors and scores
• Tool for reviewing suspicious
activity
• Links company wide
customer acceptance
• Real time transaction enquiry
documentation requirements tools
• Stores, manages and queries• Automates creation and filing
of suspicious activity
electronic documents
Comprehensive audit trail
Technology Offers
Legal/Regulatory
compliance
Detection of Black listed
customer
• Electronic workflow from • Detects violations
receipt of information to
consistently across
response back
enterprise for a multitude of
global sanctioning bodies
• Automated process to
import the request for
• Real time, intra-day
information
interfaces to all at-risk
business system
• Flexible search algorithm
• Reduce expensive due
• Electronic filing of
diligence
responses back to inquiring
parties
• Provide automatic
sanctioned party updates
• Comprehensive security
control to ensure
• Integrates with multiple
confidentiality
disparate business systems
Technology– Present Status
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Product vendors as well as solution framework providers like
L&T Infotech
 Multiple approaches to AML implementation
 Basic transaction filtering and exceptions based reporting
systems that give 'hits' and 'alerts' based on the violation of
rules.
 Artificial intelligence based adaptive learning systems that
monitor activity patterns in transactions and accounts to
detect and prevent money laundering
 Integrating these solutions with the current architectures and
developing multiple interfaces to existing systems
 More vendors and processes.
 Additional costs in maintaining multiple packages
 Security and database issues.
Technology Trends
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Browser-based interfaces, for enhanced usability and ease
of deployment
Visualization tools, such as network diagrams to depict
account relationships
Peer profiling, network analysis, risk scoring and other
analytic approaches currently being emphasized by
regulators
Enhanced case management functionality with rich
workflow and investigation features
“Compliance dashboards,” to integrate output from
multiple regional and line of business systems, including
the integration of AML with anti-fraud and other
compliance systems
Source: Celent, Trends in Anti-Money Laundering 2006.
Technology Trends
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Additional modules to make a more comprehensive solution
suite, including account opening due diligence and watch
list filtering in addition to transaction monitoring
 Integration with SWIFT and other payments networks to
enable real time interdiction of wires
 Outsourced AML services, offered by major core banking
processors such as Fiserv or Metavante, as well as new
shared data center initiatives focused solely on AML
 The pursuit of scalability, to achieve greater competitiveness
for business from large financial institutions
 Introduction by high end vendors of “AML lite” versions of
their products, aimed at the emerging small and midsize FI
market.
Commandments for Compliance
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AML Compliance is a Board level and not only
Branch level issue
Size of the bank is immaterial
Locations is redundant
AML Compliance is NOT a local problem
Compliance is a business challenge not MIS drill
Address to data needs and data consistency
Training and its proper documentation for
regulatory review
NO OPTION BUT TO GO IN FOR
TECHNOLOGY SOLUTION
Thank You
[email protected]