Anti-Money Laundering in a Flat World

by Balaji Yellavalli

Recently, I attended a conference on “Money Laundering” in New York. I was surprised to meet more than 500 people representing banks, financial institutions and government agencies on a cold Monday morning to discuss a topic that one would normally associate with the underworld! Well, to be fair, the conference was to discuss the emerging regulations to curb Money Laundering or “Anti-Money Laundering” (AML) as they are collectively known.

How is AML relevant in a Flat World? Well, just as there are benefits of the flattening world, there are unscrupulous elements in society that take advantage of business and technology advances to perpetrate financial crimes. Money laundering is potentially the tip of the iceberg – it may be a conduit that feeds into international corruption, drugs and in the post 9/11 world, terrorist financing. In other words, fraud can be an unanticipated outcome of the Flat World, if regulators and the private sector do not work together in a timely fashion to detect and weed out the bad elements of society.

Interestingly, this conference was the sixth or seventh in an annual series and elicited active participation from well-known top tier global banks and investment firms as well as US regulators from Washington DC. A leading Swiss Bank executive said on a panel that they use “Artificial Intelligence” based algorithms to sift through terabytes of customer transaction information to detect suspicious patterns and uncover potential wrongdoing. At the same time, the bank maintains the classic “Swiss” tenet of privacy and customer anonymity. Well, I can imagine how difficult and complex it can get!

I may be wiring some money from the US (where I live) to India (where I was born) to invest in a holiday home for the family. I may have done that after juggling my savings, e.g., selling a portfolio out of my retirement accounts or liquidating my time deposits held with US banks. So how do the regulators and banks ensure that this is a genuine transaction? Do they know that I am just an innocuous consultant working for a large global professional services firm or a front for some other suspicious person or transaction? Not to scare you, but it illustrates the challenge government agencies and financial institutions face in linking the myriad, seemingly ordinary transactions that people conduct in the course of their daily lives, to suspicious and potentially dangerous activities.

The challenges can be a minefield, fraught with financial risks for banks and financial institutions.

Now, going back to the Swiss bank illustration, it is about mining existing customer transaction data globally and across the enterprise to uncover patterns; how does one go about doing that?

A client executive from a leading global financial institution recently put this matter in perspective by illustrating the challenge of opening new customer accounts:

It is now imperative to institute strong regulatory checks while on-boarding new accounts to ensure they are not being set up for future abuse – a requirement of the “Know Your Customer” or “KYC” regulation in the US. On one hand, it can mean much bureaucracy and paper work for an existing customer, who, say, wants to open a new private wealth management account with the institution. However, it can result in genuine customers being turned off, especially if these customers already have deep relationships with another line of business within the same financial institution! So, out through the door goes an opportunity for increased lifetime revenue and worse still, one has annoyed a customer for good!

The solution - leverage technology to integrate all pertinent information about a customer’s relationships across lines of business and ensure the institution has one view of such information. It will avoid duplicate requests for data from the customer and accelerate on-boarding. Also, it will enhance the relationship with the customer and improve his/ her experience with the institution, ultimately impacting positively on the institution’s revenue/ profitability and hopefully, better customer retention! As my client put it, “The engine that we build on top of existing silos of data is very critical to establishing a single view of customer information” – and therefore making money from existing information.

It is true that in a Flat World, such “engines” that run sans friction on top of existing platforms spewing disparate transaction data are absolutely de rigueur. While all this seems and sounds relatively simple, in practice it is certainly not!

http://www.infosysblogs.com/thinkflat/2007/03/antimoney_laundering_in_a_flat.html