Can banks resolve money laundering puzzle by technology?

Banks face a giant challenge in identifying and stopping money laundering with out interfering with police investigations

Karl Flinders,
Emea Lisp Editor, Computer Weekly

Printed: 24 Sep 2020 12: 00

Contemporary revelations about giant volumes of cash being laundered by grand banks despite being noticed on the time of transaction must compel banks to make anti-money laundering technology to attain bigger than factual flag up suspicious exercise.

Connecting the databases of regulators, law enforcement and banks, and automatically blockading distinct transactions, in total is a mode out of a banking make a choice-22 by enabling them to react extra speedy. However the complicated nature of forestalling money laundering makes the tech challenge a in actual fact perfect one.

Money laundering is in the intervening time headline data. Paperwork leaked to Buzzfeed Files and shared with the World Consortium of Investigative Journalists printed that banks at the side of HSBC, Barclays and Same earlier Chartered have moved giant amounts of cash despite spotting suspicious transactions.

Criminals exercise grand banks to disguise their soiled money, which is on the total linked to organised crime with funds being at possibility of pay for resources to disguise the money’s foundation. Consistent with the UN, about $2tn is moved illegally every 300 and sixty five days.

Headlines that enormous banks have allowed billions of pounds’ worth of cash to be moved by them by criminals hit part costs no longer easy and would possibly possibly possibly well perchance trigger action, nonetheless banks are steadily stuck between a rock and a no longer easy instruct. They have a duty to characteristic and forestall suspicious exercise and portray it to regulators, nonetheless normally they have to also give law enforcement an different to examine first. May possibly well technology be the answer?

Whereas the money laundering figures are search for-watering, the detection charges are low, with human-intensive systems historically at possibility of characteristic doable money laundering exercise. Globally, fully a low single-digit percentage of cash laundering exercise is detected and a puny phase of right here’s blocked.

Closing 300 and sixty five days, the National Economic Crime Centre talked about money laundering costs the UK bigger than £100bn a 300 and sixty five days.

Banks, which potentially face heavy fines for failing to forestall such exercise, have invested in programs to replace e-book systems to characteristic money laundering as regulators clamp down on the criminal exercise.

To illustrate, in March this 300 and sixty five days, regulators in Sweden and Estonia imposed fines totalling €347m on Swedbank for breaching money laundering laws.

In the Netherlands, ING used to be fined €775m in 2018 after the regulator talked about the bank had did no longer stop the laundering of a whole bunch of millions of euros between 2010 and 2016.

And in 2017, Citigroup agreed to pay nearly $100m and admitted to criminal violations because it settled an investigation into breaches of anti-money laundering ideas interesting money transfers between the US and Mexico. In the related 300 and sixty five days, Deutsche Monetary institution used to be fined $650m by British and US authorities for allowing effectively off customers to pass $10bn out of Russia.

Under the possibility of giant monetary penalties, banks have turned to technology to detect money laundering exercise. As of late, machine learning and pure language processing are being at possibility of replace e-book work. Machines can read many extra articles than humans and can automate anti-money laundering processes.

Rob HSBC, as an instance. In 2018, it announced it used to be the utilization of tool from fintech startup Quantexa to lend a hand it automate the fight in opposition to money laundering, after a pilot the 300 and sixty five days earlier than. The tool analyses billions of data data, at the side of inside and external sources, to characteristic doable money laundering exercise. This would possibly possibly occasionally lend a hand HSBC to meet regulatory compliance and lower possibility for its enterprise.

FCA investigation

In February 2017, HSBC printed it used to be being investigated by the Monetary Behavior Authority (FCA) for failings round money laundering controls. And in its 2016 monetary results, the bank talked about it used to be “the discipline of an investigation by the FCA into its compliance with UK money laundering regulations and monetary crime programs and controls necessities”.

However banks face a make a choice-22 discipline, with the duty to portray exercise and lend a hand law enforcement compare the criminals on the lend a hand of cash laundering activities, nonetheless possibility of fines if they let such activities by.

Ron Warmington, earlier-long-established international head of banking investigations at Citibank, talked about spotting suspicious transactions is the very most realistic phase, nonetheless appearing on it is some distance complicated ensuing from obligations which would be nearly most no longer going to balance.

Warmington has been in the map that many bankers face when they characteristic suspicious exercise. “You is doubtless to be anticipating the authorities to answer and both remark ‘stop the transaction now’ or ‘let it lope’ or, as is on the total the case, they remark nothing,” he talked about.

That leaves a bank in a elaborate discipline because it is some distance a criminal offence to tip off a money launderer that you simply’re on to them, which it is likely you’ll possibly well attain by blockading or delaying a transaction, talked about Warmington.

“Regulators are seeking to be tipped off, nonetheless they also remark that even as you happen to [unintentionally] tip off the crooks, they’ll advance after you because it is likely you’ll possibly well perchance also be threatening a sting operation,” he added. “There is staunch technology to characteristic money laundering, nonetheless even as you happen to attain characteristic it, how attain you react to it?”

Tough choices for banks

The banks have tricky choices to build, talked about Warmington. “You’ll want to always state the authorities, nonetheless in most cases they attain no longer react speedy sufficient. I am no longer on the total very sympathetic with bankers, nonetheless on this level, I am.”

Linking programs with law enforcement agencies and enforcing automatic blocks on distinct transactions would possibly possibly possibly well perchance lend a hand tackle the massive money laundering declare, according to David Bannister, analyst at Aite.

“Somehow hyperlink the databases of the law enforcement agencies and the banks,” he talked about. “Reports possibly lope to the regulator to collate, nonetheless if they had been extra proactive, it would possibly possibly possibly possibly well perchance declare them to block it.”

However Warmington added: “Normally, the technology accessible to the police and the regulators will not be any longer very staunch and in declare that they’re effectively on the lend a hand of in the arms flee. The ask is, who is accessible to invent these issues? You is doubtless to be speaking serious investments in money.”

Charlie Delingpole, CEO at fintech dealer Complyadvantage, which gives anti-money laundering automation technology and works with banks at the side of Santander, Monetary institution of The United States and challenger bank Oaknorth, talked about: “Expertise and processes have moved on from what used to be acceptable in 2013, from when reasonably just a few these revelations date. The regulators can’t quiz of the banks to attain what will not be any longer technically achievable, nonetheless so grand extra is feasible now.

“The regulators can map the bar some distance greater and money launderers wants to be some distance extra alarmed.”

Lisp Continues Under