Anti-Money Laundering Policy Critical To C-Suite Execs

In March 2013, three major Indian banks came under scrutiny for allegedly being involved in money laundering activities; HDFC, ICICI and Axis Bank were in the crosshairs of not only the media but also regulation agencies. In response to this accusation, ICICI Bank hastily set up a high-level inquiry panel to investigate the veracity of these accusations with little to show as results.

This incident was a reminder of the international HSBC money laundering scandal that ended with the bank paying USD $1.9 billion in fines to the US government.

For enterprises, the largest concern in managing money laundering problems is with regard to fulfilling their obligations towards governance and compliance norms. In the financial sector, the difference between compliance and failure or even a delay presents a significant risk to operations.

In India, the Income Tax Act, FEMA, RBI regulations, KYC norms, Banking Act, Financial Action Task Force (FATF) standards, Prevention of Money Laundering Act 2002, and the Rules of 2009 serve to monitor and enforce anti-money laundering (AML) norms. The vast array of information and internal audits that a company needs to undertake within the parameters of these compliance norms proves a serious challenge.

According to an anti-money laundering survey conducted by KPMG , 65 percent of organisations and executives conduct an AML risk assessment on either a half-yearly or a yearly cycle. Although 90 percent of orgnanisations regularly bring KYC policy and process to the forefront of their scrutiny along with an 81 percent of whom also emphasise enhanced transaction monitoring, only 26 percent prioritised transaction look-backs and only 39 percent performed KYC remediation.

The gap in regular review and analysis leaves organsiations vulnerable to a history of undiscovered illicit activities as well as increases likelihood of money laundering related customer frauds that occur on the KYC side of the review. In these incidents, RBI fined over 48 Indian banks for violating AML norms in the first half of 2012.

Survey shows that 51 percent of organsiations demonstrate their conviction by integrating AML policies as a key part of their strategy when proposing new products or processes, and 35 percent of organisations clearly publicising AML compliance programs within their companies, and 5 percent going to the extent of taking serious disciplinary action against employees who breach policy.

Ultimately, the burden and duty of steering their organsiations towards AML compliance falls on enterprise decision makers in the C-suite and the board.

In light of the big data implications, various technology companies are orienting themselves to provide the definite solution to this need. Corporate leaders looking towards technology for assistance desire a harmony of function between the evolving KYC complexity and customer satisfaction. Companies are oriented towards helping their organsiations efficiently deal with compliance requirements as well as make the IT component an asset to business instead of being a further complexity to operations.

C-suite leaders are looking to incorporate turn-key end-to-end solutions that can leverage the big data opportunity in financial organisations to a risk management asset. Ease of access and management of findings combined with scalable and customisable adjustment of features is also an essential component of any AML IT tool.

The key areas C-suite leaders need to consider in their AML IT strategy are:

1. Data Gathering and Storage

The IT solution should be designed to store, manage and deploy large amounts of data. Information from KYC parameters as well as all forms of transaction and activity data needs to be organised in a uniform model. The solution most importantly needs to be able to manage the quality, integrity and traceability of all data through verified documents and due diligence process.

2. Analytics

The database of all activity and KYC parameters needs to be analytically modeled by the solution. Through analytic algorithms that can perform predictive trends, behavior monitoring, statistical trends analysis and data sampling, in order to detect aberrations in large trends as well as individual accounts. Red flag systems need to be placed such that the analytics can guide customer-facing employees to quickly and efficiently deal with any irregularities.

3. Monitoring and Detection

A key feature of any IT solution would be its real time monitoring capabilities, such that it is able to monitor transactions as they take place and using analytics through advanced scenarios and detection of patterns that indicate high risk possibilities. Large batch detection capabilities that can provide fast and accurate threshold analysis is a must for any AML solution.

4. Investigation Systems

The solution also needs to be able to factor an alert system that leads to a case by case assessment process where results and audit data can be incorporated for future detection. The dashboard interface of the solution needs to give a clear broad view as well as a drill down analysis of ongoing investigations and workflows.

5. Regulatory Reporting

The regulators need to be automatically notified on a standby basis through Suspicious Activity Reports (SAR) and Suspicious Transaction Reports (STR) which makes reporting capabilities an important and operationally critical part of any AML system. A clear communications module is necessary so that law enforcement agencies are notified if a validated case of money laundering is discovered by the organsiation.

Image courtesy Reuters