Community banks, Credit Unions: Only Half Employ Technology for BSA/AML Compliance
Guess which half feels more confidence in their Bank Secrecy/Anti-Money Laundering (BSA/AML) compliance efforts.
Wolters Kluwer Financial Services recently conducted a survey of BSA compliance officers at community banks and credit unions nationwide and found that
“A majority of financial institutions responding to the survey who use technology feel it has improved and strengthened their BSA and AML programs. Eighty-five percent of the survey’s respondents who utilize technology report they are confident they are meeting BSA requirements compared to just sixty-seven percent of respondents who don’t use technology.”
Financial institutions that do use technology to help with compliance also admitted to fewer BSA/AML violations with only 20 percent reporting that regulators found violations, compared to their technology backwards counterparts who reported that irregularities were found 31 percent of the time.
“Despite these figures,” the survey found, “more than half of the survey’s 140 respondents, all of which had less than $3 billion in assets, reported that they still do not use technology as part of their BSA and AML programs.”
When a bank or credit union does receive notice of a violation, particularly if it’s well-publicized like with the fines levied against American Express and Union Bank of California, the reputational costs to the financial institution can be severe.
Why then would a bank assume such a risk when automated technology can easily eliminate the possibility of human error?
In an ITBusiness.ca article about the perils of too much data shielding criminals from detection, illustrates this all too common problem:
“When laundering money, organized crime rings typically hide funds under multiple accounts and transactions that appear to have been initiated by unconnected individuals or companies. […] The challenge for the investigator is to discover the hidden connections that separate these transactions from activities generated by legitimate individuals and businesses. For example, a money launderer might have opened a checking account under one name and another account using a variation of his last name. Investigators must establish links between the two accounts. […]
“‘It’s like playing six degrees of Kevin Bacon, but in a much larger scale,’ says Dave Porter, director of the Washington D.C. office of software company Detica.
“He said in most banks and insurance companies such a task is done manually with teams of two to 20 personnel sifting through daily transactions and deciding which ones could be questionable and then conducting further investigation. The work could take anywhere from two days to several weeks.”
You know what happens when one of these investigators suffers a little data fatigue and misses a suspicious transaction or connection between individuals?
The feds will issue a press release that puts you bank through a virtual perp walk, with spokespeople for DOJ, IRS and DEA all piling on
“‘Banks that knowingly disregard their legal obligations under the Bank Secrecy Act are easily exploited by drug cartels and other criminals,’ said Assistant Attorney General Alice S. Fisher of the Criminal Division. The Department of Justice will continue to work to make sure banks follow the law and put these vital anti-money laundering programs in place.
“Our American economy depends on the integrity of financial institutions and the work of those institutions to ensure compliance with anti-money laundering regulations,’ stated Eileen Mayer, Chief, IRS Criminal Investigation. ‘This investigation clearly demonstrates law enforcement’s commitment to enforcing these regulations, which assist in our efforts to detect and halt criminal activity like drug trafficking.’
“‘In a multi-billion dollar illegal drug market, the law requires and DEA depends on financial institutions to know their customers and practice due diligence,’ said Drug Enforcement Administrator Karen P. Tandy. ‘When banks fail to uphold their responsibilities, they turn their legitimate business into a currency stash house used by international drug traffickers to line their pockets, fuel more trafficking, and corrupt government officials and global economies. The Union Bank of California will pay the price for its failure with a hefty fee.’”
Ouch.
When it comes to employing technology to aid in banking compliance, an ounce of prevention can definitely save your bank from a very public ‘pound’ing.
Subscribe to this blog