Identity Resolution Daily

RIS: Holiday Fraudsters Get Savvier

“According to an NRF November survey, retailers lose $10.8 billion annually from return fraud alone. Eighty-three percent of fraudulent returns involve merchandise purchased with illegitimate credit cards. Many also involve counterfeit receipts, says LaRocca. Better printer technologies are giving criminals access to more type fonts. Some even sneak behind cash registers and into stock rooms to steal receipt tapes imprinted with store logos.”

Albany Herald: Darton College inaugurates homeland security program

“Things will take off slowly, but Darton College’s Jim Yates is confident that interest in the school’s new certificate in homeland security will eventually pick up.”

MyFox Austin: 7 On Your Side: E- Fencing

“‘Instead of just going to a pawn shop, which is local, they’re re-selling it on e-bay,’ AOL Consumer Advisor Regina Lewis said. ‘The whole world is their marketplace.’ Lewis said there’s not enough manpower to review all the millions of ads posted on the Internet each day. As a result, consumers wind up searching for their stolen goods themselves.”

iTnews: Privacy commissioner: Businesses be wary of new anti-money laundering laws

“Privacy commissioner Karen Curtis has urged businesses to consider the privacy of consumers when collecting personal information under the Anti-Money Laundering/ Counter-Terrorism Financing Act 2006 (AML/CTF), amendments which came into effect yesterday. Referred to as a ‘dirty money’ crack down by newly-appointed Minister for Home Affairs Bob Debus, the AML/CTF Act requires businesses in the financial, bullion and gambling sectors such as banks, casinos and TABs to implement an anti-money laundering/counter-terrorism financing program which will be upheld by the Australian transaction Reports Analysis Centre (AUSTRAC).”

Image and Data Manager: Technology Cleans the Dirty Money

“New anti-money laundering rules have now come into effect this week, with a range of technologies presenting the key to assisting financial institutions meet stringent recordkeeping obligations. The new laws come as a results of the Anti-Money Laundering/Counter-Terrorism Financing Act (AML/CTF) passed by the Australian Parliament in December 2006. As of December 12th 2007, organisations undertaking financial transactions – like banks, betting agencies and casinos – are required to comply with regulations and step up their identification and reporting procedures around transactions. . . . Paul Magee, CEO of VeCommerce says the role of technology in meeting these regulations and consequently assisting in combating money laundering is significant. ‘Most organisations find it relatively easy these days to establish an account or a customer profile for somebody,’ he says. . . . ‘I think it makes sense for organisations to be free to chose the best systems and processes that suit their requirements.’”

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The Arizona Republic: Organized shoplifting grows into big business

“‘Fast-food fencing,’ or selling stolen goods through online auction houses like Craigslist or eBay, has made selling stolen goods much easier, Helmick said. Pawnshops report what merchandise they purchase to police, and some second-hand stores have regulations. But online auction houses, because of consumer-privacy laws, allow sellers to remain anonymous, to use false names and addresses, and thus to avoid detection.”

WCFcourier.com: Cedar Rapids man indicted on mail fraud charges

“A man who authorities say collected insurance payments on false claims and withheld renters’ damage deposits by falsely claiming damage to apartments has been indicted on 19 counts of mail fraud.”

The Courier-Journal: Magazine roundup

“Banking-secrecy laws are far more likely to ensnare innocent people than catch terrorists as they were supposed to do, according to Ibrahim A. Warde, who teaches international business at Tufts University. . . . Warde says that by law, banks in the United States must notify the Financial Crimes Enforcement Network, part of the Treasury Department, of any cash transaction exceeding $10,000 or any transaction that seems inconsistent with the way a client normally does business. They do so by filing a suspicious activity report. ‘It is estimated that more than 1 million SARs are now filed every year in the United States at an annual cost of $8 billion to banks,’ Warde wrote. ‘Most of the reports go … unprocessed. Furthermore, there is no evidence that a single act of terror was foiled through information disclosed in those reports.’”

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The Patriot Ledger: MALL MARAUDERS: Retailers struggle to combat increasingly organized shoplifting gangs

“Many retailers have tightened their return policies in recent years after a rise in return fraud in which stolen merchandise is returned without a receipt in exchange for a refund or store credit. The latest Internet-based twist: the emergence of so-called ‘E-fencing’ Web sites that sell stolen merchandise at cut-rate prices. A survey of members by the National Retail Federation put shoplifting losses last year at a record $13.3 billion, up from $13 billion in the previous year. Overall shrinkage, which includes employee theft and vendor fraud, rose 8 percent to $40.5 billion. As a percentage of sales, shrinkage was unchanged at 1.6 percent.”

Hi-Tech-Blog: New Data Mining Techniques Studied

“Most of the information that hinted at possible trouble prior to the 9-11 attacks was buried under massive amounts of data being collected faster than analysts could handle. . . . To prevent such pieces of information from being missed again, researchers at the DHS Science and Technology Directorate are developing ways of viewing such data as a 3D picture where important clues are more easily identified.”

InvestorDaily: Austrac issues AML warning: Call for industry collaboration

“Regulator Austrac has warned the financial services sector that the industry has until December to comply with the first phase of Australia’s anti-money laundering (AML) and counter terrorism laws. From December 12, firms will need to have internal AML compliance programs that verify the identity of customers. Businesses that breach the laws can be fined $11 million, while individuals within the company penalties of up to $2.2 million.”

KansasCity.com: Some funds of U.S. agency end up with groups tied to terrorism, audit finds

“The agency that distributes billions of dollars in American foreign aid cannot ‘reasonably ensure’ that its money does not wind up in terrorist hands, an internal audit has concluded. The U.S. Agency for International Development funded groups with ties to terrorism on at least two occasions, the agency’s inspector general found in an audit. That included approving $180,000 for a Bosnian group whose president was on a ‘watch list’ that barred him from entering America, and $1 million for an aid ‘partner’ who later pleaded guilty to lying to federal agents about his involvement with a disciple of Osama bin Laden.”

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Identity resolution guru Jeff Jonas, distinguished engineer and chief scientist, Entity Analytic Solutions, IBM, is back in the news again. The Washington Post recently featured him in an article on how technology developed for casinos is being applied to solve other problems like terrorist threats and money laundering. Who knew that Las Vegas was not only a great place to see the Rock Paper Scissors national championship or to (allegedly) commit a hotel room sports memorabilia theft but is also a hub of technology R&D?

Jonas originally created his Non-Obvious Relationship Awareness or NORA technology to detect aliases used by people trying to defraud the casinos. He then was able to use the technology to discover employees and fraudsters who were working together by, for example, identifying a shared home address. In other words, determine who’s who and who knows whom.

From the article:

“The casino industry, like the national security industry, is seeking information to answer a fundamental question: Who are you? ‘It’s, are you a good guy or a bad guy? A threat or a non-threat?’ explained Derk Boss, the vice president for surveillance for the Stratosphere hotel and casino . . . ‘There are going to be people that just want to come and gamble and enjoy your services,’ he said. ‘And there are going to be people that are going to come to take your money. Our job is to distinguish between those two groups.’”

After 9/11, the Department of Homeland Security had an even more pressing need to separate the good guys from the bad guys, the threats from non-threats. They produced a request for technology that could:

• Compare information contained in a passenger reservation with data contained in watch list records
• Verify, report, and validate matches between passenger and watch list information
• Resolve potential matches identified in the execution of the processes
• Adjust the process in response to changes in security threat levels
• Protect individual privacy and civil liberties

They received over 1,000 responses but ultimately they selected an identity resolution solution because that was the only type of technology that could meet the needs of the program. There are only two companies that produce identity resolution software as we define it - IBM (formerly SRD) and Infoglide Software. DHS chose Infoglide Software’s solution. Interestingly enough Infoglide Software’s origins also tie back to gambling as the technology was originally created to help investigators solve a murder that was linked to gambling activities.

This technology with its birth in the big money world of Vegas also can be applied to the problem of money laundering.

“At the U.S. Treasury’s Financial Crimes Enforcement Network, for example, investigators have used [Jonas’ technology] to track money laundering. From one Suspicious Activity Report — which financial institutions are required to send to the government — they have identified a money launderer’s partners in crime. FinCEN has a decade’s worth of data on 170 million report forms. ‘We find a tremendous amount of connectivity,’ said Steve Hudak, FinCEN spokesman. ‘We find suspects linked by addresses, suspects linked by phone numbers. So we definitely know that these people are operating together.’”

Other technologies, like surveillance equipment and biometrics, are also finding their way from the casinos to homeland security and other industries. So apparently what happens in Vegas doesn’t always stay in Vegas.

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[Daily Post from Infoglide Software] Lloyds TSB and Bank of Cyprus Fined $130 Million and $162 Million

“For allegedly assisting international fugitive Lycourgos Kyprianou, former chairman of AremisSoft Corp, in his money laundering and securities fraud activities, the feds are seeking civil penalties of $130 million from Lloyds TSB and $162 million from Bank of Cyprus. These fines, incidentally are the largest money laundering penalties ever, according to Charlie Intriago’s moneylaundering.com.”

Techworld.com: Lloyds anti-fraud system comes under fire

“The effectiveness of Lloyds TSB’s anti-money laundering systems faces being picked apart by prosecutors, despite the bank’s significant investments in AML systems and software in a bid to keep a lid on fraud. […] In 2002, during the period that prosecutors allege money-laundering was taking place, the bank installed an AML system from Searchspace to scan transactions and identify patterns for unusual activity. The system ran on IBM eServers, alongside another anti-risk tool from Fortent.”

Cyprus Mail: Bank of Cyprus dismisses US money laundering suit

“The bank said that in August 2007, a federal judge in New York granted the Bank’s motion to dismiss that case and found that the appropriate forum for any claims against the Bank is the judicial system in Cyprus. […] ‘Despite the fact that the Bank did not engage in any conduct in the United States, the United States Attorney’s civil suit claims that the Bank violated United States law by enabling Kyprianou to channel though $162 million of proceeds from his own fraudulent conduct through accounts maintained at the Bank,’ said the BoC statement.”

Los Angeles Times: Airport security better in some areas

“In testimony before the Senate Committee on Commerce, Science and Transportation, Berrick said TSA has met about 70% of performance expectations the GAO identified. She said that because the job of clearing passengers falls on commercial carriers, inconsistency could compromise security. Berrick said the government plans to take over passenger screening through Secure Flight, a system matching passenger information with no-fly lists.”

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Lloyds TSB accused of money laundering in US screams the headline in today’s Financial Times and so we have not one but two other banks in the cross hairs of federal prosecutors. Also charged, the Bank of Cyprus is denying the “civil money laundering charges filed against it by U.S. prosecutors, saying the case was legally and factually without merit, reports Reuters. Like Bank of Cyprus, Lloyds TSB vows to “vigorously” fight these charges, reports Marketwatch, and quotes this statement from the bank, “We do not believe there is any basis for this action so we are disappointed that the U.S. Government has commenced proceedings in this case.”

For allegedly assisting international fugitive Lycourgos Kyprianou, former chairman of AremisSoft Corp, in his money laundering and securities fraud activities, the feds are seeking civil penalties of $130 million from Lloyds TSB and $162 million from Bank of Cyprus. These fines, incidentally are the largest money laundering penalties ever, according to Charlie Intriago’s moneylaundering.com. Forbes also reports, that “If found guilty Lloyds may have to pay out more in anti-money laundering fines than all other U.S. banks combined over the past six years.”

These cases are a bit different than recent actions against American Express for $65 million and Union Bank of California for $31 million both in the size of the fines and the fact that the accused firmly believe in their innocence and they’re willing to fight to prove it. The reputational costs to Lloyds TSB has already had an impact — at press time the company’s stock had fallen 2.96 percent.

If Lloyds TSB and Bank of Cyprus can successfully defend themselves against these charges, then it will set precedent that will surely have an impact upon future prosecutions. Hopefully then Congress will get serious about rewriting the Bank Secrecy Act.

How this all plays out will be very interesting to watch.

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[Daily Post from Infoglide Software] Survey Finds Operational Plan to Reduce Retail Industry Shrinkage by $18 Million

“The always insightful Loss Prevention Magazine in its September-October issue features a survey by ECR Europe that should be read by not just Loss Prevention (LP) pros, but also the CFOs of every retail company.”

Marketwatch: U.K. bank group Lloyds TSB to mount defense against U.S. lawsuit

“Lloyds TSB Group PLCsaid Tuesday it will defend itself ‘vigorously’ against U.S. legal claims that the U.K. bank violated federal anti-money laundering provisions. ‘We do not believe there is any basis for this action so we are disappointed that the U.S. Government has commenced proceedings in this case,’ the bank said in a short statement. Lloyds TSB said it’s confident that it will be vindicated.”

New York Times: U.S. Plan for Airline Security Meets Resistance in Canada

“‘Either the United States places no value whatsoever in the Canadian list, which it helped develop, or I have to suspect what’s going on here is a pure and simple data-fishing exercise,’ Mr. Gaspar said.”

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[Daily Post from Infoglide Software] 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.”

AFP: US welcomes global money-laundering task force action on Iran

“The United States Friday welcomed action by an international anti-money laundering watchdog urging Iran to close loopholes in its financial system and take steps to limit terrorist financing.”

Counterterrorism Blog: Tightening the Financial Squeeze against Iran

“For the first time, FATF specifically addressed the dangers that Iran poses to the integrity of the international financial system. In a statement, FATF concluded that ‘Iran’s lack of a comprehensive anti-money laundering/combating the financing of terrorism regime represents a significant vulnerability within the international financial system.’”

Loss Prevention Magazine: Lessons from Low-Shrink Retailers - Nine Ways to Save $18 billion

“…until relatively recently they have largely operated in a data desert, often making decisions based upon gut instinct and guess work rather than solid data and informed analysis. Indeed, in the absence of reliable and timely data, the industry has tended to focus almost exclusively on the most overt form of shrinkage—external theft—to the detriment of other key problems, such as internal theft and process failures.”

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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.

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[Daily Post from Infoglide Software] Money Laundering Makes the World Go Around, the World Go Around

“The clinking clanking sound of money laundering — the third largest business in the world at $1.5 trillion annually, according to the TowerGroup — does indeed make the world go around. And if the subprime loan debacle could set off a worldwide panic, imagine what would happen to the world’s economy if banking regulations were effective and the third largest business ceased to exist.”

Travel Management: TSA Gets Earful on Air Security Proposal

“The Transportation Security Administration through Oct. 22 is collecting public feedback on proposed changes to its nascent Secure Flight air passenger security program. […] The overall tone of more than 100 comments already filed–as well as the remarks from industry participants during a public TSA meeting last month–was decidedly negative. Some suggested the program violates constitutional rights to privacy and expressed opposition to what they perceived as a requirement to ask the federal government for the permission to travel. Others questioned if airlines and travel agents would have sufficient time to adjust their business processes.”

Community Banks and Credit Unions Say Automation Boosts Confidence in BSA Compliance, But Many Resist Purchasing

“Community banks and credit unions that use technology as part of their Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) programs are much more confident in their compliance with BSA requirements than those financial institutions that rely on more manual approaches, according to a recent survey conducted by Wolters Kluwer Financial Services. […] Despite these figures, 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.”

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