Identity Resolution Daily

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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“A mark, a yen, a buck or a pound,
a buck or a pound, a buck or a pound,
Is all that makes the world go around,
that clinking clanking sound,
Can make the world go round.”
–from Cabaret

Back in May 2001, the State Department’s John McDowell and Gary Novis from the Bureau of International Narcotics and Law Enforcement Affairs wrote

“Money laundering has potentially devastating economic, security, and social consequences. It provides the fuel for drug dealers, terrorists, illegal arms dealers, corrupt public officials, and others to operate and expand their criminal enterprises. Crime has become increasingly international in scope, and the financial aspects of crime have become more complex due to rapid advances in technology and the globalization of the financial services industry. […]

“Unchecked, money laundering can erode the integrity of a nation’s financial institutions. Due to the high integration of capital markets, money laundering can also adversely affect currencies and interest rates. Ultimately, laundered money flows into global financial systems, where it can undermine national economies and currencies. Money laundering is thus not only a law enforcement problem; it poses a serious national and international security threat as well.”

Four months after this was written, on 9/11, we all saw what just a little financing from Al Qaeda could accomplish.

Now six years after the attack on the World Trade Center, after the passage of the USA Patriot Act and the Bank Secrecy Act (BSA), you would think banking regulations would have evolved to stem the tide of dirty money. You could think that, and you would be wrong.

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.

The possible repercussions are something that regulators and governments should be cognizant of. It shouldn’t be just the bank compliance officers that suffer from ulcers over the threats and effects of money laundering.

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[Daily Post from Infoglide Software] The Quotable Richard Hollinger

“You could almost call Dr. Hollinger the Alan Greenspan of retail theft — one sentence from him and markets and people begin to move.”

Globe and Mail: U.S. demands passenger lists for sun flights

“The U.S. government has angered Canada’s airlines with a proposal to order them to hand over personal information about passengers who take flights that go south over U.S. airspace en route to sunny destinations. […] Under the U.S. Secure Flight program, there would be the same requirement to transmit data on northbound return flights from foreign holiday destinations.”

CNW Group: Sprylogics International Corp. to Host International Intelligence and Anti-Money Laundering Conference

“Sprylogics International Corp. (” TSX Venture:SPY), a provider of intelligence based risk mitigation software and services announced today that together with the Financial Intelligence Unit (’FIU’) of the government of St. Vincent and the Grenadines, it will co-host an international conference on combating money laundering and terrorist financing through the use of intelligence based technology solutions. The conference, ‘Money Laundering & Terrorism - Exploring Technological Solutions,’ will be held on the Island of St. Vincent and the Grenadines on November 13-14, 2007…”

Bullzi Security Inc. Releases Its Anti-Money Laundering eLearning Course

“According to TowerGroup, money laundering is the world’s third largest business — $1.5 trillion US. Countries around the world are stepping up efforts to detect it while criminals continue to develop increasingly sophisticated methods of money laundering.”

The Canadian Press: Financial institutions left in dark on efforts to thwart terror funding: report

“A new report says Canada’s financial institutions have almost no idea how they’re faring in the fight against terrorist transactions. The report prepared for the Air India inquiry says that’s because federal security agencies give banks, credit unions, the insurance industry and others little if any feedback on their efforts to report shady money dealing.”

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When ABC needs a political expert, they call in George Stephanopoulos. For health questions, CNN always seeks out Sanjay Gupta. When we need a Loss Prevention (LP) expert, Jeff Stein always helps out. And when working on a story about retail crime, the world’s news outlets employ University of Florida professor Richard Hollinger.

Dr. Hollinger is the author of Crime, Deviance and the Computer, Theft by Employees and Dishonesty in the Workplace: A Manager’s Guide to Preventing Employee Theft and every year he conducts the National Retail Federation’s annual National Retail Security Survey. The research his team has provided for the last eight years helps set LP strategy nationwide. For example, this year’s survey found that employees were responsible for 47 percent of retail theft, up from last year’s high of 41 percent. And when Dr. Hollinger is quoted in the New York Times saying, ”We have never seen employee-theft numbers quite this high” — LP pros began to concentrate more on internal theft.

You could almost call Dr. Hollinger the Alan Greenspan of retail theft — one sentence from him and markets and people begin to move.

On the retail balancing act between security and customer privacy, Dr. Hollinger was quoted in Business Week, saying

“To keep shrinkage low with metal detectors and security might be a draconian environment, like going to the airport vs. going to the mall, which encourages shopping with its fountains and music.”

And Laura Landro of the Wall Street Journal sought him out for commentary when she was apprehended by Kmart Loss Prevention pros.

Back in 2004, his research pointed out the rise in return fraud and his consulting work with The Limited lead to a Washington Post story, where he was among the first to alert retailers to the fact that the Internet is being used for much more than just sending Evites to friends. The WAPO story reported that

“In recent years, scammers have used the Internet to launder the money — people steal merchandise, return it for credit slips at stores, then turn those credit slips into cash by selling them at a discount on eBay or other online auction sites.”

$30 billion, or 1.7 percent of sales, went out the door and online due to retail fraud in 2003 and Dr. Hollinger estimated that that about half of that loss may have been related to bad returns.

His solution? Technology — and for that reason he is an Identity Resolution Daily favorite. Here, he tells WAPO

“Over the decades, retailers realized they were leaving the door wide open for fraud and a number of the major ones realized that . . . there has to be some technological solution to this.”

There is a technological solution, Dr. Hollinger, and we’d love to come to Florida to tell you a bit about how identity resolution can help out with return fraud, Organized Retail Crime (ORC) and other forms of retail fraud.

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[Daily Post from Infoglide Software] Ken Rijock: Confessions of a Money Launderer

“On the World-Check site, Mr. Rijock authors Confessions of a Money Launderer, a serialized account of his escapades while on the other side of the law and it’s a must-read for bank compliance officers (and for Hollywood types looking for their next project).”

CSOonline.com: Ganging Up on Retail Theft

“Organized retail crime is estimated to cost the industry as much as $30 billion each year. The retail associations had been tracking this information in two separate databases, but in late 2006 the two groups began merging their efforts at the request of the FBI. Professor Richard Hollinger, author of the University of Florida’s ongoing National Retail Security Survey, says, ‘LERPnet has the potential for being the single most important breakthrough in loss prevention case investigation,’ he says.”

MSNBC.com: Is your child a future felon?

“The National Association for Shoplifting Prevention (NASP) notes several very interesting statistics regarding shoplifting and those who commit these crimes. They estimate that there are approximately 25 million shoplifters in our country (about 1 in 11 Americans), and about 25 percent of shoplifters apprehended are juveniles.”

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Surely you’ve heard of Frank Abagnale Jr., the real-life inspiration behind the movie, Catch Me if You Can, starring Leonardo DiCaprio. Abagnale cashed fraudulent checks for $2.5 million and successfully impersonated an airline pilot, an assistant attorney general, a doctor and a college professor all before the age of 21. Abagnale now heads a consulting firm and according to his website

“He lectures extensively at the FBI Academy and for the field offices of the Federal Bureau of Investigation. More than 14,000 financial institutions, corporations and law enforcement agencies use his fraud prevention programs. In 1998, he was selected as a distinguished member of “Pinnacle 400″ by CNN Financial News.”

If you’re part of the anti-money laundering (AML), then you’re probably aware of Ken Rijock and his similarities to Abagnale. For ten years, until his arrest, Mr. Rijock, “estimates that he helped launder at least $200 million for approximately 30 clients before finally being caught, he told the BBC. Rijock fought in Vietnam and Cambodia, earning the Combat Infantryman’s Badge and Bronze Star Medal, before returning stateside to work as a banking attorney. Then his life took a turn straight out a Miami Vice episode.

“In 1979, Ken Rijock, an American lawyer based in Miami, met ‘a real nice guy’ — a Cuban expatriate. In fact his new friend was a bridge between Colombian drug traffickers and gangs of Cubans who distributed narcotics in America.

“‘All of a sudden, I had all his friends and clients as my clients,’ said Rijock. ‘I would go to a Fort Lauderdale private airport, meet six customers and dress them up in navy business suits. In their briefcases, each of them would carry $1m in cash.’” (From Money Launderers Clean Up.)

After his arrest and and a two year stint in prison, Mr. Rijock began lecturing around the world and his three testimonies before Congress helped shape the USA Patriot Act. Now he serves as a financial crime consultant, for World-Check, whose 2000+ clients employ the company’s real-time database of heightened-risk individuals and businesses to Know Your Customer (KYC).

On the World-Check site, Mr. Rijock authors Confessions of a Money Launderer, a serialized account of his escapades while on the other side of the law and it’s a must-read for bank compliance officers (and for Hollywood types looking for their next project).

Finally, in a June interview with Australian IT, Mr, Rijock said

“Money-launderers work seven days a week to find targets of opportunity. Most people go home and turn on the telly, spend time with the family, but laundrymen don’t do that. They’re on duty day and night.

‘They might get a call at 2am from a client saying they had heard such and such a country was going to switch over to the euro in six months.

“The laundryman is packed up and out the door, and he’s making investments in that country because he knows when the switch takes place they’re not going to ask a whole lot of questions for political reasons.

“Or, in the back of the Financial Times, he might find an item that indicates a government agency has pulled in some criminal using some new tactic or technique.

“He’s going to adopt that tactic the next day, use it once and then quit. The problem is, it’s such a dynamic field that law enforcement is always two steps behind.”

We couldn’t agree more! And it’s for this exact reason that we’ve been advocating an overhaul of the Bank Secrecy Act and faster action from the Financial Action Task Force (FATF).

Ken Rijock, if you happen to catch this post while doing a vanity search on your name, here’s more recommended reading:

• The Anti-Money Laundering Iconoclast: Charlie Intriago

• Hey, Hey BSA, How Many Banks Will Get a Cease and Desist Today

• Why Banking Secrecy Act Compliance Officers Drink Maalox

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[Daily Post from Infoglide Software] 17 Percent of the Insurance Industry Moves into the 21st Century

“If time is money and insurance fraud is estimated to cost $80 billion a year why don’t more insurance companies use real-time databases?”

InsideUF - To catch a thief: UF research team leads world in study of retail crimes

“‘We’re looking at people very involved in highly organized retail crimes,’ Hayes said. ‘We want to determine the dynamics of these groups. We want to know how they are recruited and trained, where they steal and who bails them out of jail.’”

BTNonline: Industry Voices Secure Flight Concerns

“The government’s latest passenger prescreening program, Secure Flight, is moving toward a final rule, but industry representatives and privacy watchdogs said the Transportation Security Administration first must address concerns about cost, travel supplier compliance and the accuracy of program watchlists.”

BBC World Service: Dirty Money

“The tale may sound far-fetched, too Hollywood to be true, but it’s the life that Ken Rijock lived for a decade. He started his career as a commercial and banking lawyer, but soon became a money launderer. He estimates that he helped launder at least $200 million for approximately 30 clients before finally being caught.”

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“If I can identify [fraud] and get the claimant into the office for an interview within the first seven days, then the perpetrator and his cohorts don’t have a lot of ’skin in the game,’ so to speak.”

That’s Dennis Parker in Insurance and Technology, talking about the insurance industry’s need for speed in identifying potential fraudulent claims. Formerly with Infoglide Software, Dennis is now an insurance marketing manager at SPSS.

Dennis and his team at SPSS use their predictive analytics solution with its advanced statistical and data mining techniques to detect patterns and anomalies and generate predictive models that identify claims that warrant further investigation. Part of SOSS’ automated claims fraud detection platform is powered by our Identity Resolution Engine which has the ability to identify similar identities and relevant relationships. Combined, these two solutions help insurance providers to bring a fraudulent claimant in before too much time elapses.

Why is that important? According to the I&T article, it’s because “most fraudulent claims that are defeated are not denied by the insurer, they’re dropped by the insured. Fraudulent claims are more likely to be dropped earlier in the process because the perpetrator has less invested in the outcome.”

The problem is, according to another I&T story, “only 17 percent of insurers currently utilize advanced IT tools to detect fraudulent claims.” Instead, I&T reports that:

• Almost EVERY insurer has a Special Investigations Unit (SIU)

• MANY use basic scoring algorithms to flag claims

• SOME use real-time databases to look for multiple claims.

If time is money and insurance fraud is estimated to cost $80 billion a year why don’t more insurance companies use real-time databases?

Unfortunately, the culture of the insurance industry still greatly relies on the humans manning the claims departments and SIUs to sift through claims and make the final call to launch an investigation.

“It’s like playing six degrees of Kevin Bacon, but in a much larger scale.”

That’s director Dave Porter of UK-based Detica, maker of information intelligence software, in a ITBusiness.ca article about the perils of too much data shielding criminals from detection. Earlier this year, thanks to speed and accuracy, Detica’s modeling and data analytic solution helped bust 74 people in a organized crime insurance fraud ring.

But as Dave notes that with “most banks and insurance companies such a task is done manually with teams of two to 20 personnel looking 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.”

In the 21st Century, two weeks is too long.

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[Daily Post from Infoglide Software] Fraud Detection Should be Color Blind

“…When she wrote later in the article that the laws in Virginia are particularly strict, I thought perhaps that explains the difference in her experience and mine. But then she wrote what I think is probably the real reason for the scrutiny - ’shopping while black.’”

Jeff Jonas: Six Ticks till Midnight: One Plausible Journey from Here to a Total Surveillance Society

“Why are more people not working on privacy-preserving technology e.g., anonymization, immutable audit, selective revelation, data masking, data expiration and destruction services, etc. – and more importantly why are not more organizations starting to take advantage of these emerging privacy-enhancing alternatives?”

Post Gazette: Retailers check receipts at front door to combat losses from theft — but at what cost?

“The reality is nobody’s really happy about the situation, said Chris E. McGoey, a Los Angeles security consultant who writes about such issues on his Web site, www.crimedoctor.com. ‘Retailers hate doing this,’ he said. ‘It’s bad for business. They know it’s bad customer relations.’”

Crime Doctor: Employee Theft

“According to the University of Florida 2002 National Retail Security Survey, employee theft was estimated to be responsible for 48% of store inventory shrinkage. That represents an estimated employee theft price tag of about 15-billion dollars per year. This astounding figure makes employee dishonesty the greatest single threat to profitability at the store level.”

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