I recently attended the 15th Annual Money Laundering conference to learn about  recent trends, regulations, and challenges in combating financial fraud, money laundering, and complying with domestic and international laws including OFAC, BSA, AML, EU Directive on Money Laundering. At the end of the day, these are all inter-related to help locate and track the movement of funds for  illegal purposes including terrorist financing, drug, and human trafficking. I was in a room packed with folks whose titles included Head of BSA/AML, VP of Compliance and Financial Fraud, Financial Securities Analysts, and wondered what kept them up at night.

They discussed recent events and actions where banks are paying hefty fines for non-compliance. For example:

• Credit Suisse’s fines of $536M for allowing suspect countries like Iran funnel funds into the United States
• Wachovia (n.k.a Wells Fargo) fined $160 million for allowing cocaine cartels to launder money
• ANZ faces $29m fine for suspect offshore transfers

Fines are one thing, however many institutions can become shuttered out of business when they fail BSA/AML compliance. The list goes on and you can find others on http://www.bankersonline.com/security/bsapenaltylist.html

Since 9/11, financial institutions worldwide have invested significant resources and funds on technology solutions including KYC, Transaction Monitoring, Anti-Money Laundering applications, case management and Suspicious Activity Reporting (SAR) tools, business, technical, and legal consultants consulting, people, and processes to identify, relate, monitor, and detect suspicious financial transactions and activities. Yet, as the sources reveal that many firms continue to fail compliance and end up in trouble with regulators.
During my conversations with these bankers, I asked why this was the case. Many of them pointed the finger back to IT and the lack of good data.

At the event, Ernst and Young presented the findings from a March 16, 2010 survey of 50 global, regional, and country specific banks across 20 countries entitled “Effectiveness of Transaction Monitoring”. The results revealed that nearly a third (27%) were not satisfied with the performance of their transaction monitoring systems. Many of the firms (78%) invested in off the self solutions of which 87% required extensive enhancements of these applications to fit their business needs. One of the biggest issues impacting the effectiveness of their transaction monitoring systems was due to the quality of their data. They defined quality as both incomplete, inconsistent, and outdated data often cobbled together to feed their transaction monitoring applications.  Incomplete and inaccurate data can cause severe errors including increasing false positives to completing missing activities than can harm the general public, not to mention those significant regulatory fines. Therefore, financial services organizations who lack adequate data integration and data quality solutions as part of their overall OFAC, BSA/AML technology framework may be the reason why your fraud and compliance professionals are losing sleep.

Are you prepared?