Money Laundering & Global Markets
Money laundering has been an area of risk exposure preoccupying financial institutions and government regulators since the 1970s. A concern about the use of legitimate financial conduits for organized crime, illegal arms suppliers, human traffickers and terrorist financing forced government agencies to ask financial institutions to monitor the activities of clients often quite important to the institutions.

The spectra of significant fines and adverse publicity that could potentially ruin an institution and the careers of those associated with the regulation of the institutions focused an intense light of scrutiny on an area of risk that had traditionally been ignored.

Today, governments and international bodies including the Financial Action Task Force (FATF), the Egmont Group, The World Bank and the International Monetary Fund are actively involved in assisting financial institutions and governments throughout the world to develop Anti-Money Laundering (AML) regulations, policies and procedures, and to monitor the flow of funds through the various entities involved in the creation, preservation and transfer of assets of all kinds. Financial institutions, insurance companies, advisors and attorneys are all expected to have policies and procedures in place to assure that their practices are consistent with international and regional AML standards.

In the field of banking, a number of factors have been responsible for the growing awareness, by governments and institutions, of the problems associated with the risk of money laundering. However, a refusal by correspondent banks to facilitate transactions by those who have less strenuous regulation has created what must be considered the most compelling reason for implementation of remedial actions. An inability to function on an international basis is a death knell for most institutions. This, combined with the possibility of fines and civil and criminal liability for board members and officers of an affected institution, has created a motivation that was lacking prior to more rigorous international and regional standards.

The Challenge for Regional Banks and Financial Institutions
A comprehensive risk management strategy inclusive of a first class AML technology is the goal for most institutions. However, it is more costly, relative to deposits and transaction levels, for regional institutions who seek the same level of risk management as the largest money center institutions. The challenge for regional banks, in particular, is to provide their compliance and management team the tools that offer the ability to detect money laundering without paralyzing the organization, consuming time and creating costly overhead. Risk management is either a benefit or a detriment. On the one hand, it enables international transactions and makes appropriate list checking less burdensome while remaining comprehensive and allowing a seamless knowledge of one’s customers. On the other hand, it has the potential to consume capital and to create an administrative burden. The challenge is to emerge on the positive side of the two options without any noticeable impact on cash flow and profitability.

In the past, the lack of companywide core financial applications that enabled centralized monitoring placed a significant burden on branch management to identify suspicious customers and transactions. Local, regional and community institutions traditionally relied on multiple legacy systems and applications to automate their respective areas of concentration. In the case of AML, these applications seldom were able to provide the required data integration for more in depth analysis of transactions or customer profiles on an international, regional or country basis, nor could they monitor the activities of those politically exposed persons who might be of interest to the local FIU or governmental oversight task forces.

As a result, compliance officers and management too often have to deal with a paper trail consisting of time-consuming, incomplete and erroneous reports from multiple systems. The result is that, in many institutions, the compliance department is too often viewed as a place where nothing positive is going to happen and where there is less chance for advancement. This is not the case if there is a commitment on the part of senior management to research and implement a solution providing an automated program that has comprehensive oversight tools. Such a program should be implemented without enormous expense and the institutional paralysis too often caused because a seemingly straightforward solution really requires a team of consultants who derive their income not from a timely solution but by consuming time and creating a network burden.