SKP Forensic Update
28 December 2015
Six reforms that can change the way money laundering is handled

Money laundering is a means and an end to many other financial crimes in the world. With countries improving their regulatory standards and reporting protocols for suspicious activity, and growing inter-governmental cooperation, financial institutions are faced with an increased need to enhance their internal compliance systems and processes. However, in the wake of increasing sanctions and incidents of
largemoney laundering lapses, it is relevant to examine the key reforms that can help in enhancing compliance at the industry level in the future. In this article, we examine six such reforms:
  1. Unify customer information: Customer information is maintained differently by different financial institutions, while the nature of the data maintained is similar (e.g. address). With the mounting volume of transactions, it could become difficult to gather simple queries on ‘accounts with common addresses’. Enhanced technology could be a driver to change the way such data is structured. For example, an online services app ‘Zippr’ creates an eight-digit unique code for customer addresses to enable easier and faster food delivery. Adopting such technology at an industry level may not only simplify the way data is captured by financial institutions but will also help in gathering more relevant geo-analytics of accounts and transactional patterns.
  2. Move from transaction analysis to pattern analysis: Customer analytics and suspicious activity analysis should move from the traditional exception-based approach towards a trend-based approach. A trend inconsistent to the known pattern or behaviour would become an outlier for suspicious activity reporting. This would include a transaction that is specifically structured to pass through the base limits (e.g. a cash deposit of over INR 50,000). Adopting pattern recognition algorithms can help gain better insights with the available data and enhance compliance in identifying additional suspicious activities.
  3. Setting up a unified financial intelligence platform: Financial institutions currently operate on independent platforms for gathering information from a central repository such as Credit Information Bureau Limited (CIBIL) or other credit-scoring agencies. In the current setup, a financial institution representative requests information, which is then provided by the repository. Instead, two-way communication will improve the way financial institutions practice compliance. For instance, if an interface is built with the central repository and the financial institution’s in-house customer master application, any change in the customer’s credit score gets notified, thereby enabling the financial institution to take appropriate action.
  4. Enhancing governance and whistle-blowing: Encouraging whistle-blowing is a critical method to limit crime. An independent governance mechanism and widespread advocacy and communication on whistle-blowing will enable whistle-blowers to raise concerns on aspects that may currently be going unnoticed by compliance professionals.
  5. International data-sharing on trends: A structured mechanism to share data across countries may help find patterns that are not otherwise visible from a single country’s perspective. A collaborative approach towards fighting money laundering not only requires cooperative agreements but also a global governance body with a protocol to collate and monitor exceptions identified across geographies.
  6. Empower banks with real-time data from related government agencies: Essential know-your-customer (KYC) records mostly rely on the documentation provided by customers themselves. A mechanism to validate such data against government information on a real-time basis will save time and also ensure falsified documentation does not enter the financial channel. For instance, access to information on death certificates will help eliminate relationships that are created with identity documents of the deceased.
While these reforms may have a significant impact on the way the industry functions, small efforts in this direction could pave the way for the future. Also, such measures would significantly aid compliance and help enhance anti-money laundering efforts.

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