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Finding bad actors: how tech is helping root out financial crime

By Joseph M Quiazon, Managing Director and Head of Financial Crime Compliance, APAC, Exiger

Information is the lifeblood of financial crime investigations. Financial intelligence units (FIUs) depend on access to quality information to inform an effective customer identification program, conduct investigations, build intelligence capabilities and ultimately keep bad actors out of the financial system. Fragmentation in the Asia Pacific (APAC) region, however, may be holding some financial institutions back from developing the robust anti-money laundering (AML) programs necessary to do business and meet regulatory requirements in 2019. A commitment to technology and transformation is the answer to this enduring challenging, allowing financial institutions to streamline and enhance compliance programs.

China: A fragmented approach

The Financial Action Task Force’s (FATF) recent Mutual Evaluation Report on the People’s Republic of China from April 2019 found China’s arrangement of the China Anti Money Laundering Monitoring and Analysis Center (CALMAC) results in fragmented data access and analysis for FIUs. As a result, this prevents a holistic view of financial information and impacts the success of money laundering investigations in the region. All of this is despite CALMAC having access to deep financial intelligence, given it is made up of the Anti-Money Laundering Bureau (AMLB) and 36 different People’s Bank of China (PBC) provincial branches. 

Financial institutions consequently struggle to develop complete real time customer profiles as part of their AML programmes. An effective customer identification program, however, provides the initial foundation for building long-term client relationships and, when necessary, monitoring and reporting transactional activity and behavior inconsistent with customers’ profiles.

ASEAN: Learning from 1MDB

The global scandal with Malaysia’s state-owned investment fund, 1MDB, illustrates the money laundering risks involved with financial deal making in the absence of an appropriate level of customer due diligence. An estimated $4.2 billion irregular transactions were flagged by Malaysia’s Parliament. When significant corruption events like this occur within large financial institutions, the inevitable internal fire drills occur to uncover where any potential exposure lies. Financial institutions must start by examining their book of business, seeking to identify any potential nexus between high net worth individual (HNWI) clients and serious criminal activity, such as money laundering, tax evasion, bribery and corruption. 

To rule out the presence of such bad actors, financial institutions must search, screen, validate and associate data from multiple sources against a set of known information related to a particular individual or entity. A subject is typically screened against a corporate registry or structured database, such as a watch list. The results, however, are subject to the limitations of human-based research and the relative quality of the watch list database. 

This legacy screening model may be somewhat adequate for a small number of individuals, but what happens when the requirement is to screen 2,500 HNWI clients across dozens of jurisdictions, assessing content from 3,000 publications in multiple languages, representing more than 7,000,000 searches?

Preventing a global corruption scandal of the size, scale and magnitude of a 1MDB requires the technical capability to provide ongoing adverse media monitoring able to produce real time profiles, as the individual or entity profile can change overnight. A subject that appears low risk today, can become high risk tomorrow. 

From legacy to transformation

Regulators increasingly expect compliance programs to leverage technology to increase their efficiency and effectiveness as a control function. This will also enable compliance professionals to act as strategic advisors on the threat landscape. Within APAC, both the Hong Kong Monetary Authority (HKMA) and the Monetary Authority of Singapore (MAS) are leading the way by actively exploring greater use of technology and analytics in supervisory work, representing a clarion call for all financial institutions to follow suit.

The challenge for any financial institution, particularly those entrenched in legacy models, is to design a compliance program that is responsive to current trends, emerging scandals and changes in law, but continues to remain fit for purpose when set against a financial institution’s changing business and risk appetite. The transition from legacy processes to sustainable compliance outcomes has begun. The question that remains is: are you a part of it?

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Joseph Quiazon

Joseph Quiazon

Managing Director and Head of Financial Crime Comp

Exiger

Member since

30 Oct

Location

Hong Kong

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This post is from a series of posts in the group:

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