Much about financial crime is troubling because it’s detected after the fact as a speaker said at FTF’s 2nd Annual Financial Crime & AML event yesterday. The speaker also said that an individual who is hell bent on committing financial crime is almost impossible to stop. Yet despite the headlines about HSBC’s failings in this area, there are strategies and tools that can help.
- Firms must apply anti-money laundering, anti-terror, anti-fraud, sanction compliance and related strategies across the enterprise. Executives and senior managers have to set aside their back-stabbing and allow themselves to reveal when a firm has been compromised via financial crime. It might put an ego and a career on hold but it could save the firm. In addition, all silos, if not dismantled, must be under the purview of anti-financial crime initiatives. There can be no sacred cows when it comes to fending off a growing number of financial crimes.
- Get to know your customers even more. While privacy laws and local customs may make it difficult, the more you know the better. Despite more regulatory record-keeping chores on the way, the point is to be persistent in gaining as much knowledge about your customers as you can so that you can spot aberrations and be able to make better judgments about them. This is key because, frequently, it’s the trusted and true clients that become the sources of financial crimes. If even slight aberrations can be detected early, there is a chance that much harm can be prevented.
- Frontier markets are a big worry because of legal and cultural obstacles to the key data you need for your anti-financial crime strategies. But you have to be flexible in your interpretation of frontiers as they can also be your own backyard. One panelist noted that the illegal crystal meth industry in upstate New York has all the aspects of a far-flung country that is just emerging on the global market. It’s also possible that a client in your backyard, so to speak, will reach out and exploit the weakness of a frontier market.
- If you can manage it, have a good working relationship with regulators and those in law enforcement. One conference participant actually gathered all the regulators it works with into one room to bring clarity to the process of reporting crimes or suspicious activities. You must also make certain that you are filing all of the mind-numbing reports with the right authorities and make sure they can access them and act upon them. What is the point of filing a report that will gather dust in the wrong department?
I’d add to the above the fact that IT innovations continue and can be valuable tools in the fight against financial crime.
For instance, one conference participant mentioned that high-frequency traders use algorithms to review social media postings, which helps them make trading decisions because they have an insight into behavior patterns and sentiments. These algorithms could easily be applied to anti-financial crime efforts because they could quickly identify sudden patterns that could spell trouble for firms.
And, just this morning, the financial messaging and services cooperative SWIFT announced that it is working with Omnicision to deliver a Sanctions Testing service. (The European Union has been taking steps this year to ban blacklisted Iranian firms from using SWIFT, putting it in a pivotal role.) The new application unites the testing and tuning of sanctions filters. The service is intended as a way to measure systems and their effectiveness and help cut down on the number of false positives. The service is slated to be available in September.
I’m hoping that there will be more tools like these to come that will give firms more options for their anti-financial crime arsenals.