Technology – Money laundering – Hard times … Soft options _ CCH Daily ctr money laundering

How much do you know about your clients, and how much do you just think you know? The difference between the two used to be largely irrelevant.

But thanks to the proceeds of crime act and the second EU anti-money laundering directive, you will need to revisit this question, repeatedly, and think very carefully about your answers.

Finance professionals will need to err on the side of caution if they do not want to risk prosecution. It remains to be seen quite how the national criminal intelligence service will cope with the deluge of reports of suspicious activity it could face if all affected professionals diligently follow the letter of the law. Nonetheless, accountants need to be safe, rather than sorry, and at least try to file all suspected incidents of money laundering.

Ironically, many of those working in the financial services industry will find compliance relatively easy compared with those working in smes and in practice.Ctr money laundering banks, building societies and insurance companies already have computer systems in place to collect and collate customer data, and analyse it for patterns of behaviour, suspicious and otherwise. Where these procedures are handled using sophisticated business intelligence and performance management tools, such as those provided by cognos, comshare and SAS, they can be tweaked to meet some of the new requirements. Even so, some larger organisations will opt for a dedicated anti-money laundering (AML) application such as those provided by IT net (developed by actimize) or searchspace.

Banking on AML

‘combating money laundering has taken on a new significance, and it’s a top priority for us,’ says ron whatford, director of group operations at lloyds TSB. The bank recently implemented a dedicated AML solution from IBM and searchspace. The system is based on sentinel, a searchspace application that analyses every transaction that flows through an organisation for risk, while ensuring that internal processes are still carried out effectively within the context of the transactions being made.Ctr money laundering it does this through the searchspace intelligent enterprise framework (IEF), which integrates existing enterprise management systems, and provides an automated decision-making system that tackles specific issues such as AML. IEF can also include sentinel for fraud management, compliance and opportunity management.

Other financial institutions with dedicated AML systems in place include archipelago, barclays and london stock exchange. ‘international obligations for AML compliance have steadily increased over the past two years,’ observes jason kingdon, CEO of searchspace, ‘with an unprecedented acceleration in the levels of demands required by regulators.’

The cost of not meeting those demands cannot be underestimated: in addition to fines, financial institutions also have to count the cost of the negative impact on their corporate reputation – as northern bank will no doubt discover.Ctr money laundering the largest retail bank in northern ireland (and part of the national australia bank group) was recently fined 1.25m by the financial services authority (FSA) for breaches of its money laundering rules. Although FSA regulation affects big and small alike, the size of the fine reflects the problem. ‘the steps northern bank took to satisfy itself that its customers, particularly business customers, really were who they claimed to be, were inadequate,’ says carol sergeant, managing director of the FSA. ‘northern bank had previously identified weaknesses in its customer identification procedures, but allowed them to persist,’ she adds.

Independent financial advisers are unlikely to face such large fines.

‘the size of the fine in this case reflects the prevalence of the breaches, northern bank’s share of the market it operates in, and its failure to take prompt and effective remedial action after it had originally identified its own failings,’ explains sergeant.Ctr money laundering examples of inadequate verification of identity are where the bank only verified a client’s name, but not the address, or where the documents the bank obtained were not capable of verifying identity.

Know your client

There’s no excuse for this, whatever the size or type of organisation you work with, or for. The verification process can be automated and simplified both on and offline. Organisations such as 1st locate ( www.1stlocate.Co.Uk) and experian ( www.Experian.Com) provide online access to checking facilities for individuals and companies on a per check basis. ‘we take our money laundering obligations very seriously,’ says kevin tomlinson, money laundering reporting officer at virgin money. ‘by working closely with experian, we have been able to cut back on unnecessary paperwork and administration, and comply with the FSA’s guidelines.’

The system confirms not only that a person exists, but that they are who they claim to be.Ctr money laundering this removes the need for utility bills and other paper-based documentation to be used as proof of address and identification.

Consequently, virgin can automatically accept between 83% and 85% of the applications it receives online, without recourse to paper-based proofs of identification. ‘we can then concentrate our resources on combating money laundering and any suspicious cases of unusual or potentially fraudulent activity,’ explains tomlinson, adding: ‘it also provides us with a consistent approach to decision-making and a full audit trail, so we can document that the correct measures have been employed to check the identity of customers, and prevent money laundering.’

Providing evidence of your anti-money laundering measures is almost as important as compliance itself – not least when it comes to staff training.

Britannia building society is using software to help its customer-facing staff identify potential money laundering activity.Ctr money laundering E-learning specialist vega worked with technical experts at britannia to design an e-learning package capable of meeting britannia’s specific needs. ‘previously we had an off-the-shelf computer-based training package,’ says will newby, group training and competency officer at britannia, ‘but we wanted something that was tailored just to us.’ the project took 10 weeks from conception to completion, and has now been used by the company for more than six months. ‘I’m not sure we’ll be able to quantify the benefits in terms of the amount of financial crime identified,’ adds newby, ‘but we want to be a model of compliance.’

Britannia is the second largest building society in the UK, with 188 branches, over 3,000 employees, and group assets exceeding 19bn, so it can easily afford the cost of compliance. Smaller organisations and sole practitioners are in a much more difficult position.Ctr money laundering fortunately, a number of products are now available to help improve the anti-money laundering training of directors, managers and other affected members of staff (see box).

Three strikes?

Finally, it has to be said that there is little point in putting AML systems in place, or training staff to recognise suspicious activities, if the procedures they encapsulate can be easily ignored. Daniel gordon, formerly chief energy trader for merrill lynch and co, is being investigated for allegedly embezzling $43m (30m) from the securities firm, and laundering it with the help of an off-shore banking consultant. Apparently, ‘the usual credit-check and due diligence procedures in place at merrill lynch were not followed.’ this is the third incident in which the firm appears to have inadequately supervised its staff. Merrill recently agreed to pay $80m (50m) to settle US securities and exchange commission charges that it helped enron commit accounting fraud, and it coughed up $200m to settle accusations by state and federal regulators that the firm allowed conflicts of interest by its research analysts.Ctr money laundering

The loss of your reputation may not cost quite so many dollars, but it wouldn’t make it any easier to regain.


CPA audit ( www.Cpaaudit.Co.Uk), mercia group ( www.Mercia-group.Co.Uk), MHA consulting ( www.Mha-consulting.Co.Uk), and SWAT are a few of the companies now providing advice and training on how to avoid and detect money laundering activity.

The services offered by CPA audit include a downloadable money laundering checklist ( www.Cpaaudit.Co.Uk/pdfs/money-laundering-checklist.Pdf), so that you can get an idea how well prepared you are.

The training facilities on offer from SWAT include public courses, inhouse training for firms, and a CD-rom: money laundering – the new law and your obligations (price 50). SWAT also provides written guidance in its audit and compliance manual and general practice and procedures manual (published by CCH).Ctr money laundering


The proceeds of crime act 2002 redefined money laundering and the main criminal offences associated with it, as well as strengthening the requirements for the regulated financial services to report money laundering suspicions.

In addition, the second european money laundering directive was passed in december 2001 and had to be brought into the law of member states by june 2003. The directive applies to auditors, external accountants and tax advisers acting in the course of their professional activities, as well as a number of other sectors thought to be vulnerable to use by money launderers, including lawyers, estate agents and casinos (see accountancy, january, p117).