IIBF Seminar

on
Anti Money Laundering
&
Know Your Customer
Lucknow
14th September 2006
Vasant Godse

Background

The process of transforming illicit funds into legal capital.

Involves Placement /Layering/Integration
Money laundered annually nearly 3 to 5 % of World GDP
or USD 500 billion to 1.5 trillion.
Organized crime groups becoming more global and
carrying on their activities far away from their geographic
region
Not only economically destabilizes a country but also
exposes to terrorist attacks,threatening its integrity &
sovereignty
Result: International organizations and regulators to
developing international standards and best practices to
address to money laundering issues in a collaborative
manner

Players/Detectors
Who are involved?
Bankers
Lawyers,
Car dealers,
Real estates builders,
Accountants and
Others, who allow their
businesses to be used by
someone to launder the
proceeds of a crime.
(23 industries covered in
USA)

Who is watching?
FATF/UN
European Union
Directives
Basel II
OFAC
USA Patriot act
BSA
APGML
Wolfsburg Principles on
Private Banking and
Correspondent Banking
All countries regulators

RBI Guidelines KYC

KYC guidelines to prevent banks from

being used, intentionally or unintentionally,
by criminal elements for money laundering
Components
Customer Acceptance Policy
Customer Identification Procedures
Monitoring of Transactions; and
Risk management

Two broad approaches to controlling

money laundering:
Know your customer and correspondent.
2. Monitoring the transaction flows.
(Correspondents yet to be covered in India)
1.

Data Information requirements

Compliance expectations
Bank must locate, extract, warehouse and assimilate data
Solution that can evaluate transactions at more details
Single view on customer activity

Data/Informational needs
Data Acquisition from source system, transformation and
loading capabilities.
Data analysis engines
Analysis and detection capable of revealing pattern
Identify behavior changes
System in place to document all findings
Ad hoc research capabilities

Technology Criteria
Any solution for AML compliance has to address to the
following issues: Monitoring of individual transaction
Profiling of risk in respect of existing and new customers
Referencing the transaction with regard to the watch list
Marinating of records on customers, transactions,
regulations and their up-dates
Analytics to assess and develop patterns of client
behavior
Facilitating regulatory reporting and related requirements
Providing alerts and
Generation of audit trails

Technology Offers
KYC

Risk Assessment

Maintains & monitors details

for customer

Risk based customer

modeling

Profiling technique to evaluate

customer & transaction

Risk class based on risk

factors and scores

Creates customer behavior

pattern

Tool for reviewing suspicious

activity

Links company wide

Real time transaction enquiry
customer acceptance
tools
documentation requirements
Automates creation and filing
Stores, manages and queries of suspicious activity
Comprehensive audit trail
electronic documents

Manage customer account

opening, acceptance &
ongoing maintenance

Technology Offers
Legal/Regulatory
compliance

Detection of Black listed

customer

Detects violations consistently

across enterprise for a
multitude of global
sanctioning bodies

Electronic workflow from

receipt of information to
response back

Automated process to import

Real time, intra-day interfaces
the request for information
to all at-risk business system
Flexible search algorithm
Reduce expensive due
diligence
Electronic filing of
responses back to inquiring Provide automatic sanctioned
parties
party updates

Comprehensive security
control to ensure
confidentiality

Integrates with multiple

disparate business systems

Technology Present Status

Product vendors as well as solution framework providers like

L&T Infotech
Multiple approaches to AML implementation
Basic transaction filtering and exceptions based reporting
systems that give 'hits' and 'alerts' based on the violation of
rules.
Artificial intelligence based adaptive learning systems that
monitor activity patterns in transactions and accounts to
detect and prevent money laundering
Integrating these solutions with the current architectures and
developing multiple interfaces to existing systems
More vendors and processes.
Additional costs in maintaining multiple packages
Security and database issues.

Technology Trends

Browser-based interfaces, for enhanced usability and ease

of deployment
Visualization tools, such as network diagrams to depict
account relationships
Peer profiling, network analysis, risk scoring and other
analytic approaches currently being emphasized by
regulators
Enhanced case management functionality with rich
workflow and investigation features
Compliance dashboards, to integrate output from
multiple regional and line of business systems, including
the integration of AML with anti-fraud and other
compliance systems
Source: Celent, Trends in Anti-Money Laundering 2006.

Technology Trends

Additional modules to make a more comprehensive solution

suite, including account opening due diligence and watch list
filtering in addition to transaction monitoring
Integration with SWIFT and other payments networks to enable
real time interdiction of wires
Outsourced AML services, offered by major core banking
processors such as Fiserv or Metavante, as well as new shared
data center initiatives focused solely on AML
The pursuit of scalability, to achieve greater competitiveness for
business from large financial institutions
Introduction by high end vendors of AML lite versions of
their products, aimed at the emerging small and midsize FI
market.

Commandments for Compliance

AML Compliance is a Board level and not only

Branch level issue
Size of the bank is immaterial
Locations is redundant
AML Compliance is NOT a local problem
Compliance is a business challenge not MIS drill
Address to data needs and data consistency
Training and its proper documentation for regulatory
review
NO OPTION BUT TO GO IN FOR
TECHNOLOGY SOLUTION

Thank You

Vasant.godse@lntinfotech.com