Banks are keeping a careful eye on the money flowing in and out of their doors. In October 2001, President Bush signed the USA Patriot Act into law, a measure that introduces a new wave of regulations to fight money laundering and organizations funneling funds to terrorist groups. The burdens the new law places on banks and financial institutions are creating a surge of interest in technologies designed to help companies identify potentially suspicious activity. TowerGroup, a financial services research company based in Needham, Mass., estimates the increased demand for anti-money-laundering (AML) technology will extend well into 2003, and that spending by U.S. banking institutions on such technologies will reach US$60 million this year. The AML provisions of the Patriot Act do not mandate the use of specific technologies, but banks and other financial institutions would be hard-pressed to obey the new laws without them. Among other things, banks face a greater responsibility to verify customer identity. They must also produce all documentation related to specific accounts within five days of a regulator's request. There's also the complex and critical task of identifying suspicious transactions that can occur across multiple accounts and over long periods of time, making it difficult for a human to detect any pattern.
The answer for many institutions will involve using intelligent systems, which are based on a variety of tools, for instance, neural networks or behavior detection technologies that take a rules-based approach to examining transactional histories, says Breffni McGuire, a senior analyst in the global payments group at TowerGroup. For example, if a customer routinely sends wire transfers in the amount of $10,000, and suddenly sends one that is 20 percent greater, the system might flag it for investigation. Another example of a red flag transaction would be numerous little deposits small enough to fall under investigative limits followed by an $80,000 withdrawal.
While AML legislation has been in place for years, it has never affected so many institutions or been taken so seriously by the financial services industry, which now faces increased federal scrutiny as well as a watchful public. Companies that don't comply could face fines of up to $1 million, says McGuire, as well as significant damage to their reputation. "There has been a real sea change since Sept. 11 in the seriousness with which organizations are taking this issue," she says. "There's much greater awareness and heightened scrutiny around how companies will comply."
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