Banks have long struggled to spot illicit transactions among the multitudes they process daily, as criminals move dirty money from one institution to another to cover their tracks, leaving compliance staff with nothing but a partial roadmap of their actions.
This has started to change, with financial institutions and service providers in several countries building information-sharing platforms and messaging tools that can dramatically improve money laundering and fraud detection.
A research project supported by the Royal United Services Institute, a British think tank, has identified at least 15 information-sharing initiatives around the world. Although most countries don’t allow banks to share information, several recent efforts have shown significant success in identifying crime, according to the Future of Financial Intelligence Sharing project.
The countries with information sharing platforms are the United States, the United Kingdom, the Netherlands, and Estonia. The types, uses and origins of the platforms studied by FFIS vary greatly. Some focus on specific issues, like money mules, or simply offer secure messaging to participating banks. Others have used sophisticated technology to help banks comply with anti-money laundering obligations.
A leading example is Transactie Monitoring Nederland (TMNL), a joint venture of the five largest Dutch banks. The utility-like platform, launched in July 2020, allows participating banks such as ABN AMRO Bank NV, ING Groep and Rabobank to pool encrypted transactional customer data.
Consulting with banks and the Dutch Financial Intelligence Unit, TMNL has developed models that allow the group to search shared data for potentially unusual transaction patterns that could indicate money laundering or terrorist financing. . Privacy protection technology allows TMNL to generate alerts from the pool of anonymized data it oversees while protecting the identity of bank customers.
TMNL, a private entity with about 70 employees, remains silent on the initial results of the identification of potential money laundering activities. Chief Executive Norbert Siegers said TMNL is still experimenting and has not yet developed outcome measures. So far, the platform has generated around 2,000 alerts, which have been sent to affected banks for further investigation, he said.
“We are essentially an analysis factory, where we create [anti-money-laundering] patterns to find potential patterns, but the investigation of the alert is still done by the banks,” he said.
Anti-money laundering rules require financial institutions to monitor transactions and report suspicious activity to regulators. Many banks have monitoring software to help flag potentially suspicious transactions, but the hope is that by aggregating the data, TMNL will pick up patterns its members wouldn’t otherwise see.
In some cases, alerts generated by TMNL’s models have led banks to file suspicious activity reports with the Dutch Financial Intelligence Unit which, in turn, has triggered further investigation by enforcement authorities. law enforcement, Mr. Siegers said.
Hennie Verbeek-Kusters, the director of the Dutch Financial Intelligence Unit, applauded TMNL’s work. “It’s really a very simple way to take the exchange of information and cooperation between banks to the next level,” she said. “We are very positive about the initiative.”
An initial pilot exercise described in the FFIS study enabled TMNL and the Dutch authorities to reduce the time required to build a complex anti-money laundering network from three weeks to two days. Ms. Verbeek-Kusters said partnering with TMNL involved a lot of trial and error as the group refined its models to produce more useful results.
“It ultimately led to some very good reporting from several banks, analysis that we could have come up with in the traditional way, but it would have taken us months longer,” she said.
One of the limitations of TMNL is that it currently focuses exclusively on corporate clients of banks. While the platform uses technology that only allows its member banks to decipher its alerts, the privacy protections are much stricter for individual bank customers than for legal entities such as businesses.
Data privacy concerns are one of the biggest barriers to more widespread adoption of information-sharing platforms in most countries. For TMNL, the next step would be to recruit more banks and add transactional data from individual customers. But that would require legislation clarifying the link between such information sharing and the European Union’s strict data protection rules, a move the Netherlands is considering, Mr Siegers said.
The United States was among the first countries to give financial institutions a legal gateway to share customer information to identify money laundering or terrorist financing activity, with the enactment of the USA Patriot Act in following the September 11 terrorist attacks. But this sharing of information is voluntary and the use of the gateway has been slow to develop.
The legislation has led to the creation of several platforms and partnerships by service providers and financial institutions. Verafin Inc., a software company offering a transaction tracking and case management product, has developed a messaging portal through which approximately 2,500 banking users can submit information requests to each other.
is developing a similar tool, dubbed Duality, which would include automated query and response capabilities, meaning a requesting financial institution would not need to reveal the existence of its query to the party it is requesting information from .
A more formal association of five of the largest US banks also produced interesting results, according to the FFIS study. The partnership, launched in 2015, allows participating banks to pool investigative resources, generating thousands of new topics of interest to law enforcement.
Yet most of these collaborations in the United States and elsewhere remain quite limited, according to the study. Nick Maxwell, FFIS program manager, said the main hurdles are pre-existing legal frameworks. Governments, he said, need policies that explicitly pave the way for new information-sharing initiatives.
“Technology is not the problem,” he said. “It’s really about whether the country has a clear policy environment to support sharing, which is rare.”
Write to Dylan Tokar at [email protected]
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