Banks take fight to terrorists through data drive

Today terrorism is an ever present threat. Recent terrorist attacks in New York, Brussels and Nice make this point very clear. As a result, public concern over terrorism is now at its highest in more than a decade, with the media continually reminding us of how close the danger is to home.  Whilst the risk …

by | September 30, 2016 | LexisNexis

Today terrorism is an ever present threat. Recent terrorist attacks in New York, Brussels and Nice make this point very clear. As a result, public concern over terrorism is now at its highest in more than a decade, with the media continually reminding us of how close the danger is to home. 

Whilst the risk of terrorism is nothing new, in recent years we have seen the risks evolve and new challenges emerge for those tackling them, especially when it comes to stopping terrorist funding. Most terrorist organisations get their funding through a variety of illicit activities such as extortion, human trafficking, counterfeiting, drug trafficking, and illegal taxation. After engaging with money launderers to hide their financial assets and funding sources, terrorists then exploit the vulnerabilities of the global financial network to move these funds without being detected. 

At SIBOS this year, lively debates and discussions are fuelling further innovative solutions to cutting off the funding terrorists.

A global outcry and plan of action

As state leaders, law enforcement officers and civilians alike hastily search for solutions to suppress terrorist threats, more is expected of financial institutions to help tackle this threat. Prompted by recent attacks in Europe, world leaders recently gathered at a G20 summit in China this September and set a six-month deadline on formulating a strategy to stop the flow of money that finances terrorist activities. This was the latest in a series of summits to develop a unified plan to fight international terrorism.

In February this year, the European Commission published an Action Plan to cut off the ‘resources that terrorists use to carry out their heinous crimes’. The Commission’s plan proposes a number of amendments to strengthen the Fourth Anti-Money Laundering Directive. For example, it recommends specifying the checks required for transactions involving high-risk jurisdictions, as well as increasing verification requirements for anonymous payment systems. However, these are just two of the changes.

The widening of verification requirements on pre-paid cards in particular, which the terrorists in Paris last year are suspected of using, will help stop individuals illegally buying and transporting lethal weapons across Europe. Until now, terrorists have been taking full advantage of the evolving digital payments industry. As such, detailed transaction monitoring, particularly which payment methods are being used, will be essential for identifying suspicious activity going forward. 

The UK government also announced its own action plan, which most notably intends to reform the SARs (suspicious activity reports) regime to take a more efficient and intelligence-led approach. It is clear that the pressure to tackle risk is intensifying, and the focus is now on developing systems to prevent terrorist funding. 

What does this mean for banks?

The expectations of banks’ controls for combatting financing of terrorism (CFT) are growing – as are the penalties for failure to comply. The US and UK regulators have shown they are willing to levy heavy fines, even without evidence that a criminal transaction has taken place.

The consequences for compliance professionals are also increasing. Notably, the introduction of the Senior Managers Regime in the UK clarified and enforced individual accountability in the banking sector – putting compliance professionals under the spotlight.

However, increasing costs associated with compliance, combined with difficulty finding suitable staff to manage these measures, continues to plague the industry. In addition, AML bodies and finance firms need to review the people, states and activities that could present high levels of risk, adding to the pressure on Counter Terrorist Financing systems.  Most importantly, though, the now prominent ‘lone wolf’ attacks require little money and could be funded legally – limiting opportunities to spot suspicious movements of money.

In response to this, banks are deploying a data driven approach. By using intelligent technology to flag high-risk activity, they are able to automate much of the work and alleviate some of the staffing shortages. More than that, a more comprehensive analysis of perpetrators’ financial activity following recent terrorist attacks is making systems more effective, especially when combined with data from publicly available sources.

As terrorist groups thrive and succeed on innovation, financial institutions, government bodies and law enforcement must collaborate to develop new strategies to stay ahead. Data, technology and analytics combined are powerful tools, and if utilised, will play an integral part in tackling this global threat.

By Thomas C. Brown, Senior Vice President, Global Market Development and U.S. Commercial Markets, LexisNexis® Risk Solutions.

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