Growing Financial Crime Threats: New Payment Methods, Identity Theft, and Eastern Europe

12 November 2008

New types of payment methods, including mobile banking, pre-paid cards, and “virtual world” transactions, are expected to be a hot area of regulatory interest, according to a new survey of senior anti-money laundering (AML) compliance officers in North America and Europe, conducted by risk and compliance specialist Fortent. Survey respondents also cited identity theft as “presenting the greatest emerging threat” to their institutions in the area of financial crime.

“The expansion of payment platforms, while good for business, poses new risks on both the regulatory and security fronts,” says Ed Baum, Fortent’s Chief Marketing Officer. “Our survey reveals that financial institutions are acutely aware that they must respond to these emerging threats.”

“Financial institutions are finalizing their budgets now for next year, and the question on everyone’s mind is how they are going to tackle these new threats when staff, technology, and training resources are already stretched,” he adds.

The survey’s key findings about financial crime threats include:

• Identity theft – Cited most often by respondents (52%) as the greatest emerging financial crime threat, followed by:
o “Virtual world” payment systems (44%)
o Electronic checking (40%)
o Employee fraud (32%)
o Stored value cards (28%)

• New payment products – When asked in which areas they expected to see greater regulatory interest over the next five years, 78% cited new payment products, including payment cards, mobile payments, and “virtual world” transactions. Forty-three percent (43%) also expected heightened interest in trade finance.

• Retail banking – Still tops compliance officers’ list as a money laundering concern (77%), due primarily to high volumes. One respondent also explained the pressure to open more accounts: “Branch personnel...are incented to open accounts in volume to meet their goals, but fail to conduct the proper due diligence required.”

• Geographic threats – In identifying particular geographic threats, Eastern Europe (excluding Russia) leads the world as the region that has experienced the biggest increase in suspicious activity related to money laundering, according to respondents. This region was followed by Russia, Middle East/North Africa, and the rest of Africa.

In addition, the survey showed other trends facing compliance departments today:

• There is distinct movement in organizations toward automation and standardization of compliance systems, as 70% of respondents cited a push to further automate and standardize their systems.

• Bank Secrecy Act (BSA) exams pose an ongoing challenge for financial institutions, with 71% of respondents identifying the frequency of and preparation for exams as the biggest challenge.

“Staying ahead of criminals is always challenging, and it is even more so in this economy,” says Ed Baum. “But banks know that reducing their exposure to financial crime risk – both from a regulatory and a financial perspective – is essential to staying in business.”

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