Leveraging Technology and Big Data to Improve and Protect Money Transactions

By Stephen Ufford | 27 July 2015

The raid of a Geneva subsidiary of HSBC in the wake of money laundering allegations is just the latest example of how difficult it is for financial institutions to root out bad actors like terrorist groups, drug traffickers and human smugglers.

This isn’t even the first time HSBC has made headlines for problems with money laundering. The bank was accused in 2012 of failing to catch more than $670 billion in wire transfers, and more than $9.4 billion in purchases of U.S. currency, from its subsidiary in Mexico - all associated with money laundering. U.S. authorities estimate drug trafficking organisations send between $19 and $29 billion annually to Mexico from the U.S. and gangs reap some $10 billion a year from millions of illegal border crossings into the U.S. from Mexico, according to the United Nations. It is major banks - like Bank of America, JPMorgan Chase and Wells Fargo - that are being used as financial conduits for the smuggling industry.

Although regulatory oversight of financial systems has been stepped up over the past several years, the sheer volume of trade and commerce across borders make it a near-impossible task to detect fraudulent or suspect accounts. That failure costs banks billions in penalties.

Some of the blame for this lies with the rules governing the movement of money into and out of financial institutions, which are unrealistic in today’s world. Many of those regulations were penned in the 1980s; 40 years later, they don’t make sense. These rules were written for blue-sky scenarios, ones where financial institutions have all the tools they need to be compliant. But they don’t, because the financial world looks very different than it did even a decade alone, let alone 40 years ago.

Take WeChat, a Chinese chat app introduced in 2013. Last month, during Chinese New Year, WeChat users sent each other over one billion virtual red envelopes filled with real cash to celebrate the Chinese New Year. Users of Alipay Wallet from Alibaba, gifted $642 million in cash to their friends during the holiday. Those who crafted anti-money laundering regulations decades ago never envisioned a world where this would be possible.

We need technology and big data-based solutions that enable financial institutions to monitor these modern ways of moving money. Banks now face global problems, no matter how local they are, because their funds are being moved digitally around the planet. It’s enormously difficult for a bank based in Canada, for instance, to verify the identity of a person receiving money in Mexico or Nigeria, without having a branch there. A crucial step in this fight is to make sure banks know their customers and the risks they represent.

The technology to do that is available now. Technologies for screening wire transfers, for example, include knowledge-based systems that use data about money laundering to make inferences about transfers. Link analysis works by identifying relationships among individual accounts, people and organisations and uses readily available data, some of which provide reliable indicators of money laundering activity.  My company created, a bank-grade online identity verification service to help businesses verify a person’s identity leveraging more than 140+ data sources from over 40 countries, so whether someone is transferring money from rural Mexico or Lagos, Nigeria their identity can be confirmed and screened across 26 global watchlists. Our technology enables businesses to verify identities around the world seamlessly via a single Application Programming Interface (API), providing a consistent and normalised set of data fields for integration regardless of the country’s unique data fields. Having a country-agnostic API affords financial institutions an easier way to access identity intelligence from another country, which wasn’t previously available, hence how money launderers and terrorist financers were able to successfully move money around the world undetected.    

It’s very important that financial institutions and money service operators understand their respective responsibilities under the different legislation. Those who breach Know Your Customer (KYC), Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) requirements may be indicted with a penalty of imprisonment and tremendous fines for “reckless disregard” of sanctions.    

Financial institutions, government and businesses need to be integrating and using innovative technologies that allow them to catch criminals before they cause billion dollar problems, and enable good actors to engage in productive commerce. The days when all the information a bank needed to know about a customer was in a filing cabinet are long gone. Technologies exist today to allow banks to harness vast amounts of electronic data and make identity verification fast, accurate and global. The challenge is getting institutions like HSBC to adopt them.

By Stephen Ufford, Founder & CEO, Trulioo

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