When you think of money laundering, images from Mafia movies may come to mind. But the reality of the situation is that money laundering impacts banks and financial institutions across the country – and all over the world – each day.
Consider this fact: According to the International Monetary Fund, money laundering accounts for between $600 billion and $1.6 trillion – or roughly 2.7% of GDP – in economic activity annually. And when it’s uncovered, it typically results in a damaged reputation and a large financial burden on the victim.
Who regulates and supervises banks and financial institutions in regards to money laundering?
Federal banking agencies are in charge of regulating and supervising United States banks, which means it’s their jobs to ensure each bank complies with the Bank Secrecy Act program, which establishes program, recordkeeping and reporting requirements.
In addition, under the USA Patriot Act, an anti-money laundering compliance program must be established by certain financial institutions. Other regulations banks and financial institutions must comply with include the Money Laundering Control Act of 1986, the Money Laundering Suppression Act of 1994, and the Suspicious Activity Report. These laws ensure immediate reporting of any suspicious activity.
What happens if you don’t comply with the regulations?
Failure to comply can be expensive. In fact, a multinational banking and financial service is currently being investigated by government authorities for possible anti-money laundering law breaches. Legal costs to deal with these issues have amounted to almost $4 billion. Proper anti-money laundering policies and compliance with them are therefore crucial to the success of banks and financial institutions.
How can your organization combat money laundering?
Thanks to technology, anti-money laundering risk management has become more sophisticated than ever, as well as easily integrated into infrastructures. Some of the emerging technologies available today include analytics-based detection, next generation link analysis, complex events processing, and real-time processing. These technologies use parameters such as Bayesian and Neural networks for detection, to analyze big data, form links, and filter data and process transactions in real-time. Other technologies include enterprise governance solutions, anti-stripping technology, anti-money laundering and fraud platform coverage, and integrated compliance with the Foreign Account Tax Compliance Act.
These technologies allow monitoring from a single location, detection when there is stripping or manipulation of wire transfer data, and fraud and other money activity detection. They also enable banks to report U.S taxpayer-owned financial accounts and foreign entities.
Besides utilizing emerging technology and complying with all regulations, what else can you do to minimize the impact of money laundering at your organization?
First, you must be proactive and have an independent firm analyze your controls, network and testing procedures. Second, there needs to be an independent role from the finance and IT function, since it is a business problem, not an IT problem. Also, keep in mind: you are only as strong as your weakest link. To eliminate your weakest link, it’s imperative to stay on top of current trends and best practices. Lastly, you must ensure that the Board of Directors is actively involved in the entire process. Integrating these factors with the available technology and compliance programs are vital to the success of your organization, ensuring you don’t fall victim to money laundering.