Tackling money laundering with effective technology

Described by the Guardian as the "biggest leak in history", the Panama Papers revealed to the world how complex ownership structures can help individuals and organisations dodge tax obligations, and hide links to organised crime.

In an industry already facing numerous anti-bribery and corruption regulations, from Customer Due Diligence (CDD) and Know Your Customer (KYC) to the EU's fourth Anti-Money Laundering (AML) directive, the scandal has brought levels of scrutiny and attention never seen before.

"Financial institutions are having to take this much more seriously," says Micah Willbrand, global head of anti-bribery and corruption solutions at NICE Actimize, "not just from a regulatory perspective but also from a reputational, public perspective."

At the heart of current efforts to curb money-laundering and terrorist-financing activities are new rules on beneficial ownership, where an entity enjoys the benefits of a particular asset despite the title being held in somebody else's name.

"A lot of these organisations have been hiding behind shell and shelf companies," Willbrand explains. "We have seen that a lot in the news, particularly in real estate and other financial transactions. They are what we call anonymous holding structures, where people in certain tax jurisdictions create these organisations that do not claim any individual owner.

"What the regulations - which are starting to trickle through in 2017 and will really take hold in 2018 - are doing is trying to push out these anonymous holding structures. Looking at the market over the past year, there has been a lot of work trying to get more information around owners and individuals who are banking with financial institutions."

The key to dealing with this regulatory landscape is harnessing new technology, says Willbrand. "What organisations and financial institutions are now doing is implementing technology to start gathering the data required by the regulations," he says. "At NICE Actimize, we are working on making tools available to achieve that, be it through various questionnaires, data gathering, data handling or different workflows."

Streamlined processes

The need to collect data and comply with new regulations should not compromise the need for banks to provide clients with an enjoyable customer journey, however.

"From a technology perspective, we are trying to make it a lot easier for financial institutions to gather information so people aren't having to submit the same information two, three, potentially four times to various departments," Willbrand says.

"As you can imagine, if you've ever applied for a mortgage or any kind of high-end financial product, there are lots of documents you have to provide. It can take a lot of time and effort, and is not a very pleasant experience for a lot of customers. At the back end, we are trying to stitch things together so that there is a more common experience for the financial institutions, which can then offer a much smoother customer journey."

In the past, encouraging banks to focus on customer experience wasn't the easiest thing to do, Willbrand admits. "Banks aren't famous for having the best customer experiences out there and a lot of that comes down to the actual profitability of customer bases," he says. "A lot of the larger banks don't view retail banking as very profitable.

They make more of their money on some of the exotic things you hear about in the news that nobody knows how to explain."

But interest in customer experience has certainly increased over the past few years as technology has improved and banks have begun to acknowledge the benefits to their businesses. "They are starting to take hold of that traditional business sense, which is to get someone on board, and then do the upsell and cross-sell," Willbrand says.

"You also have a lot of organisations and technology companies like NICE Actimize that are enabling them to do this. We are giving them the tools to get customers on board in a very pleasing manner. They tell their friends and families about it, they go on Twitter and other social networks, and say that they had a good experience. In turn, you start to get some of that social, reputational confidence back into the financial institution."

Harness the technology

One of the most interesting technologies enabling good customer service in the compliance area and elsewhere is distributed ledger, defined by Investopedia as "a database that is consensually shared and synchronised across a network spread over multiple sites, institutions or geographies".
"When we talk about distributed ledger, the key thing we see is what is called the immutable record of a distributed ledger," Willbrand explains. "What that means is once an agreement has taken place within a distributed ledger, it can't be changed - it's unalterable. But it's also open and saved within the ledger, which is why it's referred to as 'distributed'. So instead of having to give your information three or four times, with a distributed ledger all areas of the bank can tap into it and no one can make any modifications to it without it being recorded."

Another technology with the potential to transform the financial services industry, including compliance, is robotics process automation.

"There are many manual tasks that are very repetitive," says Willbrand. "When banks are training their analysts and bringing them on board, they have them go through a very strict regime. What we are trying to enable the robotics to do is to automate a lot of those very basic tasks, which will free up time and enable staff to focus on the really difficult tasks that require human intervention."

Among other things, this has the potential to significantly reduce cost. As things stand, tier-one banks, for example, are forced to hire a huge number of analysts to deal with tens of thousands of compliance alerts every day, most of them false positives.

"The common joke among professionals in this area is that AML gets a blank cheque," says Willbrand. "For years, this has been the case. Financial institutions, under the threat of regulators, have just been hiring thousands and thousands of analysts. Now, shareholders are starting to say that maybe we shouldn't be spending all of this money and are becoming concerned about the costs involved.

"We do annual research on CDD and KYC types of situations in financial institutions, for example, and what we found this year - for the first time - is that 38% of our respondents said their highest priority is now training their existing staff, compared with 36% for whom hiring more analysts is the priority.

"This really is a sea change and the technology tools that we have been developing at NICE Actimize have been helping. For example, when banks have a common case management system to work the alerts through, they can start to hone their training programmes with their existing staff."

Win-win situation

Looking forward, Willbrand says the next generation of AML compliance will entail the convergence of two different but equally important areas: transaction monitoring and CDD.

"When you look at AML, the 2000s were mostly about transaction monitoring: finding where the money is going and who is taking it," he says. "The 2010s can be defined as the CDD area. We have sorted out where the money is going to and from, and are trying to find out who is sending it. At the moment, both of these areas are still fairly siloed in banks. So, I think what we will see in the 2020s will be the convergence of the transaction monitoring and CDD areas."

Put together with new technologies coming through, including robotics, big data and distributed ledger, "the future for AML professionals working in banks looks a lot brighter," Willbrand says. "No longer is it going to be a situation where you have to hire thousands and thousands of people," he adds. "You can start to depend on technology to help make the situation better, improving everyone's experience, from the bank right through to the customer."