AML CHALLENGES
N
o matter how different their size,
geographical location, background
or area of expertise, criminal organizations that target financial institutions
take advantage of gaps in employee training
and communication and the pressures that
bank employees face. Despite their usual
lack of sophisticated knowledge of the Bank
Secrecy Act (BSA) and the attendant antimoney laundering/Know Your Customer
(AML/KYC) issues confronting financial institutions, criminals rely on their understanding
of human nature and how best to exploit it.
Four areas where institutions should be
especially wary are: the on-boarding process,
responding to reports of branch transactions,
compromising of employees, and interacting
with the call center. Fact patterns and interviews from several long-term investigations
and prosecutions of these groups illustrate
the problems and provide solutions to make
your institution a less likely target.
On-boarding: Mixed messages
at the branch
Branch personnel are under constant pressure to open new accounts. Employees can
be rewarded and penalized depending on
their success or failure at this endeavor.
While under this enormous pressure, branch
personnel are also required to attend training
in AML/KYC policies and procedures,
including those related to the on-boarding
process. The pressure and incentive to open
accounts does not always reconcile well
with the AML/KYC policies and procedures.
Criminal fraud rings take advantage of this
conflict by convincing honest employees —
or aiding dishonest ones — to open accounts
for them in violation of bank policy.
Examples of how criminals fraudulently
open accounts include:
1. A bank where personal bankers were
permitted to leave the branch without
supervision and venture into ethnic
communities to sign up new accounts. The
bankers were responsible for examining
all identification documents and verifying
information.
2. A branch manager who allowed an
account holder at the bank to bring in
the identity documents of other people in
order to open accounts for them.
3. Personal and business accounts opened
for the same person using different names.
Account holders claimed that they were
known by other names in the international
community.
4. Accounts opened in the names of different
and unrelated people, who nonetheless
share the same phone number, employer
or address.
5. Business accounts opened where the business addresses do not exist or are post
office boxes.
In each example, numerous accounts were
opened. Shortly after being opened, the
accounts were used to commit credit card
fraud, business and personal loan fraud and
money laundering. Because of the number of
accounts opened, the criminal ring was able
to move less money through each account
and attract less unwanted attention. By the
time the AML systems flagged the accounts
and the banks moved to close them, the
fraud ring had stolen several million dollars
in unpaid credit card charges and loans from
each institution.
Many industry officials have stated that, as
there is no risk of loss to the bank during the
on-boarding process, the transaction is not
inherently risky. As seen above, however,
once a criminal organization has infiltrated
an institution, their capacity for fraud is
great. Moreover, this fraud will likely extend
far beyond the bank where the account is
domiciled because the next institution will
rely on the fact that the criminal has an
account at one bank in deciding whether to
allow him to open an account, or get a loan at
their own. One bank’s KYC failure can, therefore, adversely affect others.
Communication gap: AML departments
and the front line
Branch tellers and their supervisors are the
first to know when an account holder has
requested something unusual or provided an
explanation that does not make any sense.
They are familiar with trends in their area and
they interact daily with potential criminals,
honest account holders and each other. Once
they sense something is amiss, the branch
generates an alert report. In most cases,
however, that report is not sent to investigations but to the AML and/or compliance
department to determine whether any action,
including the filing of a SAR, should be taken.
Criminals take advantage of this by completing
their frauds as quickly as possible.
For example, one fraud ring specialized
in obtaining Home Equ