Anti-money laundering guidelines came into prominence globally after the September 11, 2001 attacks and the subsequent enactment of the Patriot Act in the United States and the establishment of the Financial Action Task Force on Money Laundering. By 2010 many jurisdictions globally required financial institutions to monitor, investigate and report transactions of a suspicious nature to the financial intelligence unit in their respective country. An entire industry developed around providing software to analyze transactions in an attempt to identify transactions or patterns of transactions, called structuring, which requires a SAR filing, or other suspicious patterns that qualify for SAR reporting. Financial institutions faced penalties for failing to properly file CTR and SAR reports, including heavy fines and regulatory restrictions, even to the point of charter revocation. Some jurisdictions, such as Singapore, require financial institutions to conduct an independent assessment of technology solutions used in anti-money laundering procedures, if such financial institutions allow for non-face-to-face onboarding of customers.
Types
There are four basic types of software addressing AML business requirements:
Transaction monitoring systems, which focus on identification of suspicious patterns of transactions which may result in the filing of suspicious activity reports or Suspicious Transaction Reports. Identification of suspicious transactions is part of the KYC requirements.
Currency transaction reporting systems, which deal with large cash transaction reporting requirements
Customer identity management systems which check various negative lists and represent an initial and ongoing part of Know your customer requirements. Electronic verification can also check against other databases to provide positive confirmation of ID such as (in the UK: electoral roll; the "share" database used by banks and credit agencies; telephone lists; electricity supplier lists; post office delivery database
Compliance software to help firms comply with ; retain the necessary evidence of compliance; and deliver and record appropriate training of relevant staff. In addition, it should have audit trails of compliance officers activities in particular pertaining to the handling of alerts raised against customer activity.
Transaction monitoring software
These software applications effectively monitor bank customer transactions on a daily basis and, using customer historical information and account profile, provide a "whole picture" to the bank management. Transaction monitoring can include cash deposits and withdrawals, wire transfers and ACH activity. In the bank circles, these applications are known as "AML software". Each vendor's software works somewhat differently. Some of the modules which should be present in an AML software are:
The definition for Customer Identity Management Systems varies in different regions and jurisdictions. Most vendors include the following features in their solutions:
There are solutions based on artificial intelligence, which are characterized by much better efficiency in detecting money laundering, comparing to rule-based approach. Especially, deep neural networks are able to discover complex interdependencies between various activities performed to launder money. This translates into fewer false alarms and more accurate detection. In the near future, transaction monitoring systems will be based on machine learning rather than on rules and scenarios.
