IS BANKING BEST PRACTISES INSUFFICIENT TO DETER AML/CFT ?

Buried in this week's  articles detailing that alleged US Diplomatic cables identified Arab Bank as a facilitator of payments for illegal weapons of mass destruction/ballistic missile shipments, involving North Korea, Iran and Syria, was a curious, anonymous opinion. The writer, ostensibly an American diplomat, opined that the bank may have been an unwitting tool of North Korea.

What he is reportedly saying is that the bank failed to identify the aliases and front companies employed by North Korean financial professionals. What's wrong with this picture ? I am sure that the bank will tell you that they maintain both AML software, and a leading database for high-risk individuals and entities. This, unfortunately, is obviously not enough to identify determined (and talented) money launderers.

Orthodox banking best practises simply does not work against imaginative money launderers. What does work, in my humble opinion:

(1) Follow the lead of America's biggest financial institutions, and acquire access to ALL the major databases of high-risk individuals & entities. What one database, even the best, has omitted, may be covered in a lesser-known competitor. Take them all, and disregard the cries, from management, that there is duplication. If you catch only one major money laundering attempt with the information, you avoid a potential multi-million dollar fine from regulators.

(2) Create an in-house Financial Intelligence Unit, and place as its commander a former/retired law enforcement agent with actual money laundering investigative experience, or a former money launderer, if you can find one. You need someone who is qualified to perform Enhanced Due Diligence, both for the results you will get, and to lessen the burden upon your compliance staff; They have enough on their plates.

(3) Teach your compliance staff the actual techniques of money laundering. They cannot interdict, on a real-time basis, a money laundering scheme if they do not recognise it.

(4) Make sure that your compliance staff is updated, at least weekly, on region-specific emerging threats, so that they know what new issues to look for.

If you elevate your compliance programme to the level at which it becomes effective, you reduce the risk that money launderers will be able to move their funds into, and through, your bank; Good luck.