ACCOUNT OPENING REMAINS THE MOST CRITICAL TIME FOR COMPLIANCE TO IDENTIFY MONEY LAUNDERERS AND BAR THE DOOR BEFORE THEY CAN EXPLOIT YOUR BANK

There is often a split of opinion among compliance officers tasked with AML duties regarding this important issue; where are you best able to identify, and therefore interdict, money launderers seeking to operate in your bank, at account opening, or during transaction monitoring?

As a former banking attorney-turned career money launderer-turned compliance officer, I can tell you that your Customer Identification Procedure (CIP) phase is where your best chances of success lie, for two important reasons:

(1) An effective CIP program, employing platforms that will reach out globally to snare information on your client, is a continuing event,what we call Perpetual KYC, or Continuous Due Diligence, as we have described in our recent article " The use of Artificial Intelligence and Machine learning in Perpetual KYC." It's operation survives your original approval of the client.

(2) Transaction Monitoring on the other hand, using traditional methods, often delivers the same unacceptable results that you used to get with your legacy CIP system: False Positives that require labor-intensive examination to them rule out. Even next-generation transaction monitoring will still spit out some false alarms, albeit a smaller number.

Money launderers are known to intentionally engage in small but repeated transactions sent out so that they can ascertain what triggers your transaction monitoring response, with a subsequent inquiry for information or feedback from them, or other actions that the bank takes, just to see what the ceiling of acceptable conduct is at your bank. They then can construct a workaround or scheme adapting what they have learned. Remember, these laundrymen often have prior hands-on financial institution experience, or are working with someone who does.

Account opening remains your earliest, and in my humble opinion, best opportunity, as even the best money launderer has skeletons or red flags in his or her background, past or present, and if you are reverifying, using an automated system, the flaw will show itself, sooner rather than later. As the gatekeeper, you are best served by stopping the laundryman at the door, rather than finding out who he is through transaction monitoring, and forcing him to seek greener pastures elsewhere.

This means that there will never be transactions that regulators, or law enforcement investigators, might uncover at a later date, while looking at, or indicting, your now former client. Stop them at the door, please, through effective CIP.