Best practices (and worst cases) in monitoring suspicious transactions

The stakes are high – and so are the requirements of the multiple regulatory entities that together spin the complex web of suspicious activity monitoring and reporting (SAR) mandates that financial institutions must comply with today.

In our age of high-value terror financing, sophisticated financial crimes, and ever-evolving money laundering schemes, thwarting the bad guys is nothing less than imperative. For the regulators and law enforcement agencies charged with that task – and for the banks and other institutions that are necessarily the criminals’ primary targets – that makes comprehensive and effective SAR compliance a top priority.

But that, of course, can be easier said than done. For one thing, every financial institution operates in a global economy these days, to one degree or another, and that means navigating the varied reporting requirements of multiple jurisdictions. For another, it means that the businesses have to develop versatile, reliable systems that allow for full compliance without resulting in onerous costs.

It’s getting personal, too

That’s a fine line to walk, but failure to pull it off adequately can lead to not only unwelcome financial and reputational risk for banks but also, more and more, to harsh civil and even criminal penalties.

That was the warning issued last year by Matthew L. Schwartz and Peter M. Skinner writing in InsideCounsel Magazine, in an article that detailed a new appetite on the part of U.S. Department of Justice officials to hold bank executives and compliance officers personally liable for SAR failures. The two, both partners in the Global Investigations and White Collar Defense practice at Boies, Schiller & Flexner LLP, focused on one criminal case in which the president of a small bank pleaded guilty to charges stemming from his failure to have an effective anti-money laundering program in place, a lapse that caused a suspicious $86,400.00 wire transfer to go unreported.

The banker was sentenced to probation and a small fine of $5,000.00 US, but the writers presented it as conclusive proof that the U.S. authorities are newly willing to bring criminal charges against individuals when SAR and AML practices come up short. It’s not difficult to think that other jurisdictions might do the same.

In another case that Skinner and Schwartz wrote of, the former chief compliance officer of MoneyGram International was accused of failing to ensure that the company had an effective AML compliance program in place, as well as failure to ensure that SARs were filed, charges that could end in a million-dollar fine in the ongoing case.

Compliance is the better way

Even the most diligent bank officers, however, don’t often find compliance a simple matter. There are significant hurdles to overcome, because banks, like other businesses, don’t grow in linear ways. Instead, disparate systems are implemented over time and across departments, and data may not be shared in a way and on a timetable that can facilitate recognition of suspicious activity. Such siloed data may be perfectly consistent with some functions, but it presents big risks when it comes to ferreting out suspicious activities and unknown threats that are easily overlooked.

Fortunately, there is a remedy for such siloing, and it comes in the form of holistic transaction monitoring solutions such as those developed by NICE Actimize, a  global leader in systems for fighting financial crime. The key is to fully integrate suspicious activity monitoring in order to break down the silos and gain end-to-end coverage–from detection to reporting, and every step in between.

In general terms, suspicious activity reporting and monitoring can be seen as several basic components working in concert with one another in a holistic approach.

●  Identification is the first step, of course. Most often (and most reliably) the product of a surveillance monitoring system, it can also come about by way of alert and well-trained employees, or an inquiry from outside, such as law enforcement officials.

●  Regardless of how potentially suspicious activity is identified, the management of those alerts requires clearly defined procedures and processes to ensure that all appropriate steps are carried out effectively and efficiently through integrated workflow management.

● Transaction monitoring can be accomplished through an automated solution (Surveillance Monitoring) that targets any number of different types of transactions falling within defined parameters. Surveillance monitoring solutions can track activity and identify unusual patterns.

●  Automated reporting and e-filing as a component of integrated software solutions can ensure accurate and timely compliance with the full range of regulatory agencies in play.

As complex and multi-faceted as SAM/SAR can be, however, today’s solutions offer financial institutions the power to push back hard against would-be financial criminals, and even to discover previously unrecognized risks, all in a cost-effective way that minimizes manpower demand and maximizes accuracy. And with the stakes being what they are, that’s no small feat.