monitoring high risk transactions may 11, 2009 why we monitor what we monitor how we monitor does it...

Monitoring High Risk Transactions

May 11, 2009

Why We Monitor

What We Monitor

How We Monitor

Does it work?

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MONITORING HIGH RISK TRANSACTIONS

WHY?

1. Protect against “Bad Guys”:

• Money Launderers

• Sanctioned Parties( OFAC, EU,etc.)

• Terrorist Financiers

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MONITORING HIGH RISK TRANSACTIONS

2. Protect against regulators:

• Policies and procedures

• Automated systems

• Manual reviews

• Training

• Record keeping

• Consistency

• FFIEC Manual

WHY?

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MONITORING HIGH RISK TRANSACTIONS

• Interdiction: OFAC =“Strict liability”

•Monitoring: Risk =Reputation, “reputation is priceless”

•Cost Justification

– Riggs Bank, Lloyds Bank

– Insurance model: Expected return is negative, but pay a premium you can afford to avoid a loss you cannot afford.

Are risk based programs a myth?

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MONITORING HIGH RISK TRANSACTIONS

• Funds Transfer( SWIFT & ACH)

• Capital Markets

• Trade Finance

• Liability Management?

• Checks

• Third party payments

• Vendors, employees

What?

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MONITORING HIGH RISK TRANSACTIONS

• Manual Monitoring

• Automated systems

–Interdiction systems

•Source lists

•Algorithms:

–Stop descriptors

–Phonetic matches

–Fuzzy logic

–Monitoring systems

•Rules Based

•Change based

•Artificial intelligence

How?

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MONITORING HIGH RISK TRANSACTIONS

• Interdiction is the more simple task

• Comparison of three tools on same data

Does it work?

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MONITORING HIGH RISK TRANSACTIONS

92

8

176

184

481 4688343

True Hit

Comparison of screening tools

Single day Funds Transfer

Phonetic (460)

Stop Descriptor (1008)

Fuzzy Logic (5529)

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MONITORING HIGH RISK TRANSACTIONS

•Ratio of alerts to SAR’s;>2000:1

•Ratio of interdiction hits to block/reject;=1000:1

•Regulators seem satisfied

•Lack of objective standards

– Testing bio labs

Does it work?

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MONITORING HIGH RISK TRANSACTIONS

Research & Development Project

• Staffing

– Investigator

– Statistician

• Technology

– Database

– Business Objects ver. XI (BOXI)

• Projects

– Digit distribution

– Business line risk assessment

– Vessels

– Resource optimization