Going undercover

After the events of September 11, financial crime detection and management within the banking industry has had to grow up fast. Reetu Khosla, director of financial crime solutions, Pegasystems, outlines ways institutions can best respond to emerging threats.

Much of the focus on anti-money laundering (AML) came about after the World Trade Centre attacks on September 11, 2001. What was it like for financial institutions at that time trying to get to grips with the new requirements?

Following 9/11, I was working at a large global financial institution and, as of March 2002, we were required to have an official AML programme. The firm had  measures in place, but once AML came into law it was no longer voluntary. In those days however, nobody was sure how to do anything. How were you going to operationalise this [AML]? It covered everything from money movement to securities transactions. For broker/dealers the law was much more complex because Suspicious Activity Reports (SARs) required you to look at post-trade market manipulation and other types of securities fraud violations. Any type of securities fraud comes under AML because it is proceeds from crime.

Were the measures implemented after 9/11 to prevent money laundering and terrorist financing effective?

Where it is effective is sanctions lists, which look at aliases for terrorists. But when you look at transactions pertaining to terrorist attacks such as 9/11, they were not very big transactions. Firms not only have to be able to detect these patterns of money movement but they also have to fulfill sanctions’ regulations in terms of restricting funding to those names contained on sanctions lists. There are different sanctions lists covering a whole range of different things – drug traffickers, non-co-operative countries such as Iran and Cuba, Politically Exposed Persons and terrorist financing. But unless you know something in advance, banks are unlikely to detect money movements relating to terrorist attacks such as 9/11.