Finding the Dirty Money:
Money Laundering, Fraud and Terrorism

Finding the dirty money and preventing financial abuse

The U.S. Congress estimates that every year, between $500 billion and a trillion dollars generated through criminal activity is "laundered" through international banks and financial institutions. Half of those funds are laundered through banks based in the United States. Since the tragic events of 11th September 2001, funding of terrorism, money laundering and financial fraud have all hit the spotlights.

Governments around the world are making concerted efforts to rigorously enforce existing legislation, and put in place new, more stringent penalties to prevent money laundering and the use of the financial systems to fund terrorism. Without exception it is the financial institution that has to provide the first line of defense – and it is already clear that the onus is on the executives of the financial institution to ensure that every effort is made to comply. Failure to comply is no longer a corporate issue; it is now a personal one. Any penalties will be levied against those executives held responsible for the organization's management. Penalties are already being handed out in the form of imprisonment, fines and associated damage to reputation. The crime – failure to adequately investigate and report upon suspicious banking activity.

In the not too distant past, compliance to the standards put down by regulatory bodies was relatively straightforward. Increased Government involvement, the support of august international bodies such as the OECD and Bank for International Settlements, and the recent US Patriot Act has dramatically raised the effort the financial institution has to make to prevent non-compliance.

Detecting transactions that may be fraudulent, being used to launder money or used as a basis to fund terrorist activity is far from easy. The simple logistics of checking each attempted or actioned transaction and to monitor each contact with the customer is daunting in itself. In addition the criminal fraternity has made the most of the anonymity of online banking, the speed of real-time banking systems, the confusion between business silos as well as the simple convenience of being able to digitally move funds around the globe.

To counter this activity needs a thorough understanding of the business the financial institution is involved in and how it operates, the clients it deals with, and the ability to detect the process by which illegitimate funds can be placed, layered and integrated within the financial markets to give them an air of legitimacy. Inability to understand and address these issues opens the door for dirty money to become clean.
 
Unisys has been at the forefront of providing service-led fraud detection and anti money laundering solutions for the past six years. These services have been provided to, and experience gleaned from, both the police force and leading financial institutions.

Unisys has devised an architecture and rules set that readily enables banks to combat money laundering from within by building upon their current capabilities. Key to the process is the ability to identify the difference between legitimate and illegitimate funds. Unisys flips the equation by analyzing, first, the ebb and flow of transactions in an average – legitimate – bank account. By determining what appear to be "normal" transaction patterns, only then can targets that appear "abnormal" be promoted for more detailed surveillance. In essence, Unisys approach is to create a profile of potentially suspicious accounts that can then be presented in a workbench environment for indepth analysis, collation of information and then onward reporting to the appropriate body. This enables banks to identify and track suspicious funds travelling through their institutions, to build a profile and assist in the decision as to whether the activity to be reported to the judicial authorities.

Over the past five years, the U.S., most European countries have tightened their laws governing illegal financial activity under the principle that if you follow the money – or block the ability to spend it – you'll strike at the heart of international criminal and drug-trafficking syndicates. Virtually all members of the European Union now define money laundering as a crime, while the U.S. has created a new body of law that make it a criminal activity to profit from, or spend, money generated through criminal activity. The OECD's Financial Action Task Force (FATF) has actively encouraged governments across the globe to follow suit.

At present OECD issued a "black list" of nineteen countries – including Indonesia, Israel and such offshore centers as the St Kitts and Nevis, Dominica and Nauru – which were not doing enough to staunch the epidemic of money laundering. Failure to put in place suitable measures to comply with the FATF directives is already having an impact as non-cooperative countries and territories are ostracized from the financial community.

Pressure is also on the world's financial institutions to address tax evasion and the funding of terrorism. Governments and international regulators have recognised the growing problem of tax evasion on a global scale. In the U.S. alone, the Internal Revenue Service estimates that some $70 billion in unpaid taxes is lodged in the world's network of offshore banks. Increasingly, international law enforcement is discovering that the circuitous route of black money is frequently the same, whether from organized crime, drug smuggling or tax evasion. The Unisys system for identifying abnormal transaction patterns is tailored to pick up the signals of the world's growing network of underground financial railroads – whatever their ultimate source of criminality - and thus aid bank's in dealing with the flow of their funds, for which they are increasingly being held accountable.

Funds destined to be used for terrorist activity are going to pose a new problem. Money laundering, fraud and tax evasion involve the source and current use of funds. Determining the future usage of funds requires a new paradigm to be used. Unisys is able to extend the anti money laundering and fraud detection solution and address this challenging initiative through the inclusion of new rules that focus non-profit organizations, charities and other entities whose source and use of assets are difficult to monitor, or those entities whose assets may be exploited and difficult to freeze.

To date, Unisys has provided service led fraud detection and anti money laundering solutions to a range of high-profile financial institutions in the United Kingdom and is poised to undertake some large-scale initiatives and engagements in United Arab Emirates, the Far East, United States, Canada and continental Europe.