Your Money Under More Scrutiny By Manu Joseph Story location: http://www.wired.com/news/privacy/0,1848,67249,00.html
02:00 AM Apr. 26, 2005 PT Pressured by anti-terror laws, banks will be spending billions of dollars over the next few years on software to counter money laundering. The software will automatically track suspicious financial transactions, but it will also monitor millions of innocuous ones, and may make it harder to cheat on your taxes. Thanks to the stringent requirements of the Patriot Act, enacted after 9/11 to choke the supply of terror funds, and the unambiguous threats of steep fines and even imprisonment of bank directors if their organizations facilitate money laundering, U.S. financial institutions are very enthusiastic about installing anti-money-laundering software. Between 2005 and 2008, American banks are forecast to spend about $14.7 billion on anti-money-laundering software, hardware, maintenance and other compliance-related activities, according to Neil Katkov, a Tokyo-based analyst with Celent Communications. Europe and Asia are expected to spend over $11.6 billion during that period. By 2006, 94 percent of large financial institutions in the United States will have installed anti-money-laundering, or AML, technologies, according to Celent. Already, the United States is the global driver of anti-laundering software. And the number of transactions reported to government agencies, like the United States' Financial Crimes Enforcement Network, is growing fast. In 2004, banks reported 14.8 million transactions to FinCEN. That's 600,000 reports more than in 2003, according to FinCEN's annual report for 2004 (.pdf). "AML software will change international banking forever," said Suheim Sheikh of SDG Software, an Indian software firm hoping to tap into the big new market. "Governments across the world will have their eyes on bank customers," he added. "Since the software can monitor so many accounts, so many transactions, all kinds of people will be scrutinized, even those who in theory are just regular people. By default, not just money laundering but anything that violates the law, like tax evasion, will be hard to hide." As a consequence of AML surveillance, even citizens with no criminal intent or ties will have to become more efficient law abiders, bank officials said. Small breaches of the law, or just indifference, will no longer go unnoticed. "Chances are that most of the time the software will catch not a money launderer, who is always wary, but a regular person," said one bank official who did not want to be named. "If you got a fat birthday gift from your brother who works in the Middle East, would you like to get calls from the bank or the government asking for an explanation? In theory, that can happen." Even small transactions may be flagged as suspicious. Terror funds are known to be small, as the withdrawals and deposits of 9/11 terrorists showed. Being small does not mean being invisible. "Any unexplained deposit will get you calls from the bank or the authorities, and you better have the correct answers," said Cherian Varghese, chairman of Union Bank of India. Installed at a large bank with several branches across the world, a comprehensive anti-laundering system will monitor millions of transactions every day. Typically, an anti-laundering system pulls in customer data; classifies each into varying levels of suspicion, from high risk to low; builds patterns of customer behavior; and searches for anomalies within those patterns like sudden surges in funds or huge withdrawals. The software also keeps a lookout for blacklisted names, or "specially designated nationals," in the parlance of the U.S. government, and takes note of transactions from countries that are perceived to be hostile to the host nation. The software reports suspect transactions and customers to bank officials, who then forward the information to the appropriate government agency, like the FinCEN. "A good AML software is a very complex tool," said Hanuman Tripathi, managing director of InfrasoftTech, another of India's software vendors eagerly eyeing the AML market. "Its job is not to churn out data. Instead, it makes intelligent use of data." For example, Tripathi said, the software will remember that a customer is a 30-year-old engineer who is paid on the fifth of every month. "It will study the profiles of other engineers in the same age group and build a pattern based on common traits like, say, the monthly periodicity of salary," said Tripathi. "If another customer comes along, says he is an engineer and receives deposits every week, the software will raise what we call a red flag. He is suspect." InfrasoftTech claims to have installed the largest AML project in the world, linking more than 1,000 branches of Bank Rakyat Indonesia, a large banking institution owned by the Indonesian government. According to InfrasoftTech, the software monitors 1.5 million transactions a day and 18 million customer accounts, roughly 80 percent of the bank's accounts. A tricky aspect of anti-money laundering is that government regulations designed to curtail it are public knowledge. "In fact, in anti-money-laundering seminars, a lot of people in attendance are launderers themselves because they want to know how the system is trying to nab them," said Colin Lobo, associate director of international audit firm KPMG. Launderers constantly try to evade the traps laid out for them. For example, in the United States, all transactions over $10,000 have to be reported to the FinCEN. A savvy launderer will break a big transaction into a series of smaller transactions, each limited to $9,500. Good AML software is wise to such tricks. "The software searches for such behavior." said Parth Desai of Ace Software. "It will think like (a launderer)." In the future, AML software is expected to grow broader in its reach, helping banks and governments across the world share data with each other. "Not only money launderers, but a fair number of ordinary citizens as well would rather that governments and banks not have this kind of reach," said Celent's Katkov. End of story You are a subscribed member of the infowarrior list. Visit www.infowarrior.org for list information or to unsubscribe. This message may be redistributed freely in its entirety. Any and all copyrights appearing in list messages are maintained by their respective owners.
