Add anti money-laundering (AML) software to the list of must-have technologies for credit unions.
"The NCUA was very adamant that we put in an automated system to review wire transfer activity," said Rick Stewart, compliance officer at First Peoples Community FCU here.
That NCUA directive, resulting from an audit at the $150-million credit union in January, is part of a trend across the financial services industry: regulators are all but mandating AML technologies to fight illegal activity and comply with the Bank Secrecy Act and the Office of Foreign Assets Control, according to an August report published by Celent, the Boston-based advisory firm for financial institutions.
Most recently, credit unions are under the gun to promptly alert the Board of Directors to Suspicious Activity Reports, due to a recent change in NCUA regulations.
"We can't just depend on human intelligence anymore," Stewart said.
And core processing systems weren't built to deter money laundering.
"Our core data system is insufficient for providing the information that regulators want," Stewart explained. "For example, our core system isn't able to provide aggregation or monitor structuring. And we couldn't set parameters to monitor at smaller dollar amounts, such as $3,000."
Since July, First Peoples automatically identifies suspicious activity, such as high wire volume, high dollar amounts, or wires to high-risk countries, using an electronic funds transfer management system called Wiz Sentri: Wire.
First Peoples is one of three credit unions using Wiz Sentri: Wire, offered by PCi Corp. PCi, a compliance technology provider in Waltham, Mass., and part of Wolters Kluwer Financial Services.
"The federal auditors love that I can generate weekly reports to look for trends and patterns instead of just taking my word for it," said Stewart.
Soon, First Peoples will also run Wiz Sentri: ProfilePlus, the PCi transaction monitoring module. Whereas the wire transfer management system was up and running immediately, ProfilePlus first collects member transaction data over six months to formulate member profiles.
Then, the system can go to work using the profiles and risk categories to identify abnormal or suspicious activity.
ProfilePlus supports "a good Customer Identification Program and greater due diligence on higher risk members, which are valuable in detection of money laundering," said Patrick Roch, director of financial intelligence, PCi.
Wire activity is bustling at First Peoples Federal Credit Union. Incoming wires for 2006 are up more than 30% from the 342 transfers received last year, Stewart estimated. And members will send 300 wires this year, up 25% from last year, he said.
The increase in activity made it hard for First Peoples to catch money launderers using the old-fashioned method of keeping their eyes peeled.
"Before we had Wiz Sentri: Wire, I just told tellers and representatives that if they saw a suspicious transaction, they should send me an email to report it," explained Stewart.
"That approach does have some weaknesses," he said.
Still, Stewart doesn't advocate an anti-money laundering campaign that relies solely on automated monitoring.
"Technology and human insight complement each other," he said.
Even so, criminal activity can slip through the cracks, Stewart continued.
"It really requires more than one person to look through the weekly activity reports on 25,000 member accounts, and right now, there's just me. You're never going to be able to catch it all."
Stewart also looks forward to using the PCi software to prevent fraudulent investment schemes.
"We got burnt by a Ponzi scheme," he said. "The tools will help prevent these incidents in the future by seeing deposit patterns."
CUJ Resources
For info on this story:
* www.firstpeoples.com
* www.pciwiz.com
* www.ncua.gov/RegulationsOpinionsLaws/RecentFinalRegs/F-748C.pdf
