Money-laundering has hit the wires. Money launderers are hiding cash within the country's enormous electronic payments network, and regulators are paying attention.
Financial institutions are "lax" in their scrutiny of wired money-laundering, failing to regularly review their wire transfer activity for scams, according to a 2001 Senate report on international correspondent banking. In response, under the Bank Secrecy Act (BSA) regulators will crack down hard this year on banks and credit unions that aren't combing their cash wire histories for discrepancies, said Scottsdale, Ariz.-based Cornerstone Advisors.
The Federal Financial Institutions Examination Council released the Bank Secrecy Act/Anti-Money Laundering Examination Manual in June, effectively putting the compliance burden on CUs and banks.
The electronic payments system, carrying a continuous criss-cross of money transfers, is the perfect foil for illegal cash. Criminals wire cash between several institutions until the original source of the money is lost, in a laundering step called "layering."
What's Being Done
To combat layering, North Island CU has reviewed incoming and outgoing wires transfers for three years, said Roy Hood, veteran anti-fraud expert and security administrator for the $1.3-billion CU. "We've designed our own internal system for compliance with anti-money laundering," Hood explained. "You have to determine what's normal and expected for each account and then look for deviations."
North Island's system tests transactions from divergent systems across the enterprise, including international and national wire transfers and ATM and branch deposits. But the legwork required for transaction testing is getting out of hand, Hood continued. "With the sheer volume and manual process involved, credit unions need to implement an automated anti-money laundering program," Hood said.
North Island is looking at an SQL server-based solution that imports data daily from multiple channels to report suspicious activity, he said.
Transaction testing for money laundering is strengthened by North Island's identity verification process, Hood added.
North Island moves beyond the ChexSystems, Inc. hit list and verifies new accounts with the eFunds ID Verification and FraudFinder tools, he said. "eFunds gives us a detailed report of the applicant, such as where else and when the applicant applied, what data was provided at the time of application, whether the ID provided was a primary ID and if it matches the configuration of the state listed," Hood said. "We get an SSN validation, such as when that SSN was listed and in what state. We also find out if a person has simultaneously applied for an account with us and for an account at another institution."
Credit unions shouldn't rely solely on credit bureau files to check member background, he said. "Subscribe to one of the eight different information warehouses that updates its database daily and crosscheck your data for variances."
North Island uses the web-based AutoTrackXP of Boca Raton, Fla. to cross-reference member data, including addresses, IDs, phone listings, court records and assets.
CUJ Resources
For info on this story:
* North Island CU at www.myisland.com
* Money Laundering information at www.moneylaundering.com
* Financial Action Task Force at www.fatf-gafi.org
* eFunds at www.efunds.com
* AutoTrackXP at www.autotrackxp.com
