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Using Technology to Improve and Protect Bank Transactions

Big-data based solutions can help monitor the way our world moves money from place to place.

The raid of a Geneva subsidiary of HSBC in the wake of money laundering allegations is just the latest example of how difficult it is for financial institutions to root out bad actors like terrorist groups, drug traffickers and human smugglers.

This isn’t even the first time HSBC has made headlines for problems with money laundering. In 2012, the bank was accused of failing to catch more than $670 billion in wire transfers and more than $9.4 billion in purchases of U.S. currency from its subsidiary in Mexico — all associated with money laundering. U.S. authorities estimate drug trafficking organizations send between $19 and $29 billion annually to Mexico from the U.S. And according to the United Nations, gangs reap some $10 billion a year from millions of illegal border crossings into the U.S. from Mexico. It’s major banks — like Bank of America, JPMorgan Chase and Wells Fargo — that are being used as financial conduits for the smuggling industry.

Although regulatory oversight of financial systems has been stepped up over the past several years, the sheer volume of trade and commerce across borders make it a near-impossible task to detect fraudulent or suspect accounts. That failure costs banks billions in penalties.

Some of the blame for this lies with the rules governing the movement of money into and out of financial institutions, which are unrealistic in today’s world. Many of those regulations were penned in the 1980s; 40 years later, they don’t make sense. These rules were written for blue-sky scenarios, ones where financial institutions have all the tools they need to be compliant. But they no longer have these tools, because the financial world looks very different than it did even a decade ago, let alone 40 years ago.

Take WeChat, a Chinese chat app introduced in 2013. Last month, during Chinese New Year, WeChat users sent each other over one billion virtual red envelopes filled with real cash to celebrate the Chinese New Year. Users of Alipay Wallet from Alibaba gifted $642 million in cash to their friends during the holiday. Those who crafted anti-money laundering regulations decades ago never envisioned a world where this would be possible.

We need technology and big data-based solutions that enable financial institutions to monitor these modern ways of moving money. Banks now face global problems, no matter how local they are, because their funds are being moved digitally around the planet. For instance, it’s enormously difficult for a bank based in Canada to verify the identity of a person receiving money in Mexico or Nigeria without having a branch there. A crucial step in this fight is to make sure banks know their customers and the risks they represent.

The technology to do that is actually available now. Technologies for screening wire transfers, for example, include knowledge-based systems that use data about money laundering to make inferences about transfers. Additionally, link analysis works by identifying relationships among individual accounts, people and organizations, and uses readily available data to make call. My own company created GlobalGateway, a bank-grade online identity verification service to help businesses verify a person’s identity using both traditional and cyber identity data sources. Our technology enables businesses to verify identities around the world seamlessly via a single API, providing a consistent and normalized set of data fields for integration regardless of the country’s unique data fields.

Bottom line: Whether someone is transferring money from rural Mexico or Lagos, Nigeria, it’s important for banks to be able to screen and confirm identities across global data sources and international watch lists.

Financial institutions and money service operators must understand their respective responsibilities under different legislation. Those who breach Know Your Customer (KYC), Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) requirements may be indicted with a penalty of imprisonment and tremendous fines for “reckless disregard” of sanctions — not to mention headline risks.

Financial institutions, government and businesses should be integrating and using these modern technologies that allow them to catch criminals before they cause billion-dollar problems, and enable good actors to engage in productive commerce. The days when all the information a bank needed to know about a customer was in a filing cabinet are long gone. Technologies exist today to allow banks to harness vast amounts of electronic data and make identity verification fast, accurate and global. The challenge is getting institutions like HSBC to adopt them.

Stephen Ufford, Founder & CEO of Trulioo, is an identity veteran who founded and successfully sold several consumer data focused startups over the last decade. In 2011, he launched Trulioo, a global ID verification company focused on building trust online, best privacy practices, and financial inclusion. Trulioo aims to solve global problems... (read more)

Using Technology to Improve and Protect Bank Transactions

Big-data based solutions can help monitor the way our world moves money from place to place.

The raid of a Geneva subsidiary of HSBC in the wake of money laundering allegations is just the latest example of how difficult it is for financial institutions to root out bad actors like terrorist groups, drug traffickers and human smugglers.

This isn’t even the first time HSBC has made headlines for problems with money laundering. In 2012, the bank was accused of failing to catch more than $670 billion in wire transfers and more than $9.4 billion in purchases of U.S. currency from its subsidiary in Mexico — all associated with money laundering. U.S. authorities estimate drug trafficking organizations send between $19 and $29 billion annually to Mexico from the U.S. And according to the United Nations, gangs reap some $10 billion a year from millions of illegal border crossings into the U.S. from Mexico. It’s major banks — like Bank of America, JPMorgan Chase and Wells Fargo — that are being used as financial conduits for the smuggling industry.

Although regulatory oversight of financial systems has been stepped up over the past several years, the sheer volume of trade and commerce across borders make it a near-impossible task to detect fraudulent or suspect accounts. That failure costs banks billions in penalties.

Some of the blame for this lies with the rules governing the movement of money into and out of financial institutions, which are unrealistic in today’s world. Many of those regulations were penned in the 1980s; 40 years later, they don’t make sense. These rules were written for blue-sky scenarios, ones where financial institutions have all the tools they need to be compliant. But they no longer have these tools, because the financial world looks very different than it did even a decade ago, let alone 40 years ago.

Take WeChat, a Chinese chat app introduced in 2013. Last month, during Chinese New Year, WeChat users sent each other over one billion virtual red envelopes filled with real cash to celebrate the Chinese New Year. Users of Alipay Wallet from Alibaba gifted $642 million in cash to their friends during the holiday. Those who crafted anti-money laundering regulations decades ago never envisioned a world where this would be possible.

We need technology and big data-based solutions that enable financial institutions to monitor these modern ways of moving money. Banks now face global problems, no matter how local they are, because their funds are being moved digitally around the planet. For instance, it’s enormously difficult for a bank based in Canada to verify the identity of a person receiving money in Mexico or Nigeria without having a branch there. A crucial step in this fight is to make sure banks know their customers and the risks they represent.

The technology to do that is actually available now. Technologies for screening wire transfers, for example, include knowledge-based systems that use data about money laundering to make inferences about transfers. Additionally, link analysis works by identifying relationships among individual accounts, people and organizations, and uses readily available data to make call. My own company created GlobalGateway, a bank-grade online identity verification service to help businesses verify a person’s identity using both traditional and cyber identity data sources. Our technology enables businesses to verify identities around the world seamlessly via a single API, providing a consistent and normalized set of data fields for integration regardless of the country’s unique data fields.

Bottom line: Whether someone is transferring money from rural Mexico or Lagos, Nigeria, it’s important for banks to be able to screen and confirm identities across global data sources and international watch lists.

Financial institutions and money service operators must understand their respective responsibilities under different legislation. Those who breach Know Your Customer (KYC), Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) requirements may be indicted with a penalty of imprisonment and tremendous fines for “reckless disregard” of sanctions — not to mention headline risks.

Financial institutions, government and businesses should be integrating and using these modern technologies that allow them to catch criminals before they cause billion-dollar problems, and enable good actors to engage in productive commerce. The days when all the information a bank needed to know about a customer was in a filing cabinet are long gone. Technologies exist today to allow banks to harness vast amounts of electronic data and make identity verification fast, accurate and global. The challenge is getting institutions like HSBC to adopt them.

See Also: 3 Questions Every Entrepreneur Should Ask Their Accountant

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Stephen Ufford, Founder & CEO of Trulioo, is an identity veteran who founded and successfully sold several consumer data focused startups over the last decade. In 2011, he launched Trulioo, a global ID verification company focused on building trust online, best privacy practices, and financial inclusion. Trulioo aims to solve global problems... (read more)

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