10/11/07

Jim Barkley Anti-Money Laundering Specialist and Product Manager, Wolters Kluwer Financial Services

Overview

Not long ago, many anti-money laundering (AML) compliance programs received little internal or external scrutiny and were seriously underfunded. Processes were developed on the fly, and the best available support tools were paper and Excel spreadsheets. Despite the shortcomings, this was all good enough for the small teams that worked to meet regulatory guidelines that were sometimes vague and loosely enforced.  

We’ve come a long way since the days of patchwork compliance departments. “Good enough” to meet the regulation is still a standard, but the benchmarks to meet that standard have risen considerably. Most financial institutions now measure their compliance departments on the results of the last exam as well as the dollars spent to achieve an acceptable result.

In addition, like most forward-thinking companies, financial institutions are concerned with process efficiency. Unlike many businesses, however, financial institutions also have regulators that are now actively looking at efficiency as a measure of compliance. While this adds to the pressure, it also provides an opportunity for AML compliance departments to sharpen their regulatory performance, and potentially be a leader at their firm in the area of process efficiency.

This article will discuss how financial institutions can review their existing AML compliance systems with an eye towards enhancing that system with automation.

Arts and crafts

With resourcefulness and ingenuity, many compliance departments in the pre 9/11 world created effective systems for AML compliance. Effective, that is, when measured against overall priorities and resources available. Without a clear mandate from regulators and adequate budgets for automation, financial institutions, both large and small, created simple systems for case management. 

Using the suspicious activity reporting process as an example, a typical AML/BSA investigation department with just a few employees, would take the following investigative steps:

1. Manually review paper reports for transactions that exceeded threshold amounts
2. Highlight transactions to be reviewed with colored markers
3. Use a scissors or X-Acto knife to cut out transaction details
4. Staple or glue the cut-out to a manila folder
5. Label the folder with a case number and a name
6. Enter the case details in a spreadsheet for tracking
7. Pile the folders on a table for Investigators
8. Take the top folder off the pile, and go to work

Clearly this is a time-intensive process, and for many it was just the beginning. Those with some electronic systems often had double the work. Research is vital to thorough case investigation, and the more systems, both paper and electronic, that an investigator must access, the more time spent on each case.

Put away the scissors and glue, and get to work

Investigators and Analysts are very capable people. They are usually deeply experienced with policy and transaction processes, and they have strong compliance knowledge. For this group, it is a source of pride and motivation to catch the bad guys. The only problem is that they don’t get to celebrate victories very often if they are too busy waiting and looking for data rather than analyzing it.

Reducing time spent on standard process steps, and increasing time spent on analysis and recommendations will create a stronger compliance program, a more engaged team, and measurable return on investment. If your institution does not already have a process improvement initiative, the AML compliance department now has an opportunity to lead in this area. If the expectation for improvement is already set, you’ll enjoy the challenges and reward of applying it to your department.

The case for efficiency from a compliance perspective

Read the Cease and Desist Orders and other formal actions taken by FinCEN and the regulatory agencies in the last few years, and you’ll see an often-repeated statement that includes the words “failure to maintain an effective anti-money laundering program.” “Effective” is the key word. Although it can relate to a broad array of specific items, it usually relates to inadequate processes that allowed criminal activity to be missed.

Illustrative of many institutions is a $10 billion bank in the South that was specifically cited by examiners in an early 2007 exam for an inefficient case management process. Regulators found that two investigators were both reviewing the same case. The bank’s paper-based system did not have the ability to reliably assign cases to a single investigator. The regulators noted that while the bank complained of an overwhelming case load, much of the problem was due to inefficient processes. This bank had to improve process upon orders from their regulator.

Review your current process

Take a look at your own process. A detailed, professional workflow study can be valuable, but a ten minute exercise to estimate time spent on standard processes for a typical case investigation is usually enough to get started. Consider the following, and add steps that may be unique to your workflow:

Case preparation

• Time spent on review of suspicious transaction reports
• Time spent to create a paper case file, or manually key-in an electronic case file
• Time spent to assign and deliver a case file to an Investigator for review

Case research

• Time spent on requests for supporting detail (list and estimate each typical inquiry, such as wire transaction reports, customer master file, statements and check images, previous SARs, etc.)

Review and recommendation

• Time spent routing case files for management review and re-work
• Time spent while paper files are in transition from desk to desk

SAR filing

• Time spent for creation, final approval and filing of SARs and other reports

Archiving

• Time spent on internal filing process may involve multiple systems, both paper-based and electronic

Reporting

• Time spent on developing month-end or daily reports for such measures as number of cases, types of cases, case resolution, over-due case, case load by investigator, etc.,
• Time spent on executive reporting 

Business process management

After you’ve taken steps to identify time spent on specific tasks, begin to review those same tasks in the context of automation. For the total time an Investigator spends on a case, how much is spent looking for data, and how much time is spent analyzing the data? The faster your staff can get to the business at hand—making informed, experience decisions on high-risk cases—the more efficient and effective your overall program.

The next step to take is a review of the world of Business Process Management—an overall term used to describe process discovery and engineering. You can start with some of the sites recommended below, or you can jump right in with basic tools like pencil and paper, marker and whiteboard, or programs like Microsoft Visio®. Perhaps you have a process expert already in the organization that you could borrow for a discovery and diagramming session. The idea is to create a diagram of your workflow for a case file, from start to finish. The reward will be commensurate with the time and expertise applied to this exercise, but at a minimum you’ll have a way to look at your process visually and identify steps for improvement.

If you believe that you can construct a better process, it’s time to look at automation tools that can help you. Your initial exercise, however basic it may be, should at least give you an indication of the level of inefficiency you may have with current processes. For many institutions, it is not unreasonable to expect a 30 percent—60 percent reduction in time spent on case investigation and resolution by simply adding automation to many or all of the process steps.

Consider, for example, the time saved with an automated process that applies thresholds to transactions and automatically creates an electronic case file that is assigned and electronically delivered to a specific Investigator. Even if some paper process was required after that point, you can cut days off the time spent getting a case to an Investigator for review, and hours off of the time spent on case tracking and status reporting.

Conclusion

Process management is a key business function. Process definition tools and case management applications are available now that can quickly pay off in terms of efficiency gains and compliance reviews. You don’t have to wait for a perfect process either. The concept of continuous process improvement means you can start now with the changes that deliver the highest return, and apply additional changes as you move forward.

For AML software solutions and automated workflow processes, see the Wiz Sentri™ product line offered by Wolters Kluwer Financial Services.