Monitoring High Risk Transactions

May 11, 2009

Why We Monitor

What We Monitor

How We Monitor

Does it work?

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MONITORING HIGH RISK TRANSACTIONS

WHY?

1. Protect against “Bad Guys”:

• Money Launderers

• Sanctioned Parties( OFAC, EU,etc.)

• Terrorist Financiers

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MONITORING HIGH RISK TRANSACTIONS

2. Protect against regulators:

• Policies and procedures

• Automated systems

• Manual reviews

• Training

• Record keeping

• Consistency

• FFIEC Manual

WHY?

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MONITORING HIGH RISK TRANSACTIONS

• Interdiction: OFAC =“Strict liability”

•Monitoring: Risk =Reputation, “reputation is priceless”

•Cost Justification

– Riggs Bank, Lloyds Bank

– Insurance model: Expected return is negative, but pay a premium you can afford to avoid a loss you cannot afford.

Are risk based programs a myth?

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MONITORING HIGH RISK TRANSACTIONS

• Funds Transfer( SWIFT & ACH)

• Capital Markets

• Trade Finance

• Liability Management?

• Checks

• Third party payments

• Vendors, employees

What?

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MONITORING HIGH RISK TRANSACTIONS

• Manual Monitoring

• Automated systems

–Interdiction systems

•Source lists

•Algorithms:

–Stop descriptors

–Phonetic matches

–Fuzzy logic

–Monitoring systems

•Rules Based

•Change based

•Artificial intelligence

How?

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MONITORING HIGH RISK TRANSACTIONS

• Interdiction is the more simple task

• Comparison of three tools on same data

Does it work?

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MONITORING HIGH RISK TRANSACTIONS

92

8

176

184

481 4688343

True Hit

Comparison of screening tools

Single day Funds Transfer

Phonetic (460)

Stop Descriptor (1008)

Fuzzy Logic (5529)

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MONITORING HIGH RISK TRANSACTIONS

•Ratio of alerts to SAR’s;>2000:1

•Ratio of interdiction hits to block/reject;=1000:1

•Regulators seem satisfied

•Lack of objective standards

– Testing bio labs

Does it work?

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MONITORING HIGH RISK TRANSACTIONS

Research & Development Project

• Staffing

– Investigator

– Statistician

• Technology

– Database

– Business Objects ver. XI (BOXI)

• Projects

– Digit distribution

– Business line risk assessment

– Vessels

– Resource optimization