New Department: Financial Crimes Department

If you have ever shopped on Amazon.com or ordered a movie on Netflix, you most likely have experienced “Predictive Analytics”.

The accuracy and the speed of predictions and recommendations are very impressive. Amazon knows that buying one item makes it more likely that you will buy another item or rent one movie makes it more likely that you may rent another, similar, movie.  This is done through Cohort Analysis and Predictive Analytics: you are placed into a cohort (those like you) which allows an examination of your cohort’s purchases. Furthermore, tracking your web searches and examining your on-line and off-line purchases can, exponentially, increase the accuracy of the Predictive Analytics. The understanding that if you do one thing you most likely will do another thing is easy to understand like buying golf balls usually means that you own golf clubs and you play golf:  of course this may not always be accurate but buying golf balls is Predicate of golfing.

FinCEN is on a crusade to have banks and credit unions integrate Fraud Detection with Anti-Money Laundering. At most banks and credit unions, these two functions are in different departments and, in many cases, under different management.  FinCEN uses a legal concept called “predicate crime” that ties Money Laundering to Transactional Fraud.  A predicate crime is a crime that is part of a bigger crime.  Transactional Fraud is often a Predicate Crime with Money Laundering.  By bringing the two departments together, into a unified Financial Crimes Department, your financial institution will operate much more efficiently and effectively.

The two departments are separate due to the genesis of each department.

AML/CFT Department was created to address a regulatory requirement and Fraud Detection was created within the Risk Department to help banks and credit unions combat fraud. The first is a Cost of doing business and the second is a Cost Reducer (Profit Center).  But fines placed on banks/CUs and reputational damage for AML/CFT can be devastating; just look at Fulton Bank in my hometown.

It has been proven that AML and Transactional Fraud are very correlated.  Addressing these two monsters separately is like wearing a blindfold in a wrestling match. AML and Transactional Fraud, by looking for these two patterns together, ushers in the ability to use Cohort Analysis and Predictive Analytics.  This will enhance your ability to predict money laundering and at the same time, the information loop that is established will help shut down transactional fraud much quicker and earlier in the fraud scheme.

Your technology partner needs to have an application that is extremely strong in AML/CFT, Transactional Fraud Monitoring, and Enterprise Case Management.  Your financial institution needs to move to a single department for all Financial Crimes and we can help accomplish this.

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