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Anti-Money Laundering Compliance software implementation
2001: Enactment of Patriot Act & impact on  Money Laundering Compliance <ul><ul><li>USA PATRIOT Act of 2001  delegates to ...
Objectives <ul><ul><li>Help Business in Implementing the directives of Patriot Act, namely, Information sharing about Bank...
Training and Awareness Program Cost of Compliance Anti-Money Laundering Strategy Anti - money laundering standards and pro...
Data Pipeline DDA CIS SWIFT Money Market transaction hub Load to IEF Load to IEF Load to IEF Data Hub Wires Reference data...
Major Opportunities <ul><ul><li>Bank freedom from Government fines and penalties by Complying with the directives of Patri...
Opportunities: Easy Trends analysis Money Laundering Analysis using  Tools  Users Wealth Management Investment  Banking Ca...
Opportunity: Easy access of information globally Zurich office  –  Report on Clients  transactions unexplained  for amount...
Opportunities:  Actual number & not mere suspicion about Client & their transaction 10 47 30 12 Wealth Management Investme...
External Problems Globalisation of clients & data Sophisticated money launderers Inefficient compliance systems Reporting ...
Internal Problems  Hire Paralegal & IT team well versed with Patriot Act AML software which is best processes and budget? ...
Operational Problem: Quick access to financial information in manage transactions What product promotions have the biggest...
Data Integration Problem  <ul><ul><li>Current systems outdated to meet industry challenges </li></ul></ul><ul><ul><li>Frag...
Goals <ul><ul><li>Know Your Customer </li></ul></ul><ul><ul><li>Perform Due Diligence for Client </li></ul></ul><ul><ul><l...
Know Your Customer Guidelines Customer Acceptance  - Ensure that you accept only legitimate and bona fide customers. Custo...
KYC: If Client Involved in  Money Laundering Activities Drug Trafficking Bribery / Corruption Prostitution Gambling Tax Ev...
Goal: Integration of Company’s data to enable Money Laundering Analysis Across Bank’s various Divisions for Analysis to ha...
Fortent Monitor Data Manager Profiling Engine Operational Data Store Detection Engine Investigation  System Source: Forten...
Data Pipeline DDA CIS SWIFT Money Market transaction hub Load to IEF Load to IEF Load to IEF Data Hub Wires Reference data...
Compliance Officer CCH Wall Street 3 rd  Party Data WSP Email Regs Compliance EYE OFAC Other Mutual Fund  Data Clearing Fi...
Goal:  Process change Exchang e Electronic Communications Network Market Maker Firm Internalizes Order Internet order Phon...
The Simple SWOT from MIS750 S TRENGTHS W EAKNESSES O PPORTUNITIES T HREATS <ul><ul><li>Brand Name </li></ul></ul><ul><ul><...
The Simple SWOT from MIS750 S TRENGTHS W EAKNESSES O PPORTUNITIES T HREATS 4. Existing Human Resource, Divisions, high cos...
Weakness:  Data Integration & Size of Bank Problems: Data Disintegration Across Sources Brokerage Credit card Wealth Manag...
Threats: Multiple Compliances, Regulators and changing Laws & Compliances pose new Risks for Banks <ul><ul><li>Bank Risk :...
Threats: Newspaper reports <ul><ul><li>August 2007:  </li></ul></ul><ul><ul><li>American Express fined USD $55 million,  <...
Strengths Weaknesses 1. Use Huge pockets to deploy latest Money Laundering Technology. 2. Use Brand name to enter Online M...
Strengths Weaknesses 3. Use big distribution to get more clients than competition.  4. Use huge infrastructure to provide ...
Method 1: Customer Relationship Management CRM used for Monitoring/Reporting Customer ID documentation Enhanced due dilige...
Method 1: Customer Relationship Management Contd… Anti Money Laundering Profiles generation 1 <ul><ul><li>Source: Fortent ...
Method 1 Contd… CRM : 2 Tracking Suspicious Behavior  by customer, by transaction Comparison of current  month to account ...
Fortent Monitor Data Manager Profiling Engine Operational Data Store Detection Engine Investigation  System Source: Forten...
Data Pipeline DDA CIS SWIFT Money Market transaction hub Load to IEF Load to IEF Load to IEF Data Hub Wires Reference data...
Method 2: Information Organization The Fortent End to End Solution Overview <ul><ul><li>2 levels of risk assessment: KYC a...
Method 2: Information Organization What do we look at ?  Role Country Bank Account Island Bank Peoples Bank Lion Bank Tran...
Method 2: Information Organization Search Customer and transaction details by … <ul><ul><li>Find Alerts  </li></ul></ul><u...
Business Strategy Competitors Banks like Barclays, Credit Swisse, Citi Group are also deploying Technology, but Business I...
Products & Services / Clients & Customers – As is
Products & Services / Clients & Customers – To Be
Business Strategy Online Asset management, Brokerage, Taxes filing, Pension policy advise and related Online services beco...
As – Is : Business Strategy Governance Paper based Approach to Money Laundering Bank teller puts in  Customer account Offi...
As – Is : Business Strategy
Training and Awareness Program Cost of Compliance Anti-Money Laundering Strategy Anti - money laundering standards and pro...
To-Be: Business Strategy
Business Infrastructure Fast typing skills mandatory along with use of all MS Office products from Word, to Excel to Power...
As – Is : Administrative Approach to Money Laundering REACTIVE APPROACH Bank teller puts in  Customer account Office Boy F...
Current Key Processes – As Is  Brokerage Asset Management Private Banking Investment Banking Institutional investors **  A...
Future Key Processes – To Be Brokerage Asset Management Private Banking Investment Banking Institutional investors **  Abo...
Organisational changes As Is To Be Hierarchy based org Structure Services, Product line based org Structure
Human Resources As is To Be
IT Strategy Internal Decisions , Regulatory, Etc. Include all areas that are relevant after the project implementation. No...
As – Is : IT Strategy Paper based Approach to Money Laundering Bank teller puts in  Customer account Office Boy Faxes Acco...
IT Strategy - As Is
IT Strategy – To Be
Infrastructural Re Design & Deployment Money Laundering Data warehouse
IT Strategy: To Be As a result of Process change implementation Exchang e Electronic Communications Network Market Maker F...
IT Infrastructure As-Is To-Be Architecture The IT Architecture prior to the project The IT Architecture after the project ...
Pre requisites for Integrated approach to trade processing: centralisation of information collection process …  to Central...
As – Is Architecture US Wealth Management Europe Wealth Management Investment Banking US Wealth Management  Board meet Eur...
To- Be Architecture <ul><li>The name of the divisions of UBS company are the following: </li></ul><ul><ul><li>Wealth Manag...
 
Data Pipeline DDA CIS SWIFT Money Market transaction hub Load to IEF Load to IEF Load to IEF Data Hub Wires Reference data...
Alternatives Key Process  change Implementation Of IT in handing Transactions Setting up Separate Money Laundering Divisio...
Merger, Partner with other Online Financial companies <ul><ul><li>Merger with Online Financial companies like Charles Scha...
Go International, grow international  <ul><ul><li>Alter existing Organisational structure  </li></ul></ul><ul><ul><li>Tie ...
Transform workforce, move from  Brick to Click Organization only for Internal reporting <ul><ul><li>Workers / Paralegals b...
Organisational changes As Is To Be Hierarchy based org Structure Services, Product line based org Structure
Future Key Processes – To Be Brokerage Asset Management Private Banking Investment Banking Institutional investors **  Abo...
Recommendations <ul><li>Methodology: </li></ul><ul><li>Incremental method is recommended in today fast changing business e...
Training and Awareness Program Cost of Compliance Anti-Money Laundering Strategy Anti - money laundering standards and pro...
Pre requisites for Integrated approach to ML Bank: centralisation of information collection process …  to Centralised info...
Organisational changes As Is To Be Hierarchy based org Structure Services, Product line based org Structure
References MIS 760 Team Case 1. www.cfdg.org.uk/.../events_h_050518_E3%20-%20 Money %20 Laundering %20and%20Fraud%20-%20Do...
References <ul><ul><li>8.  www.baft.org/content_folders/2nd%20European%20Bank-to-Bank%20Forum/andrew_clark. ppt   9. Forte...
References & Bibliography  <ul><ul><li>Missing - References : To be added </li></ul></ul><ul><ul><li>Sources on each slide...
Ethical Statement “ Cheating during in-class tests or take-home examinations or homework is, of course, illegal and immora...
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Business Intelligence For Anti-Money Laundering

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AML - How can technology help in transforming business of Anti-Money Laundering compliance

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Transcript of "Business Intelligence For Anti-Money Laundering"

  1. 1. Anti-Money Laundering Compliance software implementation
  2. 2. 2001: Enactment of Patriot Act & impact on Money Laundering Compliance <ul><ul><li>USA PATRIOT Act of 2001 delegates to Financial Crimes Enforcement Network (FinCEN) responsibility for setting requirements for financial institutions to establish: </li></ul></ul><ul><ul><ul><ul><li>anti-money laundering compliance, and </li></ul></ul></ul></ul><ul><ul><ul><ul><li>customer identification programs (in cooperation </li></ul></ul></ul></ul><ul><ul><ul><ul><li>with federal functional regulators) </li></ul></ul></ul></ul><ul><ul><li>FinCEN Information-Sharing Rule </li></ul></ul><ul><ul><li>Purpose - Encourages information sharing among financial institutions and Federal government law enforcement agencies to identify, prevent, and deter money laundering and terrorist activity. </li></ul></ul><ul><ul><li>Section 352(a) of the Patriot Act </li></ul></ul><ul><ul><li>Amended Bank Secrecy Act to require every financial institution to establish an anti-money laundering program </li></ul></ul><ul><ul><ul><li>The development of internal policies, procedures, and controls; </li></ul></ul></ul><ul><ul><ul><li>The designation of a compliance officer; </li></ul></ul></ul><ul><ul><ul><li>An ongoing employee training program; and </li></ul></ul></ul><ul><ul><ul><li>An independent audit function to test programs. </li></ul></ul></ul>Source: http://www.nchelp.org/elibrary/Presentations/2003/2003WinterLegalAffairsMeeting/Consumer%20Privacy%20Issues.ppt
  3. 3. Objectives <ul><ul><li>Help Business in Implementing the directives of Patriot Act, namely, Information sharing about Bank’s clients found to have suspicious activity. </li></ul></ul><ul><ul><li>Investigate all the accounts of the bank’s clients and all their transactions and check for any possibility of client’s involvement in money laundering activity or terrorist funding possibility. </li></ul></ul><ul><ul><li>Investigate Clients accounts details from all the different divisions of bank, namely, Asset Management group, Investment Banking, Private Banking, Trading accounts. </li></ul></ul><ul><ul><li>To checkout best software available in the market for building Money laundering information system. </li></ul></ul><ul><ul><li>Standardize business processes and IT systems to create IT system for Money Laundering division, prior to creation of ML system, if not already done. </li></ul></ul><ul><ul><li>Use the bank’s data warehouse for Improve data integrity. </li></ul></ul><ul><ul><li>Develop and implement change management strategy </li></ul></ul><ul><ul><ul><ul><ul><li>Transfer knowledge from team members to users </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Train users in implementation of Money Laundering software as well as produce training materials for future users and training. </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Communicate with various groups before implementation building ML Information system. </li></ul></ul></ul></ul></ul>
  4. 4. Training and Awareness Program Cost of Compliance Anti-Money Laundering Strategy Anti - money laundering standards and procedures Management Commitment Security & technology usage Administrative and end - user policies and procedures KYC - Data Access/Mining Transaction Monitoring/ Tracking Processes Business and organisation Processes & Initiatives Tactical short term solutions Compliance Requirements International, Regulatory, Industry, Third Party, Internal AML Reporting Risk assessment Investment suitability Tax etc. Investment suitability Tax etc. Know your customer (KYC) - Account Opening From Reactive to Proactive approach Integrated Approach
  5. 5. Data Pipeline DDA CIS SWIFT Money Market transaction hub Load to IEF Load to IEF Load to IEF Data Hub Wires Reference data Posted & Deposit Detail Transactions TDA Extract Normalize & Transform Load Fortent Monitor Systems of Record FedWire transactions wire transactions customers accounts rel man Concept: Fortent software training material I E F Excel sheet, graphs Excel sheet, graphs Excel sheet, graphs Zurich office London office New York office Money Laundering Data warehouse
  6. 6. Major Opportunities <ul><ul><li>Bank freedom from Government fines and penalties by Complying with the directives of Patriot Act. </li></ul></ul><ul><ul><li>Faster processes and ability to provide information to financial analysts and investigators of the Money Laundering division enabling bank to catch clients engaged in Money Laundering activity. </li></ul></ul><ul><ul><li>Enhancing Bank reputation by implementing Money Laundering directives and thereby increasing the value in eyes of its shareholders. </li></ul></ul><ul><ul><li>More accountability over the of bank’s operations raising shareholder confidence. Thereby, enable bank to be more prepared to face any eventualities like facing Government fines on late implementation of Compliances or avoiding law suits by the government if any of the bank’s client found to be guilty. </li></ul></ul><ul><ul><li>Easy access to exact numbers Suspicious Client and their transactions. </li></ul></ul><ul><ul><li>Faster Processes means bank would give competiting banks, financial institutions a run for their money in providing services. </li></ul></ul>
  7. 7. Opportunities: Easy Trends analysis Money Laundering Analysis using Tools Users Wealth Management Investment Banking Calculation Engine Actuate Actuate Zurich office Stamford Office Actuate Cognos SAS New York office Actuate London Office Excel sheet, graphs Excel sheet, graphs Excel sheet, graphs Excel sheet, graphs
  8. 8. Opportunity: Easy access of information globally Zurich office – Report on Clients transactions unexplained for amount above $10,000 . Stamford office List of clients in US said to be under suspicion radar Berlin office List of clients in Germany said to be under suspicion radar New York office – US government – List of all Clients under suspicion by bank’s investigators Paris office – How to perform better Than Credit Suisse – search Trends Excel, Word London office demands Suspicious Activity Reports
  9. 9. Opportunities: Actual number & not mere suspicion about Client & their transaction 10 47 30 12 Wealth Management Investment banking Fixed Income Institutional securities US Europe Asia 3/1 3/2 3/3 3/4 Date Month Region Product
  10. 10. External Problems Globalisation of clients & data Sophisticated money launderers Inefficient compliance systems Reporting to number of agencies & regulation change Accountability of transactions from Corresponding banks, investigate volumes of data. [1] Professor S. Seshadari, IIT Professor slides on Datawarehousing. Only the diagram structure taken by Professor’s slide. The concept & content based on my understanding of Delta case. Privacy concern’ Of clients
  11. 11. Internal Problems Hire Paralegal & IT team well versed with Patriot Act AML software which is best processes and budget? Where to hire best IT, Technology consultants Each division working on different data system [1] Professor S. Seshadari, IIT Professor slides on Datawarehousing. Only the diagram structure taken by Professor’s slide. The concept & content based on my understanding of Delta case. Massive volumes Of data & Data integration Permissions Within The bank Day – to- day operations Vs Trends & Strategy issues
  12. 12. Operational Problem: Quick access to financial information in manage transactions What product promotions have the biggest impact on revenue? What is the most effective distribution channel? Who are my customers and what products are they buying? Which are our lowest/highest margin customers ? What impact will new products/services have on revenue and margins? Which customers are most likely to go to the competition ?
  13. 13. Data Integration Problem <ul><ul><li>Current systems outdated to meet industry challenges </li></ul></ul><ul><ul><li>Fragmented asset view </li></ul></ul><ul><ul><ul><li>Reporting on client's assets and related KPI not supported by the Accounting System </li></ul></ul></ul><ul><ul><ul><li>Systematically coherent and consistent reporting cannot be ensured </li></ul></ul></ul><ul><ul><li>Incomplete client and product view </li></ul></ul><ul><ul><ul><li>Significant revenues are not calculated on client and product level </li></ul></ul></ul><ul><ul><ul><li>No allocation of revenues to clients and products </li></ul></ul></ul><ul><ul><li>Audit Trail and Control </li></ul></ul><ul><ul><ul><li>Fragmented system set-up and various instances involved make drill-downs and controls very difficult </li></ul></ul></ul><ul><ul><li>Very limited system flexibility </li></ul></ul><ul><ul><ul><li>Major changes to reports cannot be implemented with reasonable efforts </li></ul></ul></ul><ul><ul><li>Technology Risk </li></ul></ul><ul><ul><ul><li>Vendor support & relevant knowledge are no longer available </li></ul></ul></ul><ul><ul><li>Operational Risk </li></ul></ul><ul><ul><ul><li>System stability and recoverability in case of major issues may cause delays and costs </li></ul></ul></ul><ul><ul><ul><li>Some of the processes are still completely manual. A parallel run is must in order to even initiate the data integration of system. </li></ul></ul></ul>
  14. 14. Goals <ul><ul><li>Know Your Customer </li></ul></ul><ul><ul><li>Perform Due Diligence for Client </li></ul></ul><ul><ul><li>Run Suspicious Activity Reports </li></ul></ul><ul><ul><li>Early detection of Client’s suspicious transactions. </li></ul></ul><ul><ul><li>Save Bank from government fines, </li></ul></ul><ul><ul><li>Better flow of Information across the various divisions of banks regarding Money Laundering clients and their transactions. </li></ul></ul>
  15. 15. Know Your Customer Guidelines Customer Acceptance - Ensure that you accept only legitimate and bona fide customers. Customer Identification- Ensure that you properly identify your customers to understand the risks they may pose. Transactions Monitoring- Monitor customers accounts and transactions to prevent or detect illegal activities. Risk Management- Implement processes to effectively manage the risks posed by customers trying to misuse facilities. Money Laundering Searches required by the Compliance Officer Source: Presentation by Sanjeev Singh
  16. 16. KYC: If Client Involved in Money Laundering Activities Drug Trafficking Bribery / Corruption Prostitution Gambling Tax Evasion Extortion Robbery and Fraud White Collar Crimes ( including Insider Trading and Securities offences ) Smuggling (arms, people, goods) Counterfeiting and Forgery Kidnapping Serious Crime or All Crimes? Organised Crime Source: www.fintraca.gov.af/assets/ ppt /AML
  17. 17. Goal: Integration of Company’s data to enable Money Laundering Analysis Across Bank’s various Divisions for Analysis to happen Investment Banking – Europe division Global Wealth Management Fixed Income US division Trading and Settlement Switzerland Division Drill down By city, country Drill down by Financial product Trend analysis By region Granular Details by region City, state, country
  18. 18. Fortent Monitor Data Manager Profiling Engine Operational Data Store Detection Engine Investigation System Source: Fortent software training material
  19. 19. Data Pipeline DDA CIS SWIFT Money Market transaction hub Load to IEF Load to IEF Load to IEF Data Hub Wires Reference data Posted & Deposit Detail Transactions TDA Extract Normalize & Transform Load Fortent Monitor Systems of Record FedWire transactions wire transactions customers accounts rel man Concept: Fortent software training material I E F Excel sheet, graphs Excel sheet, graphs Excel sheet, graphs Zurich office London office New York office Money Laundering Data warehouse
  20. 20. Compliance Officer CCH Wall Street 3 rd Party Data WSP Email Regs Compliance EYE OFAC Other Mutual Fund Data Clearing Firms Inefficient Use of Time OMS Other firm data a/c info Suitability criteria Manual Processes Increasing Workload Inconsistent Audit Terms Reactive, Not Proactive <ul><ul><li>Source: Fraud, Money Laundering, Terrorism & Compliance in the Financial Services Industry by WoltersKluwer - Automated Solutions to an Integrated Problem </li></ul></ul>Money Laundering Searches required by the Compliance Officer
  21. 21. Goal: Process change Exchang e Electronic Communications Network Market Maker Firm Internalizes Order Internet order Phone order [1] http://www.ibtimes.com/articles/20061006/add-nyse-electronic-trading.htm
  22. 22. The Simple SWOT from MIS750 S TRENGTHS W EAKNESSES O PPORTUNITIES T HREATS <ul><ul><li>Brand Name </li></ul></ul><ul><ul><li>Cash Flow </li></ul></ul><ul><ul><li>Well distributed office locales </li></ul></ul><ul><ul><li>Products and services </li></ul></ul><ul><ul><li>Trained experienced financial analyst </li></ul></ul><ul><ul><li>Part of Bank’s various Divisions, already doing transactions Online </li></ul></ul><ul><ul><li>Lack of in house expertise in Money Laundering implementation. </li></ul></ul><ul><ul><li>Lack of in house expertise in use of IT to implement Money Laundering software. </li></ul></ul><ul><ul><li>Huge size, global data & so slower adoption of new technology than by small size companies. </li></ul></ul><ul><ul><li>Huge Online Financial services market untapped. </li></ul></ul><ul><ul><li>Commanding presence in US, European markets where Online services market booming. </li></ul></ul><ul><ul><li>Greater reach to clients implies multiplier effect if successful </li></ul></ul><ul><ul><li>Offer more variety of services to attract more clients. </li></ul></ul><ul><ul><li>New competitors - Online Digital firms like Charles Schwab, E-Trade, Western Union. </li></ul></ul><ul><ul><li>Fines from the regulators. </li></ul></ul><ul><ul><li>New changing regulations around the world and fines for Bank in event of non compliance to these new laws. </li></ul></ul><ul><ul><li>Loss of Image in case Bank found guilty of Money Laundering. </li></ul></ul>
  23. 23. The Simple SWOT from MIS750 S TRENGTHS W EAKNESSES O PPORTUNITIES T HREATS 4. Existing Human Resource, Divisions, high cost Brick structure within bank, how to utiilize their services compared to Click structure of small Online companies & consequently their low operating cost. 6. Buying / Tie up with Online Financial services Company and learn from their low cost Click culture, Online handling of Processes like Fox TV who successfully launched My Space on Internet though traditional TV Media company. 5. Lack of methods to know and verify Customer details from what they say and what they actually do. 6. Huge amount of daily data to be checked right from Client’s details, to Transactions, to email correspondence between the Client and the Bank. 7. Cataloging data from around the world, from all their Clients & from all the Client’s transactions and then storing all these details at Bank’s location. 8. Cataloging all the above details and yet comply with the Swiss Privacy Laws of Non Disclosure of Client’s details and maintaining Client’s Privacy.
  24. 24. Weakness: Data Integration & Size of Bank Problems: Data Disintegration Across Sources Brokerage Credit card Wealth Management Investment Banking Same data different name Different data Same name Data found here nowhere else Different keys same data
  25. 25. Threats: Multiple Compliances, Regulators and changing Laws & Compliances pose new Risks for Banks <ul><ul><li>Bank Risk : </li></ul></ul><ul><ul><li>Reputation Risk </li></ul></ul><ul><ul><li>Compliance & Regulatory risk </li></ul></ul><ul><ul><ul><li>Fines </li></ul></ul></ul><ul><ul><ul><li>Multiple agency enforcement actions </li></ul></ul></ul><ul><ul><li>Prison </li></ul></ul><ul><ul><li>Operational risk for Bank </li></ul></ul><ul><li>- Loss of charter </li></ul><ul><ul><li>Loss of GLB powers </li></ul></ul><ul><ul><li>Litigation Risk for Bank </li></ul></ul>Fraud USA PATRIOT Act Money Laundering Bank Secrecy Act OFAC Terrorism <ul><ul><li>Source: </li></ul></ul><ul><li>Fraud, Money Laundering, Terrorism & Compliance in the Financial Services Industry by WoltersKluwer - Automated Solutions to an Integrated Problem </li></ul>
  26. 26. Threats: Newspaper reports <ul><ul><li>August 2007: </li></ul></ul><ul><ul><li>American Express fined USD $55 million, </li></ul></ul><ul><ul><li>Making it largest forfeiture to date & Civil money penalty $10 million </li></ul></ul><ul><ul><li>January 2007 </li></ul></ul><ul><ul><li>Bank of America, Charlotte, NC </li></ul></ul><ul><ul><li>Penalty: USD $3 million civil money </li></ul></ul>Source: h ttp://www.amlcft.com/cases.htm#Recent_Major_Fines_and_Penalties
  27. 27. Strengths Weaknesses 1. Use Huge pockets to deploy latest Money Laundering Technology. 2. Use Brand name to enter Online Money Laundering Banking Operations. 1. Provide staff IT training in Money Laundering software to make them equipped to handle Money Laundering software operations. 1. Fines from the regulators. New changing regulations around the world and fines for Bank in event of non compliance to these new laws. Loss of Image in case Bank found guilty of Money Laundering. Tie up Start up firms to join the Online Products & services. Tie-up and Co-Brand services with existing Online player to compete with new born Online firm. Lower cost of operations and transaction to attract customers from competition. Tie-up with IBM, Infosys to provide regular supply of well experienced IT workers. Start transformation of Enterprise into IT governed enterprise parallelly in multiple divisions of bank. Opportunities S O STRATEGIES W O STRATEGIES S T STRATEGIES W T STRATEGIES Threats Super SWOT Company UBS Money Laundering Division 1. Brand Name 2. Cash Flow 3. Well distributed office locales 4. Products and services 5. Trained Financial workforce. 6. Part of Bank Transactions Online. 1. Huge Online market untapped. 2. Commanding presence in US, European 3. Greater reach to clients than competitors 4. Offer more variety services 1. Lack of in house Money Laundering & IT workforce 2. Huge size, slower adoption of technology than by competitors 3. High cost of Brick structure against the Click structure and high operating cost. 4. Late mover in Online market.
  28. 28. Strengths Weaknesses 3. Use big distribution to get more clients than competition. 4. Use huge infrastructure to provide Add on services. 1. Use Huge pockets to deploy latest Money Laundering software & trained IT workforce from say IBM. 2. Use brand name to offer Online services and market these. 2. Slow adoption of IT 3. In house trained workforce Tie up Start up firms to join the Online Products & services. Tie-up and Co-Brand services with existing Online player to compete with new born Online firm. Lower cost of operations and transaction to attract customers from competition. Tie-up with IBM, Infosys to provide regular supply of well experienced IT workers. Start transformation of Enterprise into IT governed enterprise parallelly in multiple divisions of bank. Opportunities S O STRATEGIES W O STRATEGIES S T STRATEGIES W T STRATEGIES Threats Super SWOT Company UBS Money Laundering Division
  29. 29. Method 1: Customer Relationship Management CRM used for Monitoring/Reporting Customer ID documentation Enhanced due diligence Monitoring Reporting FIU analysis Investigation Application from customer Within the institution Outside the institution When should KYC research need to be carried out? Source: www.baft.org presentation by Andrew Clark
  30. 30. Method 1: Customer Relationship Management Contd… Anti Money Laundering Profiles generation 1 <ul><ul><li>Source: Fortent AML training guide </li></ul></ul>Transaction Account Txn Type Day Daily Summary Account Txn Type Day Monthly Summary Account Txn Type Month Account Profile Account Txn Type Peer Profile Peer Group Txn Type <ul><ul><li>NOTE: Peer Groups are derived from account reference data (e.g. High Account Type and Low Account Type) </li></ul></ul>
  31. 31. Method 1 Contd… CRM : 2 Tracking Suspicious Behavior by customer, by transaction Comparison of current month to account profile Comparison of current month to peer profile Event Thresholds Sum of scores SB Thresholds Alerts Account Value Account Volume Insufficient Account Insufficient Peer Peer Volume Peer Value Events Group by customer Customer Security Blanket Infraction Account Security Blanket Infraction BLU Infraction Infractions (reason for alert) Account Profile Peer Profile Monthly Summary Daily Summary Daily Summary Daily Summary Source: Fortent software training material
  32. 32. Fortent Monitor Data Manager Profiling Engine Operational Data Store Detection Engine Investigation System Source: Fortent software training material Method 2: Information Organization
  33. 33. Data Pipeline DDA CIS SWIFT Money Market transaction hub Load to IEF Load to IEF Load to IEF Data Hub Wires Reference data Posted & Deposit Detail Transactions TDA Extract Normalize & Transform Load Fortent Monitor Systems of Record FedWire transactions wire transactions customers accounts rel man Concept: Fortent software training material I E F Excel sheet, graphs Excel sheet, graphs Excel sheet, graphs Zurich office London office New York office Method 2: Information Organization Money Laundering Data warehouse
  34. 34. Method 2: Information Organization The Fortent End to End Solution Overview <ul><ul><li>2 levels of risk assessment: KYC and Transaction Monitoring </li></ul></ul><ul><ul><li>Plus support functions </li></ul></ul>KYC Information & Training Case Management Workflow Transaction Monitoring Investigation & Reporting Source: Fortent software training material
  35. 35. Method 2: Information Organization What do we look at ? Role Country Bank Account Island Bank Peoples Bank Lion Bank Transaction Type Originator SWIFT Intermediary 1 SWIFT Intermediary 2 SWIFT $ Wachovia Beneficiary SWIFT $ Message/Product Type SWIFT MT103 WIRE Source: Fortent software training material
  36. 36. Method 2: Information Organization Search Customer and transaction details by … <ul><ul><li>Find Alerts </li></ul></ul><ul><ul><ul><li>By Alert ID </li></ul></ul></ul><ul><ul><ul><li>By Account ID </li></ul></ul></ul><ul><ul><ul><li>By SSN/Tax ID </li></ul></ul></ul><ul><ul><ul><li>By Customer ID </li></ul></ul></ul><ul><ul><ul><li>By Bank and Country </li></ul></ul></ul><ul><ul><ul><li>By Party ID </li></ul></ul></ul><ul><ul><li>Find Bank and Country </li></ul></ul><ul><ul><li>Find Party ID </li></ul></ul><ul><ul><li>Find Accounts </li></ul></ul><ul><ul><li>Find Customers </li></ul></ul>Source: Fortent software training material
  37. 37. Business Strategy Competitors Banks like Barclays, Credit Swisse, Citi Group are also deploying Technology, but Business Intelligence might be UBS edge. Local banks, online financial instutions with low distribution network will loose customers badly and may even cease to exist. Competitors Banks like Barclays, Credit Swisse, Citi Group as well Online firms like E-Trade, Charles Schwab are giving UBS tough competition. Customers/Clients Educated, high net worth individual well versed with Online services, specially younger generation will jump on, might loose those who not Online. Client prefer Telephone or web meetings, one-to-one meeting only in special cases. Customers/Clients For Clients coming to bank for one-to-one meet is a norm loaded with paper and going back with bag full of financial documents. Products and Services Single UBS Executive, Client’s point of contact for all kinds of accounts, Asset, Wealth Management or Brokerage to get overall picture. Online services. Products and Services Asset Management, Wealth management, Brokerage – to an extent still manual and same client has to call different divisions for different accounts Business Scope To-Be As-Is
  38. 38. Products & Services / Clients & Customers – As is
  39. 39. Products & Services / Clients & Customers – To Be
  40. 40. Business Strategy Online Asset management, Brokerage, Taxes filing, Pension policy advise and related Online services become norm. Services over the phone, Call center services for minor administrative services like logging on bank’s Web page, opening bank account become a norm. Note Changes Big distribution network. Brand Name Deep pockets to implement any new technology within a short time. Distinctive Competencies Internal Decisions , Regulatory, Etc. Patriot Act details of client submission to government – implementation done Online only using Excel, Business Objects, graphs. Internal Decisions , Regulatory, Etc. Patriot Act implementation done both partly manual, partly Online Business Governance To-Be As-Is
  41. 41. As – Is : Business Strategy Governance Paper based Approach to Money Laundering Bank teller puts in Customer account Office Boy Faxes Account details Details received at Bank’s Head office Office Boy Suspicious Transaction Accounts Desk Search for Right Client Account & Right FAX Investigator from FBI, Bank, Head Bank Try to trace client’s details Investigator Search Account past trends Money deposit by Client Bank manager Compiles transaction Volume of paper work In Investigation and Administrative loop holes Leads to loss of Investigation. Is this Client records Processing fine in 2008?
  42. 42. As – Is : Business Strategy
  43. 43. Training and Awareness Program Cost of Compliance Anti-Money Laundering Strategy Anti - money laundering standards and procedures Management Commitment Security & technology usage Administrative and end - user policies and procedures KYC - Data Access/Mining Transaction Monitoring/ Tracking Processes Business and organisation Processes & Initiatives Tactical short term solutions Compliance Requirements International, Regulatory, Industry, Third Party, Internal AML Reporting Risk assessment Investment suitability Tax etc. Investment suitability Tax etc. Know your customer (KYC) - Account Opening Business Strategy Governance: To Be From Reactive to Proactive approach Integrated Approach
  44. 44. To-Be: Business Strategy
  45. 45. Business Infrastructure Fast typing skills mandatory along with use of all MS Office products from Word, to Excel to Power point, Outlook, Web browsing along with specilised software like Database programmes like SQL, Business Objects, Charles River for few. Paper based work, typing skills, telephonic skills, PC skills limited to MS Word and limited level of MS Excel. HR/Skills Separate head for Money Laundering was brought in. Person was of level of Director reporting directly to Executive Committee and working in parallel with CIO. Division was headed by Business Analyst, Project Manager who was much low in Management ranking. Administrative Process have been designed to be all Online, data transfer, sharing, all online with click of a button. Bank’s declining position, bank responsibility to comply with new new compliances and unhappy customers with slower transaction speed as compared to competitors. Few process were manual, few based on Excel sheets, few other online but there was no integration, so one division could not exchange information with other without use of paper. Key Processes To-Be As-Is
  46. 46. As – Is : Administrative Approach to Money Laundering REACTIVE APPROACH Bank teller puts in Customer account Office Boy Faxes Account details Details received at Bank’s Head office Office Boy Suspicious Transaction Accounts Desk Search for Right Client Account & Right FAX Investigator from FBI, Bank, Head Bank Try to trace client’s details Investigator Search Account past trends Money deposit by Client Bank manager Compiles transaction Volume of paper work In Investigation and Administrative loop holes Leads to loss of Investigation. Is this Client records Processing fine in 2008?
  47. 47. Current Key Processes – As Is Brokerage Asset Management Private Banking Investment Banking Institutional investors ** Above Pictures taken from Google Images
  48. 48. Future Key Processes – To Be Brokerage Asset Management Private Banking Investment Banking Institutional investors ** Above Pictures taken from Google Images
  49. 49. Organisational changes As Is To Be Hierarchy based org Structure Services, Product line based org Structure
  50. 50. Human Resources As is To Be
  51. 51. IT Strategy Internal Decisions , Regulatory, Etc. Include all areas that are relevant after the project implementation. Note Changes Internal Decisions , Regulatory, Etc. Include all areas that are relevant before the project implementation Governance Key Applications After project implementation Key Technologies After project implementation Key Applications Prior to project implementation Key Technologies Prior to project implementation Technology Scope Those areas in which the company has a distinct or competitive advantage over their competition after the implementation of the project. Note Changes Those areas in which the company has a distinct or competitive advantage over their competition. System Competency To-Be As-Is
  52. 52. As – Is : IT Strategy Paper based Approach to Money Laundering Bank teller puts in Customer account Office Boy Faxes Account details Details received at Bank’s Head office Office Boy Suspicious Transaction Accounts Desk Search for Right Client Account & Right FAX Investigator from FBI, Bank, Head Bank Try to trace client’s details Investigator Search Account past trends Money deposit by Client Bank manager Compiles transaction Volume of paper work In Investigation and Administrative loop holes Leads to loss of Investigation. Is this Client records Processing fine in 2008?
  53. 53. IT Strategy - As Is
  54. 54. IT Strategy – To Be
  55. 55. Infrastructural Re Design & Deployment Money Laundering Data warehouse
  56. 56. IT Strategy: To Be As a result of Process change implementation Exchang e Electronic Communications Network Market Maker Firm Internalizes Order Internet order Phone order
  57. 57. IT Infrastructure As-Is To-Be Architecture The IT Architecture prior to the project The IT Architecture after the project implementation. Key Processes The Key Processes prior to the project. The Key Processes after the project implementation. H/R/SKILLS HR duties and functions prior to the project. HR duties and functions after the project.
  58. 58. Pre requisites for Integrated approach to trade processing: centralisation of information collection process … to Centralised information source on correspondent banks From … Numerous bilateral information exchanges within financial institutions Source: www.swift.com/index.cfm?item_id=3878
  59. 59. As – Is Architecture US Wealth Management Europe Wealth Management Investment Banking US Wealth Management Board meet Europe Wealth Management Board meet Brokerage Management Board meet
  60. 60. To- Be Architecture <ul><li>The name of the divisions of UBS company are the following: </li></ul><ul><ul><li>Wealth Management – US Division </li></ul></ul><ul><ul><li>Wealth Management – Europe Division </li></ul></ul><ul><ul><li>Institutional Banking </li></ul></ul><ul><ul><li>Investment Banking </li></ul></ul><ul><ul><li>Private Banking – High net worth individual account, Retirement policy accounts </li></ul></ul><ul><ul><li>Fixed Income Division </li></ul></ul><ul><ul><li>Brokerage and Exchange trading division </li></ul></ul>UBS Investment banking Europe Fixed Income US Exchange trading US Wealth Management Oracle Sybase SAP Oracle U B S Da t a S t a g i n g Extract SAS Oracle SAP Wealth management Europe Institutional investment
  61. 62. Data Pipeline DDA CIS SWIFT Money Market transaction hub Load to IEF Load to IEF Load to IEF Data Hub Wires Reference data Posted & Deposit Detail Transactions TDA Extract Normalize & Transform Load Fortent Monitor Systems of Record FedWire transactions wire transactions customers accounts rel man Concept: Fortent software training material I E F Excel sheet, graphs Excel sheet, graphs Excel sheet, graphs Zurich office London office New York office Money Laundering Data warehouse
  62. 63. Alternatives Key Process change Implementation Of IT in handing Transactions Setting up Separate Money Laundering Division Brick to Click Organization for Internal reporting & HR changes Merger, Tie up with upcoming Online Financial companies & Websites [1] Professor S. Seshadari, IIT Professor slides on Datawarehousing. Only the diagram structure taken by Professor’s slide. The concept & content based on my understanding of Delta case. Centralization and Integration of Various Divisions
  63. 64. Merger, Partner with other Online Financial companies <ul><ul><li>Merger with Online Financial companies like Charles Schaub, Google money, Pay Pal. </li></ul></ul><ul><li>Pro ’ s </li></ul><ul><ul><li>Learn from experience and expertise of Online companies and use expertise for Inhouse AML implementation. </li></ul></ul><ul><li>Cons </li></ul><ul><ul><li>Tie up with Financial companies with incompatible with values of UBS or where processes of merging company or philosophy is different. </li></ul></ul><ul><ul><li>Difficult to synchronize the processes, more work for Employee of both companies, </li></ul></ul>Western Union Or Charles Schaub which are in Online Financial services business ** Above Pictures taken from Google Images
  64. 65. Go International, grow international <ul><ul><li>Alter existing Organisational structure </li></ul></ul><ul><ul><li>Tie up Online Financial services companies worldwide in providing Data required for investogating Money Laundering activities. </li></ul></ul><ul><ul><li>Focus on emerging markets, BRICK countries Brazil, Russia, India, China, and South Korea. by implementing the Money Laundering Compliances in the respective countries ahead of competitors and get advantage of first mover in these markets. </li></ul></ul><ul><li>Pros </li></ul><ul><ul><li>Greater global presence and possibility of higher profits in emerging markets. </li></ul></ul><ul><li>Cons </li></ul><ul><ul><li>If company get late & is Late entrant into the market then the above advantages might get lost. </li></ul></ul><ul><ul><li>Innovation & first mover disadvantages of entering new markets without prior market experience. </li></ul></ul><ul><ul><li>Values of UBS & new partners do not match </li></ul></ul>** Above Pictures taken from Google Images
  65. 66. Transform workforce, move from Brick to Click Organization only for Internal reporting <ul><ul><li>Workers / Paralegals be Train / retrenched in order to prepare company to survive in the Internet age. </li></ul></ul><ul><ul><li>Change process – Demand supply, distribution, marketing, Seat reservation. </li></ul></ul><ul><ul><li>Strengthening Technology division and Tie – up / Acquire with Online financial websites </li></ul></ul><ul><li>Pros </li></ul><ul><ul><li>Save money from Pension benefits, job cuts, hiring younger age call centers workers </li></ul></ul><ul><li>Cons </li></ul><ul><ul><li>Face employee wrath, dissatisfaction could lead to hostile takeover by a competitor like American Airlines. </li></ul></ul>** Above Pictures taken from Google Images
  66. 67. Organisational changes As Is To Be Hierarchy based org Structure Services, Product line based org Structure
  67. 68. Future Key Processes – To Be Brokerage Asset Management Private Banking Investment Banking Institutional investors ** Above Pictures taken from Google Images
  68. 69. Recommendations <ul><li>Methodology: </li></ul><ul><li>Incremental method is recommended in today fast changing business environment. Some might even recommended agile approach wherein smaller increments of redesign and then feedback is done. But, this approach is found to be more suitable for Technology firms. </li></ul><ul><li>In this approach as stated the Technology team redesign, conducts test of design and then feedback and approval of the business owner. getting feedback from all concerned stakeholders, thereby diminishing the chances of risk in case the redesign of process is not liked. And, all the processes happens almost in parallel, one starts and soon other starts. This ensures speed of the project work getting accomplished and with consent of all the stakeholders parties, both Technical and the Business. </li></ul><ul><li>In event of a not so good design by the IT team, another redesign can be done and presented. Since, small portion, so loss of time and money will be less compared to waterfall where whole part is completed first before moving to the next. </li></ul><ul><li>HR </li></ul><ul><li>Apart from Methodology, Human resources is another important component of accomplishing the project. UBS could decide to get all the project done: </li></ul><ul><ul><li>In-House 2. Whole IBM or Infosys 3. Mix of In-House, IBM, Infosys </li></ul></ul><ul><li>In-house does not suit as UBS Technology team might not have the requisite expertise, an IBM or Infosys professional have due to working in specialized environment by IBM or Infosys. Completely, depending upon the technology team of IBM, Infosys too is not favorable as consulting companies do not have the exact idea what the top bosses would want or what is the requirement as per the Financial industry and UBS values norm. </li></ul><ul><li>Hence, a mix of UBS Technology team and consulting companies like IBM, Infosys is recommended. </li></ul>
  69. 70. Training and Awareness Program Cost of Compliance Anti-Money Laundering Strategy Anti - money laundering standards and procedures Management Commitment Security & technology usage Administrative and end - user policies and procedures KYC - Data Access/Mining Transaction Monitoring/ Tracking Processes Business and organisation Processes & Initiatives Tactical short term solutions Compliance Requirements International, Regulatory, Industry, Third Party, Internal AML Reporting Risk assessment Investment suitability Tax etc. Investment suitability Tax etc. Know your customer (KYC) - Account Opening From Reactive to Proactive approach Integrated Approach
  70. 71. Pre requisites for Integrated approach to ML Bank: centralisation of information collection process … to Centralised information source on correspondent banks From … Numerous bilateral information exchanges Source: www.swift.com/index.cfm?item_id=3878
  71. 72. Organisational changes As Is To Be Hierarchy based org Structure Services, Product line based org Structure
  72. 73. References MIS 760 Team Case 1. www.cfdg.org.uk/.../events_h_050518_E3%20-%20 Money %20 Laundering %20and%20Fraud%20-%20Don%20Bawtree. ppt Presentation from Don Rawtree, Don Bawtree, Partner, BDO Stoy Hayward LLP, Emerald House, East Street, Epsom, Surrey, KT17 1HS 2. Presentation on Briefing on ‘KYC’ Norms and ‘AML’ Measures for IBA Member Banks by Sanjeev Singh, Additional Director, FIU-IND, Financial Intelligence Unit-India 3. www.fintraca.gov.af/assets/ppt/AML 4.http://www.nchelp.org/elibrary/Presentations/2003/2003WinterLegalAffairsMeeting/Consumer%20Privacy%20Issues.ppt 5. www.cityinformation.org.uk/Events/presentations/2007-May-MicheleBate.ppt 6. http://www.amlcft.com/cases.htm#Recent_Major_Fines_and_Penalties 7. Presentation on Briefing on ‘KYC’ Norms and ‘AML’ Measures for IBA Member Banks
  73. 74. References <ul><ul><li>8. www.baft.org/content_folders/2nd%20European%20Bank-to-Bank%20Forum/andrew_clark. ppt 9. Fortent AML training guide </li></ul></ul><ul><ul><li>10. www.kentlaw.edu/faculty/rwarner/classes/certificate/crime/ USA %20 Patriot %20 Act .ppt 11. www.baft.org/content_folders/2nd%20European%20Bank-to-Bank%20Forum/andrew_clark.ppt </li></ul></ul><ul><ul><li>12. www.swift.com/index.cfm?item_id=3878 </li></ul></ul><ul><ul><li>13.Some of the inputs are from reading from working at UBS so don’t have particular slides to quote. </li></ul></ul>
  74. 75. References & Bibliography <ul><ul><li>Missing - References : To be added </li></ul></ul><ul><ul><li>Sources on each slides need to be added </li></ul></ul>
  75. 76. Ethical Statement “ Cheating during in-class tests or take-home examinations or homework is, of course, illegal and immoral. A Graduate Academic Evaluation Board exists to investigate academic improprieties, conduct hearings, and determine any necessary actions. The term ‘academic impropriety’ is meant to include, but is not limited to, cheating on homework, during in-class or take home examinations and plagiarism.” Consequences of academic impropriety are severe, ranging from receiving an “F” in a course, to warning from the Dean of the Graduate School, which becomes a part of the permanent student record, to expulsion. Consistent with the above statements, all homework exercises, tests and exams that are designated as individual assignments must contain the following signed statement before they can be accepted for grading. I, Kartik Mehta, pledge on my honor that I have not given or received any unauthorized assistance on this assignment/examination. I ,Kartik Mehta, further pledge that I have not copied any material from a book, article, the Internet or any other source except where I have expressly cited the source. MIS 760 Team Case

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