AML Case Study: New Way to Fight Fraud Atlanta's Citizens Trust Ties AML with Fraud-Detection
At a time when some larger banking institutions are being fined for inadequate anti-money laundering measures, security manager Wendy Chapman says she's taking suspicious activity reporting seriously -- and the efforts are paying off.

Based at Citizens Trust, a community bank with just less than $500 million serving Greater Atlanta and parts of Alabama, Chapman is focused on streamlining AML processes with fraud detection.

"We had been doing a manual process," she says. "It was taking three of us, and it was very time consuming. We knew we were missing stuff, because there was no way for us to assess all of the information. We actually had a couple of instances where we went back and looked at the reports and saw things we should have picked up."

Chapman says those misses did not result in violations, but they easily could have. "Missing things like that could have led to us filing a late SAR, for one," she says.

This past November, Citizens Trust launched FRAML -- a combined fraud-detection and AML tool from Verafin. FRAML, a behavior-based software, leverages artificial intelligence and pattern recognition to identify suspicious behavior. Chapman says Citizens Trust is using the technology to not only improve AML practices, but to improve cross-channel fraud detection as well. "It picks up on everything from debit fraud and check kiting to money laundering," she says. "Since February, we've filed more SARS, and we know our customers a lot better because we are looking at them more closely."

Community Banks: The New Targets

Penalties for gaps in anti-money laundering practices are severe. Last month, Salt Lake City-based Zions Bank ($50 billion in assets) was fined $8 million for violations to the Bank Secrecy Act and the USA Patriot Act. In October, HSBC North America (USA) ($186 billion in assets) got slapped by the Office of the Comptroller of the Currency with a cease and desist order for similar violations. Regulators found deficiencies in HSBC's BSA compliance program that affected SARS, customer due diligence relating to foreign affiliates and risk assessment, as well as the monitoring of bulk-cash purchases and international funds transfers.

For large banks, regulatory scrutiny has always been part of the AML equation. For smaller institutions, however, the assumption has been that they fly a bit under the radar of regulatory scrutiny and organized crime rings. But that narrow mindset is being challenged, especially in the wake of growing political unrest in Northern Africa, says Hugh Jones, CEO and president of global AML solutions provider Accuity. "Smaller banks around the world, community or regional banks, are actually at higher risk for money laundering," Jones says. "The changes that are going to occur in the next 12 months are going to be historic; you really do need to stay on top of that, or you're going to be screening against the wrong people. ... Regulators will increase their investigation," to make sure you are complying.

Cross-Channel Cost Savings

Vendors that provide AML and fraud detection tools have long touted the cost savings associated with merging AML and fraud prevention. Doug Johnson, vice president of risk management policy at the American Bankers Association, also has recommended banks look to investments that link AML to fraud-detection as a way to enhance cross-channel fraud detection and detect more ACH fraud.

But Chapman says for her institution, the true advantage has been realized through the reduction of potential fraud and SARs violations. "I know in the past month and a half, the system stopped around $2,000 in check fraud," she says. "For bigger institutions, that's not a big deal; but when you are small, that's significant."

Chapman says the system also picked up on a recent debit fraud scheme, which was detected with a cross-channel view.

"We are a small bank in a high-intensity drug-trafficking area of Atlanta," she says. "We never had a violation, but every time the examiners came in, we had to give them a lot of paper, and we had to explain to them how we were handling the process. Now, it's a lot easier, and easier to explain."

The FRAML system creates customer patterns, which also saves staff time, Chapman says. "And as far as cost savings, I would say, that's been more about time," she says. "'Before, we had three people dedicated to this. Now, it's all automated, and it can track a customer's activity from the beginning."


About the Author

Tracy Kitten

Tracy Kitten

Executive Editor, BankInfoSecurity & CUInfoSecurity

A veteran journalist with more than 18 years' experience, Kitten has covered the financial sector for the last 11 years. Before joining Information Security Media Group in 2010, where she now serves as the Executive Editor of BankInfoSecurity and CUInfoSecurity, she covered the financial self-service industry as the senior editor of ATMmarketplace, part of Networld Media. Kitten has been a regular speaker at domestic and international conferences, and was the keynote at ATMIA's U.S. and Canadian conferences in 2009. She has been quoted by CNN.com, ABC News, Bankrate.com and MSN Money.




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