Late last year we predicted in these pages that the fine imposed of €98,000 on Bray Credit Union by the Central Bank for failures in its anti-money laundering (AML) procedures would be "the thin end of a very large wedge as the Central Bank signals a no-nonsense attitude to anti-money laundering (AML) practices by financial institutions".
With the announcement this week of a €2.3m fine levied on AIB for similar offences, that prediction now seems credible to say the least.
The escalating demands by central banks around the world for banks to have in place "fit for purpose" AML and countering financial terrorism (CFT) procedures are increasingly onerous, yet the resolve of the regulators, as evidenced by recent enforcement measures, seems clear. "In particular, we expect that our retail banks, as gateways to the financial system, have in place exemplary anti-money laundering systems and controls," noted the Central Bank's director of enforcement, Derville Rowland, in relation to the AIB case.
Similarly, appeals on the grounds of insufficient resources are unlikely to be heard sympathetically.
AIB was reprimanded for and admitted to six breaches of the Criminal Justice (Money Laundering & Terrorist Financing) Act 2010 (CJA 2010). Two breaches were highlighted: failure to report suspicious transactions and failure to conduct customer due diligence (CDD).
In respect of reporting suspicious transactions, the failures centred around AIB's acquisition of EBS in July 2011.
The Central Bank found "AIB failed to apply adequate resources to ensure alerts of potential suspicious activity (in a 'backlog' generated by its EBS business), were promptly investigated and, where necessary, reported to An Garda Síochána and the Revenue Commissioners. Notably, AIB's centralised AML unit, responsible for investigating and reporting suspicious transactions, took more than 18 months to fully address the backlog which at one point stood at over 4,200 alerts outstanding for 30-plus days".
AIB also failed to conduct customer due diligence (CDD) on customers who had accounts prior to May 1995 ('Pre-95 customers') when the first Irish laws on anti-money laundering and countering the financing of terrorism became effective.
In reality, the two issues are interrelated. Suspicious transactions are more often than not the result of inadequate due diligence and the latter the result of insufficient - but more pertinently, inefficient - resources being applied.
With the Central Bank resolve and its determination to enforce with punitive measures so evident, banks and credit unions must now reassess the cost/benefit equation of deploying sufficient resources to the task. The cost side of that equation may make many managers wince.
But it doesn't have to be that way. Technology provides the answer, in particular at the crucial customer onboarding stage.
Here at 'StubbsGazette' we have partnered with HooYu to deliver almost-instant online ID verification, doing away with the costs and complications of manual verification.
Anyone who has tried in the past to open a bank account knows full well the inconvenience and potential frustration involved: from submitting proof of address to having passport photos stamped at the local garda station. Small wonder that up to 70pc of bank customers asked to go in-branch to provide ID documentation drop out of the process.
The mobile device is at the heart of the 'StubbsGazette'/HooYu system. The bank texts the prospect to establish initial contact. The user then takes a selfie of themselves using their phone. This image is plotted and matched against the passport image and any anomalies identified. The system (on user opt-in) allows the bank to examine the eight major social media platforms in a customer context. PayPal and Facebook provide rich material.
This social media dimension dramatically increases the level of scrutiny at verification time. It is this combination of digital footprint, with ID documentation and facial biometrics that delivers an extraordinarily robust yet extremely efficient onboarding process that satisfies AML/CFT requirements.
Proper deployment promises to end fraud at the ID stage.
James Treacy is managing director of StubbsGazette
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DARREN WILLIAM CROMEY
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