Anti-money laundering software
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Anti-money laundering software is software used in the finance and legal industries to meet the legal requirements for financial institutions and other regulated entities to prevent or report money laundering activities. There are four basic types of software that address anti-money laundering: transaction monitoring systems, currency transaction reporting (CTR) systems, customer identity management systems and compliance management software.
Anti money-laundering guidelines came into prominence globally after the September 11, 2001 attacks and the subsequent enactment of the USA PATRIOT Act in the United States and the establishment of the Financial Action Task Force on Money Laundering (FATF). By 2010 many jurisdictions globally required financial institutions to monitor, investigate and report transactions of a suspicious nature to the financial intelligence unit in their respective country.
An entire industry developed around providing software to analyze transactions in an attempt to identify transactions or patterns of transactions, called structuring, which requires a SAR filing, or other suspicious patterns that qualify for SAR reporting. Financial institutions faced penalties for failing to properly file CTR and SAR reports, including heavy fines and regulatory restrictions, even to the point of charter revocation.
There are four basic types of software addressing AML business requirements:
- Transaction monitoring systems, which focus on identification of suspicious patterns of transactions which may result in the filing of Suspicious Activity Reports (SARs) or Suspicious Transaction Reports (STRs). Identification of suspicious (as opposed to normal) transactions is part of the KYC requirements.
- Currency Transaction Reporting (CTR) systems, which deal with large cash transaction reporting requirements ($10,000 and over in the U.S.)
- Customer identity management systems which check various negative lists (such as OFAC) and represent an initial and ongoing part of Know your customer (KYC) requirements. Electronic verification can also check against other databases to provide positive confirmation of ID such as (in the UK: electoral roll; the "share" database used by banks and credit agencies; telephone lists; electricity supplier lists; post office delivery database
- Compliance software to help firms comply with AML regulatory requirements; retain the necessary evidence of compliance; and deliver and record appropriate training of relevant staff. In addition, it should have audit trails of compliance officers activities in particular pertaining to the handling of alerts raised against customer activity.
Transaction monitoring software
These software applications effectively monitor bank customer transactions on a daily basis and, using customer historical information and account profile, provide a "whole picture" to the bank management. Transaction monitoring can include cash deposits and withdrawals, wire transfers and ACH activity. In the bank circles, these applications are known as "AML software".
Each vendor's software works somewhat differently. Some of the modules which should be present in an AML software are:
- Know Your Customer
- Entity Resolution
- Transaction Monitoring
- Compliance Reporting
- Alert based case management
- Investigation Tools
- Document management to hold the customer related documentation such as account opening package, customer identification documents, etc...
- Delivery of AML Training
- Customer due diligence checks, including electronic verification
- Automated Standard operating procedures e.g. workflow engine/
- Dissemination of AML policies and procedures
Customer Identity Management Systems
The definition for Customer Identity Management Systems varies in different regions and jurisdictions. Most vendors include the following features in their solutions:
- Sanction Check
- Politically Exposed Person Check
- False Positive Recording
- Single Scan and Batch Scanning
- Auditing and Reporting
Some free and open source tools that cover parts of Customer Identity Management systems are arising. Some of these tools include EveryPolitician, Free Sanction Check by NameScan and Pudo.org's opennames project.