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Effective Monitoring of High-Risk Transactions

Learn why, what, and how to monitor high-risk transactions for protection against money launderers, sanctioned parties, and more. Understand the methods like manual monitoring, automated systems, and interdiction. Find out how regulators are satisfied and discover the key elements for success.

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Effective Monitoring of High-Risk Transactions

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  1. Monitoring High Risk Transactions • Why We Monitor • What We Monitor • How We Monitor • Does it work? May 11, 2009

  2. MONITORING HIGH RISK TRANSACTIONS WHY? • Protect against “Bad Guys”: • Money Launderers • Sanctioned Parties( OFAC, EU,etc.) • Terrorist Financiers

  3. MONITORING HIGH RISK TRANSACTIONS WHY? • Protect against regulators: • Policies and procedures • Automated systems • Manual reviews • Training • Record keeping • Consistency • FFIEC Manual

  4. MONITORING HIGH RISK TRANSACTIONS Are risk based programs a myth? • Interdiction: OFAC =“Strict liability” • Monitoring: Risk =Reputation, “reputation is priceless” • Cost Justification • Riggs Bank, Lloyds Bank • Insurance model: Expected return is negative, but pay a premium you can afford to avoid a loss you cannot afford.

  5. MONITORING HIGH RISK TRANSACTIONS What? • Funds Transfer( SWIFT & ACH) • Capital Markets • Trade Finance • Liability Management? • Checks • Third party payments • Vendors, employees

  6. MONITORING HIGH RISK TRANSACTIONS How? • Manual Monitoring • Automated systems • Interdiction systems • Source lists • Algorithms: • Stop descriptors • Phonetic matches • Fuzzy logic • Monitoring systems • Rules Based • Change based • Artificial intelligence

  7. MONITORING HIGH RISK TRANSACTIONS • Interdiction is the more simple task • Comparison of three tools on same data Does it work?

  8. True Hit 92 184 8 176 343 481 4688 MONITORING HIGH RISK TRANSACTIONS Comparison of screening tools Single day Funds Transfer Phonetic (460) Stop Descriptor (1008) Fuzzy Logic (5529)

  9. MONITORING HIGH RISK TRANSACTIONS • Ratio of alerts to SAR’s;>2000:1 • Ratio of interdiction hits to block/reject;=1000:1 • Regulators seem satisfied • Lack of objective standards • Testing bio labs Does it work?

  10. MONITORING HIGH RISK TRANSACTIONS • Staffing • Investigator • Statistician • Technology • Database • Business Objects ver. XI (BOXI) • Projects • Digit distribution • Business line risk assessment • Vessels • Resource optimization Research & Development Project

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