Banks have long struggled to detect illicit transactions among the multitudes they process daily because criminals move dirty money from one institution to another to cover their tracks, leaving compliance staff with only a partial road map of their actions.
This has begun to change, with financial institutions and service providers in various countries creating information sharing platforms and messaging tools with the potential to greatly improve money laundering and fraud detection.
A research project supported by the Royal United Services Institute, a UK think tank, has identified at least 15 information sharing initiatives around the world. Although most countries do not allow banks to share information, several recent efforts have shown significant success in identifying crime, according to the Future of Financial Intelligence Sharing project.
Countries with information sharing platforms include the US, the UK, the Netherlands and Estonia. The types, uses and origins of the platforms studied by FFIS vary widely. Some focus on specific issues, such as money mules, or simply offer secure messaging to participating banks. Others have applied sophisticated technology to help banks comply with far-reaching anti-money laundering obligations.
A leading example is Transactie Monitoring Nederland, a joint venture of the five largest Dutch banks. The utility-style platform, launched in July 2020, allows participating banks such as ABN Amro, ING and Rabobank to pool encrypted transactional data about customers.
Consulting with banks and the Netherlands’ financial intelligence unit, TMNL has developed models that allow the group to search shared data for potentially unusual transaction patterns that could indicate money laundering or terrorist financing. The privacy-enhancing technology allows TMNL to generate alerts from the anonymized dataset it monitors while protecting the identity of bank customers.
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TMNL, a private entity with about 70 employees, is tight-lipped about initial findings to identify possible money laundering activity. Executive Director Norbert Siegers said TMNL is still experimenting and has not yet developed outcome metrics. So far, the platform has generated about 2,000 alerts, which have been sent to the relevant banks for further investigation, he said.
“We are basically an analysis factory, where we create [anti-money-laundering] models to find potential patterns, but the alert research is still done by the banks,” he said.
Anti-money laundering rules require financial institutions to monitor transactions and report suspicious activity to regulators. Many banks have monitoring software to help flag potentially suspicious transactions, but the hope is that by pooling data, TMNL will spot patterns that its members wouldn’t otherwise see.
In some cases, alerts generated by TMNL’s models have prompted banks to submit suspicious activity reports to the Dutch financial intelligence unit, which in turn led to further investigations by law enforcement authorities, he said. said Siegers.
Hennie Verbeek-Kusters, the director of the Netherlands’ financial intelligence unit, applauded TMNL’s work. “This is really a very simple way to take information sharing and cooperation between banks to the next level,” he said. “We are very positive about the initiative.”
A first pilot exercise described in the FFIS study allowed TMNL and the Dutch authorities to reduce the time required to trace a complex anti-money laundering network from three weeks to two days. Verbeek-Kusters said the partnership with TMNL involved a lot of trial and error as the group refined their models to produce more useful results.
“Ultimately it resulted in a very good report from the various banks, an analysis that we could have reached the traditional way of working, but it would have taken us months more,” he said.
A limitation of TMNL is that it currently focuses exclusively on business customers of banks. Although the platform uses technology that only allows its member banks to decipher its alerts, privacy protections are much tougher for individual bank customers than for legal entities such as businesses.
Data privacy concerns are one of the main obstacles to more widespread adoption of information sharing platforms in most countries. For TMNL, the next step would be to recruit more banks and add transaction data from individual customers. But that would require legislation clarifying how such information sharing relates to the European Union’s strict data protection rules, a move the Netherlands is considering, Siegers said.
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The United States was one of the first countries to offer financial institutions a legal gateway to share customer information to identify money laundering or terrorist financing activities, with the enactment of the USA Patriot Act after the attacks September 11 terrorists. But this sharing of information is voluntary, and use of the gateway has been slow.
The legislation has resulted in the creation of various platforms and associations by service providers and financial institutions. Verafin, a software company that offers a transaction tracking and case management product, has developed a messaging portal through which about 2,500 bank users can send information requests to each other.
Oracle is building a similar tool in partnership with Duality Technologies, which would include automated query and response capabilities, meaning a requesting financial institution would not have to disclose the existence of its query to the receiving party request information
According to the FFIS study, a more formal partnership of five of the largest US banks has also yielded interesting results. The partnership, launched in 2015, allows participating banks to pool investigative resources, generating thousands of new subjects of potential law enforcement interest.
Still, most such collaborations in the United States and elsewhere remain fairly limited, the study found. Nick Maxwell, the head of the FFIS programme, said the main obstacles are pre-existing legal frameworks. Governments, he said, need policies that explicitly pave the way for new information-sharing initiatives.
“Technology is not the problem,” he said. “It’s really about whether the country has a clear political environment to support the exchange, which is rare.”
Write to Dylan Tokar at dylan.tokar@wsj.com
This article was published by Dow Jones Newswires, a service of the Dow Jones Group
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