AML - How can technology help in transforming business of Anti-Money Laundering compliance

1. Anti-Money Laundering Compliance software implementation

4. Training and Awareness Program Cost of Compliance Anti-Money Laundering Strategy Anti - money laundering standards and procedures Management Commitment Security & technology usage Administrative and end - user policies and procedures KYC - Data Access/Mining Transaction Monitoring/ Tracking Processes Business and organisation Processes & Initiatives Tactical short term solutions Compliance Requirements International, Regulatory, Industry, Third Party, Internal AML Reporting Risk assessment Investment suitability Tax etc. Investment suitability Tax etc. Know your customer (KYC) - Account Opening From Reactive to Proactive approach Integrated Approach

5. Data Pipeline DDA CIS SWIFT Money Market transaction hub Load to IEF Load to IEF Load to IEF Data Hub Wires Reference data Posted & Deposit Detail Transactions TDA Extract Normalize & Transform Load Fortent Monitor Systems of Record FedWire transactions wire transactions customers accounts rel man Concept: Fortent software training material I E F Excel sheet, graphs Excel sheet, graphs Excel sheet, graphs Zurich office London office New York office Money Laundering Data warehouse

7. Opportunities: Easy Trends analysis Money Laundering Analysis using Tools Users Wealth Management Investment Banking Calculation Engine Actuate Actuate Zurich office Stamford Office Actuate Cognos SAS New York office Actuate London Office Excel sheet, graphs Excel sheet, graphs Excel sheet, graphs Excel sheet, graphs

8. Opportunity: Easy access of information globally Zurich office – Report on Clients transactions unexplained for amount above $10,000 . Stamford office List of clients in US said to be under suspicion radar Berlin office List of clients in Germany said to be under suspicion radar New York office – US government – List of all Clients under suspicion by bank’s investigators Paris office – How to perform better Than Credit Suisse – search Trends Excel, Word London office demands Suspicious Activity Reports

9. Opportunities: Actual number & not mere suspicion about Client & their transaction 10 47 30 12 Wealth Management Investment banking Fixed Income Institutional securities US Europe Asia 3/1 3/2 3/3 3/4 Date Month Region Product

10. External Problems Globalisation of clients & data Sophisticated money launderers Inefficient compliance systems Reporting to number of agencies & regulation change Accountability of transactions from Corresponding banks, investigate volumes of data. [1] Professor S. Seshadari, IIT Professor slides on Datawarehousing. Only the diagram structure taken by Professor’s slide. The concept & content based on my understanding of Delta case. Privacy concern’ Of clients

11. Internal Problems Hire Paralegal & IT team well versed with Patriot Act AML software which is best processes and budget? Where to hire best IT, Technology consultants Each division working on different data system [1] Professor S. Seshadari, IIT Professor slides on Datawarehousing. Only the diagram structure taken by Professor’s slide. The concept & content based on my understanding of Delta case. Massive volumes Of data & Data integration Permissions Within The bank Day – to- day operations Vs Trends & Strategy issues

12. Operational Problem: Quick access to financial information in manage transactions What product promotions have the biggest impact on revenue? What is the most effective distribution channel? Who are my customers and what products are they buying? Which are our lowest/highest margin customers ? What impact will new products/services have on revenue and margins? Which customers are most likely to go to the competition ?

15. Know Your Customer Guidelines Customer Acceptance - Ensure that you accept only legitimate and bona fide customers. Customer Identification- Ensure that you properly identify your customers to understand the risks they may pose. Transactions Monitoring- Monitor customers accounts and transactions to prevent or detect illegal activities. Risk Management- Implement processes to effectively manage the risks posed by customers trying to misuse facilities. Money Laundering Searches required by the Compliance Officer Source: Presentation by Sanjeev Singh

16. KYC: If Client Involved in Money Laundering Activities Drug Trafficking Bribery / Corruption Prostitution Gambling Tax Evasion Extortion Robbery and Fraud White Collar Crimes ( including Insider Trading and Securities offences ) Smuggling (arms, people, goods) Counterfeiting and Forgery Kidnapping Serious Crime or All Crimes? Organised Crime Source: www.fintraca.gov.af/assets/ ppt /AML

17. Goal: Integration of Company’s data to enable Money Laundering Analysis Across Bank’s various Divisions for Analysis to happen Investment Banking – Europe division Global Wealth Management Fixed Income US division Trading and Settlement Switzerland Division Drill down By city, country Drill down by Financial product Trend analysis By region Granular Details by region City, state, country

18. Fortent Monitor Data Manager Profiling Engine Operational Data Store Detection Engine Investigation System Source: Fortent software training material

19. Data Pipeline DDA CIS SWIFT Money Market transaction hub Load to IEF Load to IEF Load to IEF Data Hub Wires Reference data Posted & Deposit Detail Transactions TDA Extract Normalize & Transform Load Fortent Monitor Systems of Record FedWire transactions wire transactions customers accounts rel man Concept: Fortent software training material I E F Excel sheet, graphs Excel sheet, graphs Excel sheet, graphs Zurich office London office New York office Money Laundering Data warehouse

21. Goal: Process change Exchang e Electronic Communications Network Market Maker Firm Internalizes Order Internet order Phone order [1] http://www.ibtimes.com/articles/20061006/add-nyse-electronic-trading.htm

23. The Simple SWOT from MIS750 S TRENGTHS W EAKNESSES O PPORTUNITIES T HREATS 4. Existing Human Resource, Divisions, high cost Brick structure within bank, how to utiilize their services compared to Click structure of small Online companies & consequently their low operating cost. 6. Buying / Tie up with Online Financial services Company and learn from their low cost Click culture, Online handling of Processes like Fox TV who successfully launched My Space on Internet though traditional TV Media company. 5. Lack of methods to know and verify Customer details from what they say and what they actually do. 6. Huge amount of daily data to be checked right from Client’s details, to Transactions, to email correspondence between the Client and the Bank. 7. Cataloging data from around the world, from all their Clients & from all the Client’s transactions and then storing all these details at Bank’s location. 8. Cataloging all the above details and yet comply with the Swiss Privacy Laws of Non Disclosure of Client’s details and maintaining Client’s Privacy.

24. Weakness: Data Integration & Size of Bank Problems: Data Disintegration Across Sources Brokerage Credit card Wealth Management Investment Banking Same data different name Different data Same name Data found here nowhere else Different keys same data

27. Strengths Weaknesses 1. Use Huge pockets to deploy latest Money Laundering Technology. 2. Use Brand name to enter Online Money Laundering Banking Operations. 1. Provide staff IT training in Money Laundering software to make them equipped to handle Money Laundering software operations. 1. Fines from the regulators. New changing regulations around the world and fines for Bank in event of non compliance to these new laws. Loss of Image in case Bank found guilty of Money Laundering. Tie up Start up firms to join the Online Products & services. Tie-up and Co-Brand services with existing Online player to compete with new born Online firm. Lower cost of operations and transaction to attract customers from competition. Tie-up with IBM, Infosys to provide regular supply of well experienced IT workers. Start transformation of Enterprise into IT governed enterprise parallelly in multiple divisions of bank. Opportunities S O STRATEGIES W O STRATEGIES S T STRATEGIES W T STRATEGIES Threats Super SWOT Company UBS Money Laundering Division 1. Brand Name 2. Cash Flow 3. Well distributed office locales 4. Products and services 5. Trained Financial workforce. 6. Part of Bank Transactions Online. 1. Huge Online market untapped. 2. Commanding presence in US, European 3. Greater reach to clients than competitors 4. Offer more variety services 1. Lack of in house Money Laundering & IT workforce 2. Huge size, slower adoption of technology than by competitors 3. High cost of Brick structure against the Click structure and high operating cost. 4. Late mover in Online market.

28. Strengths Weaknesses 3. Use big distribution to get more clients than competition. 4. Use huge infrastructure to provide Add on services. 1. Use Huge pockets to deploy latest Money Laundering software & trained IT workforce from say IBM. 2. Use brand name to offer Online services and market these. 2. Slow adoption of IT 3. In house trained workforce Tie up Start up firms to join the Online Products & services. Tie-up and Co-Brand services with existing Online player to compete with new born Online firm. Lower cost of operations and transaction to attract customers from competition. Tie-up with IBM, Infosys to provide regular supply of well experienced IT workers. Start transformation of Enterprise into IT governed enterprise parallelly in multiple divisions of bank. Opportunities S O STRATEGIES W O STRATEGIES S T STRATEGIES W T STRATEGIES Threats Super SWOT Company UBS Money Laundering Division

29. Method 1: Customer Relationship Management CRM used for Monitoring/Reporting Customer ID documentation Enhanced due diligence Monitoring Reporting FIU analysis Investigation Application from customer Within the institution Outside the institution When should KYC research need to be carried out? Source: www.baft.org presentation by Andrew Clark

31. Method 1 Contd… CRM : 2 Tracking Suspicious Behavior by customer, by transaction Comparison of current month to account profile Comparison of current month to peer profile Event Thresholds Sum of scores SB Thresholds Alerts Account Value Account Volume Insufficient Account Insufficient Peer Peer Volume Peer Value Events Group by customer Customer Security Blanket Infraction Account Security Blanket Infraction BLU Infraction Infractions (reason for alert) Account Profile Peer Profile Monthly Summary Daily Summary Daily Summary Daily Summary Source: Fortent software training material

32. Fortent Monitor Data Manager Profiling Engine Operational Data Store Detection Engine Investigation System Source: Fortent software training material Method 2: Information Organization

33. Data Pipeline DDA CIS SWIFT Money Market transaction hub Load to IEF Load to IEF Load to IEF Data Hub Wires Reference data Posted & Deposit Detail Transactions TDA Extract Normalize & Transform Load Fortent Monitor Systems of Record FedWire transactions wire transactions customers accounts rel man Concept: Fortent software training material I E F Excel sheet, graphs Excel sheet, graphs Excel sheet, graphs Zurich office London office New York office Method 2: Information Organization Money Laundering Data warehouse

35. Method 2: Information Organization What do we look at ? Role Country Bank Account Island Bank Peoples Bank Lion Bank Transaction Type Originator SWIFT Intermediary 1 SWIFT Intermediary 2 SWIFT $ Wachovia Beneficiary SWIFT $ Message/Product Type SWIFT MT103 WIRE Source: Fortent software training material

37. Business Strategy Competitors Banks like Barclays, Credit Swisse, Citi Group are also deploying Technology, but Business Intelligence might be UBS edge. Local banks, online financial instutions with low distribution network will loose customers badly and may even cease to exist. Competitors Banks like Barclays, Credit Swisse, Citi Group as well Online firms like E-Trade, Charles Schwab are giving UBS tough competition. Customers/Clients Educated, high net worth individual well versed with Online services, specially younger generation will jump on, might loose those who not Online. Client prefer Telephone or web meetings, one-to-one meeting only in special cases. Customers/Clients For Clients coming to bank for one-to-one meet is a norm loaded with paper and going back with bag full of financial documents. Products and Services Single UBS Executive, Client’s point of contact for all kinds of accounts, Asset, Wealth Management or Brokerage to get overall picture. Online services. Products and Services Asset Management, Wealth management, Brokerage – to an extent still manual and same client has to call different divisions for different accounts Business Scope To-Be As-Is

38. Products & Services / Clients & Customers – As is

39. Products & Services / Clients & Customers – To Be

40. Business Strategy Online Asset management, Brokerage, Taxes filing, Pension policy advise and related Online services become norm. Services over the phone, Call center services for minor administrative services like logging on bank’s Web page, opening bank account become a norm. Note Changes Big distribution network. Brand Name Deep pockets to implement any new technology within a short time. Distinctive Competencies Internal Decisions , Regulatory, Etc. Patriot Act details of client submission to government – implementation done Online only using Excel, Business Objects, graphs. Internal Decisions , Regulatory, Etc. Patriot Act implementation done both partly manual, partly Online Business Governance To-Be As-Is

41. As – Is : Business Strategy Governance Paper based Approach to Money Laundering Bank teller puts in Customer account Office Boy Faxes Account details Details received at Bank’s Head office Office Boy Suspicious Transaction Accounts Desk Search for Right Client Account & Right FAX Investigator from FBI, Bank, Head Bank Try to trace client’s details Investigator Search Account past trends Money deposit by Client Bank manager Compiles transaction Volume of paper work In Investigation and Administrative loop holes Leads to loss of Investigation. Is this Client records Processing fine in 2008?

42. As – Is : Business Strategy

43. Training and Awareness Program Cost of Compliance Anti-Money Laundering Strategy Anti - money laundering standards and procedures Management Commitment Security & technology usage Administrative and end - user policies and procedures KYC - Data Access/Mining Transaction Monitoring/ Tracking Processes Business and organisation Processes & Initiatives Tactical short term solutions Compliance Requirements International, Regulatory, Industry, Third Party, Internal AML Reporting Risk assessment Investment suitability Tax etc. Investment suitability Tax etc. Know your customer (KYC) - Account Opening Business Strategy Governance: To Be From Reactive to Proactive approach Integrated Approach

44. To-Be: Business Strategy

45. Business Infrastructure Fast typing skills mandatory along with use of all MS Office products from Word, to Excel to Power point, Outlook, Web browsing along with specilised software like Database programmes like SQL, Business Objects, Charles River for few. Paper based work, typing skills, telephonic skills, PC skills limited to MS Word and limited level of MS Excel. HR/Skills Separate head for Money Laundering was brought in. Person was of level of Director reporting directly to Executive Committee and working in parallel with CIO. Division was headed by Business Analyst, Project Manager who was much low in Management ranking. Administrative Process have been designed to be all Online, data transfer, sharing, all online with click of a button. Bank’s declining position, bank responsibility to comply with new new compliances and unhappy customers with slower transaction speed as compared to competitors. Few process were manual, few based on Excel sheets, few other online but there was no integration, so one division could not exchange information with other without use of paper. Key Processes To-Be As-Is

46. As – Is : Administrative Approach to Money Laundering REACTIVE APPROACH Bank teller puts in Customer account Office Boy Faxes Account details Details received at Bank’s Head office Office Boy Suspicious Transaction Accounts Desk Search for Right Client Account & Right FAX Investigator from FBI, Bank, Head Bank Try to trace client’s details Investigator Search Account past trends Money deposit by Client Bank manager Compiles transaction Volume of paper work In Investigation and Administrative loop holes Leads to loss of Investigation. Is this Client records Processing fine in 2008?

47. Current Key Processes – As Is Brokerage Asset Management Private Banking Investment Banking Institutional investors ** Above Pictures taken from Google Images

48. Future Key Processes – To Be Brokerage Asset Management Private Banking Investment Banking Institutional investors ** Above Pictures taken from Google Images

49. Organisational changes As Is To Be Hierarchy based org Structure Services, Product line based org Structure

50. Human Resources As is To Be

51. IT Strategy Internal Decisions , Regulatory, Etc. Include all areas that are relevant after the project implementation. Note Changes Internal Decisions , Regulatory, Etc. Include all areas that are relevant before the project implementation Governance Key Applications After project implementation Key Technologies After project implementation Key Applications Prior to project implementation Key Technologies Prior to project implementation Technology Scope Those areas in which the company has a distinct or competitive advantage over their competition after the implementation of the project. Note Changes Those areas in which the company has a distinct or competitive advantage over their competition. System Competency To-Be As-Is

52. As – Is : IT Strategy Paper based Approach to Money Laundering Bank teller puts in Customer account Office Boy Faxes Account details Details received at Bank’s Head office Office Boy Suspicious Transaction Accounts Desk Search for Right Client Account & Right FAX Investigator from FBI, Bank, Head Bank Try to trace client’s details Investigator Search Account past trends Money deposit by Client Bank manager Compiles transaction Volume of paper work In Investigation and Administrative loop holes Leads to loss of Investigation. Is this Client records Processing fine in 2008?

53. IT Strategy - As Is

54. IT Strategy – To Be

55. Infrastructural Re Design & Deployment Money Laundering Data warehouse

56. IT Strategy: To Be As a result of Process change implementation Exchang e Electronic Communications Network Market Maker Firm Internalizes Order Internet order Phone order

57. IT Infrastructure As-Is To-Be Architecture The IT Architecture prior to the project The IT Architecture after the project implementation. Key Processes The Key Processes prior to the project. The Key Processes after the project implementation. H/R/SKILLS HR duties and functions prior to the project. HR duties and functions after the project.

58. Pre requisites for Integrated approach to trade processing: centralisation of information collection process … to Centralised information source on correspondent banks From … Numerous bilateral information exchanges within financial institutions Source: www.swift.com/index.cfm?item_id=3878

59. As – Is Architecture US Wealth Management Europe Wealth Management Investment Banking US Wealth Management Board meet Europe Wealth Management Board meet Brokerage Management Board meet

62. Data Pipeline DDA CIS SWIFT Money Market transaction hub Load to IEF Load to IEF Load to IEF Data Hub Wires Reference data Posted & Deposit Detail Transactions TDA Extract Normalize & Transform Load Fortent Monitor Systems of Record FedWire transactions wire transactions customers accounts rel man Concept: Fortent software training material I E F Excel sheet, graphs Excel sheet, graphs Excel sheet, graphs Zurich office London office New York office Money Laundering Data warehouse

63. Alternatives Key Process change Implementation Of IT in handing Transactions Setting up Separate Money Laundering Division Brick to Click Organization for Internal reporting & HR changes Merger, Tie up with upcoming Online Financial companies & Websites [1] Professor S. Seshadari, IIT Professor slides on Datawarehousing. Only the diagram structure taken by Professor’s slide. The concept & content based on my understanding of Delta case. Centralization and Integration of Various Divisions

67. Organisational changes As Is To Be Hierarchy based org Structure Services, Product line based org Structure

68. Future Key Processes – To Be Brokerage Asset Management Private Banking Investment Banking Institutional investors ** Above Pictures taken from Google Images

70. Training and Awareness Program Cost of Compliance Anti-Money Laundering Strategy Anti - money laundering standards and procedures Management Commitment Security & technology usage Administrative and end - user policies and procedures KYC - Data Access/Mining Transaction Monitoring/ Tracking Processes Business and organisation Processes & Initiatives Tactical short term solutions Compliance Requirements International, Regulatory, Industry, Third Party, Internal AML Reporting Risk assessment Investment suitability Tax etc. Investment suitability Tax etc. Know your customer (KYC) - Account Opening From Reactive to Proactive approach Integrated Approach

71. Pre requisites for Integrated approach to ML Bank: centralisation of information collection process … to Centralised information source on correspondent banks From … Numerous bilateral information exchanges Source: www.swift.com/index.cfm?item_id=3878

72. Organisational changes As Is To Be Hierarchy based org Structure Services, Product line based org Structure

73. References MIS 760 Team Case 1. www.cfdg.org.uk/.../events_h_050518_E3%20-%20 Money %20 Laundering %20and%20Fraud%20-%20Don%20Bawtree. ppt Presentation from Don Rawtree, Don Bawtree, Partner, BDO Stoy Hayward LLP, Emerald House, East Street, Epsom, Surrey, KT17 1HS 2. Presentation on Briefing on ‘KYC’ Norms and ‘AML’ Measures for IBA Member Banks by Sanjeev Singh, Additional Director, FIU-IND, Financial Intelligence Unit-India 3. www.fintraca.gov.af/assets/ppt/AML 4.http://www.nchelp.org/elibrary/Presentations/2003/2003WinterLegalAffairsMeeting/Consumer%20Privacy%20Issues.ppt 5. www.cityinformation.org.uk/Events/presentations/2007-May-MicheleBate.ppt 6. http://www.amlcft.com/cases.htm#Recent_Major_Fines_and_Penalties 7. Presentation on Briefing on ‘KYC’ Norms and ‘AML’ Measures for IBA Member Banks

76. Ethical Statement “ Cheating during in-class tests or take-home examinations or homework is, of course, illegal and immoral. A Graduate Academic Evaluation Board exists to investigate academic improprieties, conduct hearings, and determine any necessary actions. The term ‘academic impropriety’ is meant to include, but is not limited to, cheating on homework, during in-class or take home examinations and plagiarism.” Consequences of academic impropriety are severe, ranging from receiving an “F” in a course, to warning from the Dean of the Graduate School, which becomes a part of the permanent student record, to expulsion. Consistent with the above statements, all homework exercises, tests and exams that are designated as individual assignments must contain the following signed statement before they can be accepted for grading. I, Kartik Mehta, pledge on my honor that I have not given or received any unauthorized assistance on this assignment/examination. I ,Kartik Mehta, further pledge that I have not copied any material from a book, article, the Internet or any other source except where I have expressly cited the source. MIS 760 Team Case