Building a Better Money Laundering Trap

After seeing the stiff fines imposed on financial institutions such as Riggs Bank and AmSouth, executives at Baltimore-based Provident Bank ($6.5 billion in assets) wanted to make sure the bank had a strong, automated method to handle anti-money laundering reporting requirements, according to Jay Fitzhugh, the bank's SVP, strategic directions. "After viewing the severe regulatory penalties levied against some large banks, we decided that we needed to adopt a more proactive [AML] risk mitigation strategy," he says. "Having an automated system shows [regulators] that we are actively managing our risk."

In fall 2004, Fitzhugh began a search for software to provide automated AML reporting. The bank already used RiskTracker from BANKDetect (Churchton, Md.) to analyze daily demand deposits and manage fraudulent activity ranging from kiting to embezzlement, so it looked to the vendor for an AML solution as well, Fitzhugh relates. Provident had installed RiskTracker in the late '90s. The bank also considered software from Metavante (Milwaukee), which provides the financial institution's core processing technology.

"BANKDetect had already built the interfacing and the data feed from the general ledger system to RiskTracker, so we would be able to use the same data feed for a starting point," Fitzhugh says. Similar reasoning was behind the decision to consider Metavante.

But Provident wanted a solution in place for year-end reporting purposes. BANKDetect said it could deliver RiskTracker AML within a few weeks, according to Fitzhugh, who adds that Metavante, on the other hand, needed more time to install an AML solution.

Fitzhugh received positive feedback from other banks - both similar-sized institutions and from larger ones that were doing more comprehensive detection and reporting - that were using BANKDetect's AML detection software, and he ultimately selected the RiskTracker AML solution in mid-November 2004. The software was installed and running four weeks later, he notes.

The bank added a Pentium IV server to run the software, but it didn't require any other hardware changes. According to BANKDetect, most large banks run RiskTracker AML on a separate server from RiskTracker because the functions are handled by different departments. Small banks, however, sometimes run the applications on the same server because one department in the bank handles both functions.

Provident established a new department with three full-time employees to deal with AML and Bank Secrecy Act compliance. RiskTracker AML automates much of their work - otherwise the bank would have needed more staff for this function, Fitzhugh points out.

The solution enables Provident to analyze sources, types and amounts of transactions. The software's profile analysis feature looks at transactions in relation to an account's expected behavior. It also includes pattern analysis for interrelationships among current and prior transactions, or relationships among accounts, and contextual analysis for factors such as where a transaction occurred, the degree of risk associated with the type of account, the destination and the beneficiary/source of funds.

The software also performs proprietary analysis on general ledger transactions to detect relationships among accounts that are otherwise unlinked. In addition to the reports included in the application, users can configure and add new reports as desired.

Adding the new department and the software helped establish the bank's risk mitigation strategy, a factor that regulators consider when rating a bank's compliance, according to Fitzhugh. "This has given us the capability to begin risk-based monitoring," he says. "We couldn't do that running in a manual mode."

SNAPSHOT

INSTITUTION: Provident Bank (Baltimore).

ASSETS: $6.5 billion.

BUSINESS CHALLENGE: Quickly deploy anti-money laundering solution.

SOLUTION: RiskTracker AML from BANKDetect (Churchton, Md.).