CSI: Financial Services

Okay, maybe it's not the stuff of television drama. But banks nonetheless face real-life struggles when examining their internal systems for evidence of crimes such as money laundering, embezzlement and the financing of terrorist activities.

Since financial forensics involves deep experience and skill in the fields of law, technology, investigations, accounting and data management, it's a task often left to specialists such as Ellen S. Zimiles, who heads KPMG's (New York) forensic practice for the U.S. financial services industry.

For the most part, banks simply cannot afford to build an internal forensic research squad with a similar level of depth. "They may have some forensic people, but oftentimes it's left to security, internal audit or legal," Zimiles says. "They may have some of the pieces, but really not all of the pieces."

But bankers can take a more proactive role in preventing problems from occurring in the first place and discovering suspicious activity as it happens. Based on a recent survey commissioned by KPMG, bankers are taking their role to heart. The survey elicited the feedback of 209 banks in 41 countries on their responses to the growing level of anti-money laundering (AML) regulations, legislation and enforcement efforts. The results indicate that AML has become a high-level issue, with increasing management awareness of the reputational risks involved with failure.

Although banks are facing up to their responsibilities, it's an expensive proposition. Over the past three years, the average increase in AML investment has been 61 percent, according to the survey, with the most expensive item being transaction monitoring. Required by law in the U.S., transaction monitoring has also been adopted by 82 percent of respondents in the Asia-Pacific region. But Zimiles doubts that firms are universally using the most advanced approaches. "Is it really looking at every transaction through an automated monitoring tool?" she asks. "They may say, 'I do transaction monitoring,' but we don't know how much they really do."

Indeed, transaction monitoring involves a complex implementation of new systems and processes. "The case management system is as important as the monitoring system itself," Zimiles notes. "What you do with it when you find a problem, from a regulatory view, is just as important or more important than finding it in the first place."