Even the most advanced technology cannot prevent money laundering without management buy-in.
In a recent $25 million case against Riggs Bank (Washington, D.C.; $6 billion in assets), the Office of the Comptroller of the Currency (OCC, Washington, D.C.) found that the bank failed to implement an effective anti-money laundering program and, as a result, failed to file suspicious activity reports and did not collect or maintain adequate information regarding its foreign banking customers.
But, according to analysts, even if an AML system is in place, technology alone cannot solve money laundering problems. In a case like the one against Riggs, management is to blame, says Richard DeLotto, principal analyst, financial services, Gartner (Stamford, Conn.). "Systems won't work if management ignores it," DeLotto says. "When people are dishonest, the technology is going to fail. By trying to fix this business problem with technology, IT spending is going to be too high and it is not going to work."
The fate of a bank's compliance efforts ultimately depends on a bank's employees, according to DeLotto. Riggs "could have had a very complex, well-thought-out system, and it still wouldn't have done anything because people weren't reporting suspicious activity," DeLotto says.
The ideal way for banks to prevent failures similar to the one at Riggs is to train staff how to monitor suspicious activity detected by a risk management system. "Train everybody and alert staff," says DeLotto. "It is the cheapest measure for detecting suspicious activity."
An important element of a strategy to prevent violations of legislation such as the Bank Secrecy Act is to get employees to feel comfortable with reporting to someone outside the organization, DeLotto says. "There should be a way for an employee to report things that don't look right to a committee chaired by an outsider," he says.
DeLotto believes the Riggs case will serve as an example for other financial institutions. "This will remind people that keeping an eye out for money laundering is everyone's job in the bank," he says.
While Riggs is still under investigation, PNC Bank (Pittsburgh) has announced its acquisition of Riggs Bank's retail franchise; the deal is scheduled to close in the first quarter of 2005. PNC is making compliance a priority, says Brian Goerke, a PNC spokesperson. "We did a thorough review of Riggs and worked closely with regulators before making the acquisition," he says. "Any executives involved in those issues are not going to be retained."