The pressure is on for South African businesses to fortify their systems against access by money launderers, terrorists and others whose activities may compromise foreign policy or national security.
So said KPMG Forensics partner, Kevin West, at a seminar hosted by Bateleur Software. The fact is, said West, any institution that aids criminal activity - knowingly or not - is putting its reputation, profit and possibly its future on the line.
In order to give effect to section 25 of POCDATARA (1), accountable institutions should screen customers against the UN 1267 in accordance with the specific UN Resolution dealing with this matter. In addition to this, accountable institutions processing cross-border payments may be required to conduct screening on such payments against the relevant watch lists maintained by OFAC (2), HMT (3) and the European Union, to mention just three.
Failure to do so, and subsequent failure to timeously alert the relevant authorities to suspicious dealings, may result in severe financial penalties being imposed by the relevant regulatory authorities. One recent case in the UK making the headlines is that of Sindicatum Holdings (4), which was fined £49 000, and its board member and money laundering reporting officer, Michael Wheelhouse, who was fined £17 500 by the Financial Services Authority (FSA) for failing to have adequate anti-money laundering controls in place.
West said screening of customers is performed to determine possible financial sanctions, prohibited business activities (for example, ivory trade) or those who transact in prohibited countries. In addition, screening is also performed to determine politically exposed persons.
As a result of this, companies may be faced with massive volumes of false positive results when performing their screening. Large numbers of false positives will require resources to investigate these, and may negatively impact on the way customers are serviced, West said.
“Company directors and officers responsible for screening must ask themselves how they can screen their customers against the relevant lists quickly, and how they can do so, so that the number of false positives is not unreasonably high.
“Obviously, using screening software is the smart choice, but they should note that the better the software, the better their screening process and accuracy. The screening software they choose should at least be able to deal with incorrect spellings, address and name variations (transliteration), cope with data inconsistencies and allow the use of matching thresholds.
“Only then will they stand a chance of being on top of the screening process and limiting both their own and their company's exposure,” he said.
Datanomic Vice-President Risk & Compliance Screening, Simon Pearson, concurred. “With one trillion dollars laundered each year, governments are making anti-money laundering a priority,” he said.
In South Africa to launch his class-leading client screening platform, dn:Director for Sanctions & PEP (Politically Exposed Persons) Screening, he said preparation is the key to successful screening processes.
“Data preparation and pre-cleansing is critical to ensuring accuracy when screening. Many organisations underestimate the requirement and complexity of data preparation, yet it is fundamental to achieving accurate results with minimal false positives. dn:Director includes sophisticated data preparation and cleansing capabilities to ensure extraordinary accuracy in screening.
“Furthermore, when we designed dn:Director, we concentrated on the users' experience - we are experts in software development, it's what we do best. We want our users to concentrate on compliance issues and not the complexities behind the system they are using.
“Most importantly, we have worked hard to eliminate erroneous matches, the false positives. These may arise because a perfectly innocent person has identical (or very similar) details to the bad guy, or it may be because the matching is too clumsy. Our solution removes the second scenario by the use of clever match comparison algorithms.
“dn:Director also provides a self-learning system that eliminates repetitive rework, freeing up customers' time to perform other value-adding activities. We have drawn on experience with more than 160 major financial institutions to develop the sophisticated rules management capability within our solution. Furthermore, these useful rules are easily changed through a simple-to-use graphical user interface should your business needs alter. For example, compliance officers can adjust matching thresholds to conduct sensitivity analysis and alter tolerance levels in a risk-based approach to compliance. At the end of the day, it's all about peace of mind, and saving customers money.”
In terms of Bateleur's partnership with Datanomic, it will sell and implement the award-winning dn:Director for Sanctions & PEP (Politically Exposed Persons) Screening solution, the de-facto screening software of choice for Risk & Compliance screening in the UK, in South Africa and sub-Saharan African countries.
Notes:
(1) POCDATARA: Protection of Constitutional Democracy Against Terrorist and Related Activities Act 33 of 2004
(2) OFAC: Office of Foreign Asset Control
(3) HMT: Her Majesty's Treasury
(4) http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5039596.ece
(5) FATF: Financial Action Task Force
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