How client profiles detect money laundering more accurately

business forensics

When we talk about client profiles, we have more than just KYC in mind. Using a client profile allows you to be more proactive in investigating compliance breaches. The client profile doesn’t just look at what’s happening on a particular account or even a specific transaction, it includes behavioral patterns, and it monitors the client’s network. When you combine behavioral patterns with network information and historical information, deviations to a client’s normal behavior are suddenly easy to detect and generates a signal that something suspicious might be going on. This makes monitoring on client level much more relevant than monitoring on account or transaction level. By transcending monitoring based on the account level and by combining multiple data sources and monitoring routines, you can catch true positives where suspicious behavior would usually go unnoticed.

Banks still monitoring their clients at the account level are at high risk of leaving financial crimes such as money laundering to go unnoticed. Account monitoring is a rather one-dimensional practice as individual transactions simply don’t always tell you the complete story as we’ll show you throughout this article.

Transactions act as your baseline

Although transaction monitoring alone isn’t sufficient to accurately detect financial and economic crime, it still plays the lead role in compliance monitoring. A transaction that is flagged because it breaks a particular rule can easily be confirmed as either a false positive or a true positive alert by comparing it to data such as the birth date of the account holder, the relationships this account holder has with other individuals, or by automatically screening the account holder against the PEP-list.

But the real value of enriching signals with plain client data as well as historical, behavioral, and network information lies in that it’s easier to detect minor changes to a client’s situation. It also helps to identify those transactions that don’t fall within the rules that would normally trigger a signal. And finally, it provides the context to prioritize the alert.

Why include behavior?

People are creatures of habit and every detective knows that a change in behavior is the first sign that something could be going on. How do you find anomalies to ordinary behavior? When a client all of a sudden starts to show activities that aren’t in line with his usual activities, he can just have found a new interest, or something could be going on. Behavioral profiles show you what a client does and when he does those things. In the case of personal accounts, it should take into consideration what the appropriate financial behavior is for a client’s age, occupation, residential address, general appearance, and the type and level of previous financial activities.

One example of inappropriate financial behavior is when a man got control over the bank accounts of 15 teenagers aged 13 to 19 years to move £36,500. The man recruited these kids as money mules through social media and promised them considerable sums of money in exchange for their bank card and PIN. One 15-year old boy would receive £300 if he let the man pay £800 to £1000 through his account.

Looking at this case from a behavioral standpoint should immediately raise a red flag. Because, what 15-year old boy would get access to that type of money? If a child that age works in the UK, they can’t work more than 17 hours a week and if they earn the minimum wage that would give them a weekly salary of £71,40, or £285,60 monthly. What are the chances of spotting this financial behavior that isn’t appropriate to the account holders age if you apply rule-based account-level monitoring? Next to nothing if your staff is well-experienced. Zero if their workload is as high as it is at most banks.

What can a customer’s network reveal?

Criminals never act alone. In fact, they try to create as many layers as possible to cover up their illegal business. That’s why it’s important to have insight into the connections between people, or companies.

Smurfing or structuring, for example, is hard to detect with transaction monitoring alone. Small cash deposits won’t raise a flag by itself. Neither do wire transfers. However, when multiple clients at the same bank deposit cash on their accounts every week and then wire those funds to the same account in Hong Kong, that’s a red flag. Especially when those people seemingly don’t have any connection to Hong Kong that would make it necessary to transfer funds there.

Another example of a money laundering tactic that’s hard to notice without network information is U-turning, where a person or company transfers money to another person or company, only for the same funds to return to the original payer.

How to implement client profiles in your compliance systems

When you have a perfectly functioning system which only flaw is that it doesn’t make client profiles, there’s no need to replace the entire system still to be able to use client profiles. BusinessForensics uses modules that can easily be integrated with the current system that you’re using. Integrating the modules that enrich the signals your current transaction monitoring system generates, doesn’t take much time or configuration but does make a big difference in your ability to fight financial and economic crime. Our client profile module also helps you to vastly reduce the number of false positive alerts generated by the transaction monitoring system.

Grab a copy of our white paper to learn more about how that works. Or contact us at + 31 168 479 038 or, if you’d prefer to have a conversation and ask us questions about what client profiles can do for your bank.


Tames Rietdijk

Tames Rietdijk is the CEO of BusinessForensics. His area of expertise lies with Product management, Forensic investigations and Data analytics. His work is focused on improving market mechanisms and operational efficiencies to increase value for his customers.

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