This story has been translated from Dutch to English by the BusinessForensics team.
You can find the original article (in Dutch) here.
Every year, at least €16 billion in fraud and drug money is laundered in The Netherlands. “10 percent of all bank staff are only involved in money laundering and fraud,” says Koen Juffermans, fraud and cybercrime expert at BusinessForensics.
During his years in the military and banking sector, Koen Juffermans has seen all the tricks. The purpose of laundering money is to scramble it, so there’s no longer a trace to its nefarious origins. “In banking, money laundering is used to finance drug shipments, buy houses, cars, boats, jewelry, or sneakers, among many other things. Five to ten years ago, anyone could still top-up their bank account with cash by visiting the bank desk clerk. Now, new laws have passed, prompting banks to ask more questions, which helps limit the possibilities to launder.”
“Banks are required to check who their potential customer is before opening a bank account,” the fraud expert continues. “Where does the potential customer live and work? Do they have a criminal history? Based on this kind of information, a customer profile is created. After the profile is created, a customer is classified as low, medium, or high-risk.
Additionally, a customer can be rejected because, for example, they have no business structure in Panama or Dubai, or they possess other high-risk attributes for money laundering. This examination happens periodically.
When a bank has to screen millions of customers, it puts an enormous workload on the institution. Under money laundering legislation, 10% of the banking workforce only investigate fraud and money laundering. Criminals use all kinds of constructs to circulate money, often through bank accounts located around the world, and eventually, collect the cash in one bank account.”
What does the bank do when, despite the preliminary investigation, strange transactions slip through the cracks? “Criminals need bank accounts in the name of others because they have to go along with the standard payment system. Banks look at different transactions. For example, a customer buys a car while receiving a social benefit, like WW or AOW. This behavior raises questions. However, it’s certainly not always what it seems. Someone could have won the Postcode Lottery, received an inheritance, or taken money out of their home. “
“Also a different transaction is if the customer’s payslip shows that he earns a salary of 2000 euros net, but he suddenly spends 3000 euros in a casino, then this is striking. In this case, the bank will inform the customer again. The third aspect is the fraud aspect. For the banks, it is also an image problem if they are associated with fraud. In recent years, banks have put a lot of money into detecting fraud and money laundering transactions.”
Why does money laundering have such an impact on society? “If banks don’t tackle fraud, among other offenses, criminal money will enter circulation. If criminals can launder, there will be money in a society that permits people to manifest their livelihoods in undesirable ways. Think of roles in social and administrative organizations. Criminal activity will undermine the administrative apparatus in The Netherlands and is one of the reasons banks have a major role to play in combating its prevalence. We’ve also seen a shift in recent years. On the fraud side, as a bank, you have more freedom to control things yourself. Meanwhile, pressure was increased on the regulatory side of transaction monitoring. If a bank does not properly adhere to regulatory guidelines, the supervisor will take note.”
“BusinessForensics has been around for ten years. At various banks in the Netherlands, we implement the software that intercepts money laundering. We work with banks, especially for money laundering and fraud detection. Insurers assist mostly with fraud. Additionally, as a company, we pursue social values. Social values are critical for companies today. Monitoring for fraud and money laundering is also critical. If someone is laundering money, they must have done something to get this money. Banks suffer from cybercrime because it is still profitable for criminals to pretend to be the bank, thereby defrauding people. “
The WWFT (Anti-Money Laundering and Terrorist Financing Act) requires financial institutions to report unusual transactions to expose money flow that supports criminal activity. If a suspicious transaction is not reported, there’s a risk of the bank receiving a fine, which is an outcome that has long been a point of contention. In the case of doubt for a transaction, the bank should also properly document what information has been considered. Like, in the case of ING (who reached a settlement of €775 million in 2017 for inadequate money laundering checks) the potential outcome was followed, with interest, by the banking system and by us.”
“Staff are now trained with the help of special programs. It takes a lot of suitable people, and it’s difficult to find them. Therefore, it’s also necessary for banks to invest in new systems,” says Juffermans. “Banks facilitate more than 10 billion transactions in The Netherlands every year. That’s 27 million a day and 1.3 million per hour. Hundreds of millions of transactions are recorded by each bank. Every day, data is analyzed by special software that runs through various scenarios. Our software, for example, identifies the signals for money laundering and fraud.
Manually, this would be very labor-intensive, so technology helps. A small portion of these signals, approximately 2-4 percent, are reported to the Financial Intelligence Unit (FIU) as alerts.
Before reporting happens, the bank’s analysts examine the details of a customer’s suspicious activity, along with their transaction history. They explore if the customer’s behavior fits the transaction. They also look for red flags, like a cash deposit into an unknown entity or receiving a foreign payment from outside Europe.
If the software indicates the bank’s customer has also traveled to that country and paid with a private bank account, this is something bank employees could investigate further. If the senior analyst looks at the activities and feels the same way, the compliance department will be engaged to report the relevant information to the FIU.”
Ice Cream Shops
Juffermans has plenty of examples of fraudulent behavior. “Think of companies that give each other money by sending fictitious accounts for services that have not been provided. This goes back and forth. At some point, it is no longer possible to determine the origin of the money, let alone its legality.”
What are typical potential fraud branches? “Ice cream parlors and hairdressers,” he says. “Because how do you check what’s being sold? Are there ten customer haircuts per day or twenty-five? It’s hard to count people on your doorstep. Of course, the tax office does look at the number of customers by comparing visitor numbers to local hairdressers, but it’s an area that remains prone to fraud.”
According to the Dutch Bankers Association, the banks are strengthening their gatekeeper function. For example, cooperation with law enforcement agencies and other public parties has been stepped-up, customer screening processes have tightened, and transaction monitoring has improved.
With the creation of Transaction Monitoring Netherlands (TMNL), five Dutch banks — ABN Amro, ING, Rabobank, Triodos, and De Volksbank — have taken the first steps to jointly monitor transactions. TMNL focuses on establishing unusual patterns in the payment system that banks cannot discover individually. By joining forces with banks, they can identify illegitimate money flow more accurately and improve reports submitted to the FIU.
“TMNL is a good initiative,” says Juffermans. “It’s a step forward, but not every bank joins. A bank with a limited number of products, or a certain number of customers, does not have the size to participate. The advantage is created by scaling up.”
To efficiently combat money laundering and fraud, banks must have the ability to exchange data amongst themselves. Therefore, it’s good that the cabinet wants to amend the law, in the short term, per the Dutch Banking Association.