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News

Datanomic reveals extent of UK money laundering.

Datanomic : 26 July, 2007  (Technical Article)
Datanomic has uncovered examples of criminals using UK financial institutions to launder the proceeds of crime.
Following the disturbing findings of its extensive customer research programme, data integrity specialists, Datanomic has revealed real world examples of actual terrorists, criminals, gang members and fraudsters that Datanomic found to be active customers of major UK financial services companies. The research incorporated a review of more than 300 million customer records, more than half of which are in the financial services arena.

Under the Prevention of Terrorism Act 2005, the Terrorism Act 2000, and the Proceeds of Crime Act 2002, it is an offence for firms to be involved in transactions that are the proceeds of crime, or are intended for terrorists or terrorist groups. Datanomic believes that up to 50% of UK financial institutions are unknowingly in breach of this legislation due to failure to accurately screen their client customer bases effectively. The following individuals are real world examples of criminals, organized crime members, and terrorists that Datanomic found in the customer databases of UK-brand-name banks, life insurance/pensions and investment companies. Individual names have been withheld to prevent prejudicing pending court proceedings.

- The Convicted Drug Dealer –Member of a multi-million pound narcotics ring operating out of London. Convicted in June 2004 of conspiracy to supply narcotics. Pleaded guilty. In July 2004 authorities identified £4.5 million in assets but further fortunes could be in overseas bank accounts. Sentenced to nine years imprisonment. His name appears on the Metropolitan Police List but the financial institution had failed to cross check his details.

- The Suspected Terrorist – Reportedly chief of staff of the IRA Army Council. June 1989 – false passports allegedly in an alias name. Oct 2005 – under investigation by Assets Recovery Agency. Denies all allegations. March 2006, police raid on his farm with in excess of £1m worth of cash and cheques, 8,000 litres of fuel and 30,000 cigarettes allegedly seized. His name appears on the National Memorial Institute for the Prevision of Terrorism list but the financial institution had failed to cross check his details against such list.

- The Gang Member – Member of a five person gang who cashed stolen benefit cheques at Post Offices in the greater Belfast area between May – Aug 2001. Oct 2004 – reported that he and a co-accused had pleaded guilty to defrauding the Department of Health and Social Services prior to the start of the trial. His name appears on various financial crime lists but the financial institution had failed to cross check his details against such lists.

- The Fraudster – Serious Fraud Office begin criminal proceedings into alleged conspiracy to defraud the NHS in relation to price-fixing and generic drugs totalling £150m. Accused of alleged fraud. Case referred to Southward Crown Court. Released on unconditional bail. His name appears on the official list of the Serious Fraud Office but the financial institution in question had failed to cross check his details against such list.

- The ‘Struck Off’ Businessman –Currently on the FSA list as being prohibited from performing any function in relation to regulated activities, which correspond to investment business as defined by the Financial Services Act 1986. Highly advisable to look at the individual’s investment and source of funds. His name appears on the official list of the FSA but the financial institution in question had failed to cross check his details against such list.

The Disqualified Director – Undertaken not to hold directorships for five years (6/4/2004 – 5/4/2009) in respect of a failed company with £35m of debts. His name appears on official list of the UK Disqualified Directors Register but the financial institution in question had failed to cross check his details against such list.

Financial Services companies are typically wasting seventy five percent of their time each month dealing with recurring ‘false positives’ produced by inefficient and ineffective matching of their customer records with lists of known or suspected criminals and politically exposed persons (PEPs). In spite of their efforts, an alarming number of companies in the Financial Services sector are unknowingly doing business with criminals, terrorists or money launderers. The typical number of SARs (Suspicious Activity Reports) that a Money Laundering Reporting Officer raises following an audit by Datanomic on even in just sub-set of a financial services company’s data is between five and nine SARs. For example, a recent review of thirty percent of customer data from a large well known London-based investment house resulted in seven SARs.

Typically, a Datanomic audit reveals around four percent of an organisation’s customers are matches to World-Check’s Watch & PEP List, and a quarter of these relate to financial crime.

“Financial services companies are failing to accurately screen the customer bases by only screening against limited lists or getting side tracked with false positives,” said Dr Jonathan Pell, CEO of Datanomic Ltd. “The scale, cost and complexity of matching customer records against sanctions lists (‘Watch Lists’) and named Politically Exposed Persons has become a major administrative burden for compliance departments. The legal requirement to continually, accurately screen entire customer bases means organisations have to continually review large volumes of customer data. This can only be effectively managed through an automated sophisticated solution, not a manual process.”

Money Laundering Reporting Officers (MLROs) are faced with increasing Know Your Customer challenges. The EU 3rd Money Laundering Directive, which comes into force on 15th December 2007, requires financial services organisations to fortify their systems against access by money launderers, criminal gangs, known terrorists and others whose activities may compromise foreign policy or national security. The scale, cost and complexity of matching customer records against sanctions lists (‘Watch Lists’) and named Politically Exposed Persons has become a major administrative burden for compliance departments.

Datanomic’s Watch & PEP List Management solution enables users to define how closely any two records match. Standard comparisons are pre-configured but can be edited, removed or new ones added in a risk-based approach. When the defined thresholds are met, the decision of Match, No Match or Review can be automated. Most importantly, Datanomic’s match rules mean manual decisions made on reviewed records will automatically be remembered next time the data is processed, unless either record has changed. This eliminates repeating the search on ‘false positives’ every time the records are checked.

Datanomic reduces the manual review effort by a factor of four. By reducing the amount of manual matching required, Datanomic’s solution frees up resources to focus manual effort on more complex tasks. Moreover, improving the effectiveness of enterprise data applications further enhances corporate performance and competitive advantage.

Datanomic’s Watch & PEP List Management solution delivers a rapid return on investment and fast implementation. The solution can be purchased as a technology package that is owned in year one, rather than as a service commanding an annual fee.
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