The unrest in the Middle East has important ramifications for U.S. banks, which have been directed by the federal government to be on special alert for the movement of assets that may be tied to senior foreign political figures.
Turmoil in Libya prompted the Financial Crimes Enforcement Network to issue a Feb. 24 advisory reminding financial institutions of their duty, under the USA Patriot Act, to monitor private banking accounts for suspicious activity and to file reports when they find something amiss.
Tony Wicks, director of anti-money-laundering solutions at NICE Actimize, a New York maker of risk management and compliance software, spoke with American Banker on Wednesday about what banks should be on the lookout for, what the latest monitoring technology looks like and how to handle a name like Libyan leader Muammar Muhammad el-Qaddafi's, which has 115,000 variants depending on how it is spelled and punctuated. A condensed version of the interview follows.
How worried should U.S. banks be about all this?
TONY WICKS: First and foremost, the Fincen directive suggests that they need to take additional scrutiny to payments to or from Libya, particularly with politically exposed individuals.
But in the last week there's been a lot of activity elsewhere [with the White House and the United Nations both announcing sanctions]. The scope of what banks now have to look for, and freeze the assets of, means they need to do additional scrutiny of their customer base and of transactions.
How complicated will that be?
The White House executive order names specifically Qaddafi and four of his children who are considered to be sanctioned individuals. They're now on the [Treasury Department's Office of Foreign Assets Control] list.
The United Nations names Qaddafi and five children. Qaddafi is believed to have at least seven children, and there's a significant number of spelling and other variants of each of their names.
On the OFAC list, they've taken five sanctioned individuals, Qaddafi and four of his children, and exploded that in terms of the spelling variants, and that turns into 56 names and variants. If you take the name Muammar Muhammad el-Qaddafi, which is Qaddafi's full name, there are over 115,000 different transliteration variants.
So how can banks approach the problem of handling name variants?
The challenge is really in terms of the kind of systems they are using. First-generation matching technology was very simple search-based, looking for exact matches to names and name lists. You could [plug in] synonyms of names to allow those spelling variants to be introduced, but you'd still have to check all those things against your customer base and the transactions they were making.
The second generation encoded the names with sound-alike equivalents. The third generation took phonetic approaches based on Soundex [an algorithm developed in the early 1900s], but it was very tailored to U.S. names specifically at that time, and it doesn't work well with Arabic names or names from China or Korea, or names taken from Cyrillic.
What we're using now, the fourth-generation technology, is the computational linguistic method. That looks for the phonetic variations but also the significant transliteration [differences] associated with those variations, and can better detect possible hits based on a single common list.
Is the latest technology up to the task of tracking accounts of so-called politically exposed persons?
I think the later technology pieces are. With the earlier technology pieces, the problem you get is a large number of false positive hits that then need to be manually screened. Then that leads to a slowdown in terms of what you've got to do, and the fact that you've got so many hits also leads to an increased likelihood that you miss something.
What kind of transactions should banks be scrutinizing the most? And how long must they keep up the extra vigilance?
It's not just wire payments and high-value traffic. They also need to be looking at things like trade finance, things like securities; they've got to be looking across their entire business portfolio. You've got people not only trying to smuggle money out of Libya, but liquidating assets that had been held abroad.
[Banks] should be looking across their systems for unusual payments to individuals, going to particular destinations that might be considered safe havens for those funds.
Many of the assets of these individuals will not be particularly liquid. There will be properties, securities. It will take time for those things to be transferred, for monies to be moved, over longer periods perhaps than people would immediately realize.