Brockton-based HarborOne Credit Union is in the process of implementing a new anti-money laundering system.
Smaller financial institutions are paying more attention to white-collar crimes such as money laundering than they have in the past. Part of the watchfulness is due to newer regulatory requirements. However, credit unions and community banks are aware that they now are more susceptible to attempts at money laundering than in the past.
“I think it is [the case] with all fraud, the fraudsters are going to find the area of least resistance,” said Richard Bastiansen, senior vice president of operations for Brockton-based HarborOne Credit Union.
HarborOne is in the process of implementing a new anti-money laundering product – part of Avon, Conn.-based COCC’s Sentry Services – designed to streamline regulatory compliance and heighten detection of fraudulent activities that could occur.
Bastiansen said many credit unions and small banks increasingly are becoming aware that they may be viewed as easier targets than the larger banks by white-collar criminals. Knowing this means it is time to reevaluate what measures can be put in place to protect the institution and prevent financial crimes from happening.
“People are well aware of what the reporting laws are,” he said. “It certainly takes a lot of focus to prevent fraud.”
For any cash transaction of $10,000 or more, the financial institution must file a Currency Transaction Report. Under the USA PATRIOT Act, financial institutions are required to report suspicious financial transactions by filing a Suspicious Activity Report, or SAR. Nearly 800,000 SARs were filed last year and more are expected this year, according to the Financial Crimes Enforcement Network, a department of the U.S. Treasury.
Bastiansen said that the COCC system may help combat more than just money laundering. He said it also can be useful for detecting early signs of identity theft.
“It looks at patterns of activity,” he said of the bank’s new monitoring system. “It offers a broader perspective in terms of risk.”
In order to comply with the Bank Secrecy Act and anti-money laundering regulations, HarborOne has devoted one-half to three-quarters of a full-time employee’s position to the task. Bastiansen said the new system will make things more efficient. Although he said he could not predict how much time it might save, he did say even if a great deal of efficiency isn’t gained, the system would still provide other major benefits.
Prevention and detection software available to financial institutions is starting to come down in price. Now that more institutions can afford it, Bastiansen said he believes other credit unions and small banks are considering implementing new systems.
“They certainly make a lot of sense,” he said. “The time and the opportunity came together where we could improve the process.”
“Smaller institutions face the same regulatory demands [as large banks],” said Linda Stahl, COCC’s strategic products director. “It’s no longer [just] looking at cash flowing in and out of the system.”
Since the people who attempt such crimes as money laundering are getting more creative, more innovative ways to prevent such activity are necessary, as well, Stahl said.
Stahl said she has seen a dramatic increase in interest for COCC’s anti-money laundering system. HarborOne, which signed up in July, was its eighth client to sign up. Since then, two more financial institutions have signed up, and she now has 25 other prospects she is working on, she said.
Stahl said two years ago every financial institution executive she met with to talk about the system liked the idea in concept, but not many were ready to sign up. Last year interest increased, but it has been just in the past few months that a sizable number of smaller financial institutions have been willing to move to implementation. It is now the most popular product she deals with. She said banks and credit unions are realizing that it is something they need and that it can make the process easier for them, she said.
“This tool is definitely filling a void,” said Stahl.
Stahl said the system also should help prevent fraud from happening internally at the bank.
Robert Bessel, public relations director for COCC, said the software is designed to look at every transaction and process information to spot unusual patterns in banking activity. He said people who are trying to launder money have become aware of the limits – especially the $10,000 threshold – that will raise red flags regarding certain transactions. To avoid detection, large deposits might be broken up into several phases. A money launderer might deposit $2,500 at one branch, deposit $2,700 at a different branch the following day, then wait a few days and do it all over again. Bessel said many potential money launderers believe that may be the way to beat the system.
“They know how to try,” he said.
Big Picture
However, Bessel said technology has caught up and can now spot what could be shady attempts to hide money.
“It [COCC’s system] allows [banks and credit unions] to create profiles of their customers,” he said.
The system also can look at a five-year history of a depositor to detect abnormal activity for a particular account holder. The system can also see just how many accounts a person has and access a larger picture. The program can be adjusted if it turns out that a red-flagged transaction is legitimate to reduce future false alarms, and also can be changed to take into account changes in regulations and policies.
“Financial institutions look at it in accordance with their anti-money laundering strategy,” said Bessel. “The regulators are looking for an orderly way to handle incidents of money laundering.”
Bessel and Stahl both say there is a real push from regulators to have financial institutions handling their money laundering detection process the same way throughout their entire institution. The COCC system encompasses activity from all of an institution’s branches, and therefore can track with a level of consistency, said Bessel.
“It is that consistency that is so important,” he said.
“For many years, small banks and credit unions enjoyed being below the radar of criminal activity,” said Rob Kimmett, senior vice president of marketing for the Massachusetts Credit Union League.
That has changed, however, and industry professionals are aware that money launderers are moving downstream to smaller institutions when looking for places they can conduct transactions that might be overlooked. Bessel said smaller institutions with fewer resources are more vulnerable targets, but technological advances are giving them ways to fight back.
As smaller institutions attempt to grow through marketing and developing Web products, they have drawn more attention to themselves and possibly added to their risks, said Kimmett.
Kimmett said larger institutions are at somewhat of an advantage in detecting suspect activity given their greater resources, and also the fact that people who are looking to launder money are likely aware of what they are up against at a large bank. The smaller financial institutions appear more vulnerable since they likely have less time and ability to devote to scrutinizing transactions.
With the price point of third-party systems and services designed to detect suspicious activity falling, however, Kimmett said he believes more credit unions will be implementing new programs to better coordinate anti-money laundering compliance technology throughout their organizations.
