Regulatory compliance and anti-fraud measures are a massive undertaking for the financial services sector. From small credit unions to multinational banks, everyone operates in an increasingly globalized system and complex regulatory environment.
Anti-money laundering (AML) regulations require special attention. Organizations must create and maintain AML policies and procedures to detect and prevent money laundering. Poor or inadequate compliance can leave organizations prone to handling the proceeds of crime or terrorism and, if exposed, lead to large financial penalties and lasting reputational damage.
A thoroughly documented process is a good start, but that’s not enough to mitigate AML risks. Through our work with customers in the financial services sector, we’ve found support tools that provide network visualization (also known as link analysis) are becoming an essential part of a robust AML process.
In this blog post, we’ll look at three ways network visualization can support AML activity and make it easier to manage:
- Visualizing connections to a politically exposed person
- Understanding the ownership structure of a beneficial owner
- Knowing more about the originator / beneficiary in a correspondent banking system
Politically Exposed Persons (PEPs)
A PEP is somebody with a prominent public role in a state, an institution or an international body, or someone related to them through family or other close association. Their position of power means they are considered vulnerable to corruption and are therefore subject to enhanced due diligence.
There are specialist databases and online resources to help identify PEPs. Organizations are expected to perform two kinds of checks:
- Initial due diligence to establish the legitimacy of sources of wealth
- Ongoing monitoring to detect potentially suspicious activity
Network visualization is an ideal solution for this. It can help you understand complex business, political and family connections, and how they evolve over time:
Using network visualization gives relationship managers and compliance teams a clearer view of a PEP’s connections and financial activities. Easy access to this information is vital when assessing the approval or continuance of a financial relationship.
In addition to monitoring PEPs, financial services organizations are required to understand the ownership and control structures of their customers. Customer Due Diligence (CDD) is carried out to identify the beneficial owners of a customer.
Company ownership structures can be incredibly complex. Mapping them out using KeyLines, our network visualization toolkit, removes an arduous manual process and provides a clear picture of ownership and control:
Starting with a good visualization helps with ongoing monitoring. It empowers analysts and managers to quickly and easily scrutinize the impact of changing circumstances, e.g. mergers and acquisitions, new majority shareholdings, transfer of control, changes to the organization’s board or directorships, etc. It also helps them to understand how the impact affects risk.
Understanding parties in a correspondent banking relationship
Correspondent banking is when one financial institution provides banking services on behalf of another institution, to give both parties wider reach across financial markets. Some of the intermediary services they provide include wire transfers, business transactions and deposits.
In many cases, the correspondent bank may not have a direct relationship with the originator or the beneficiary of the transaction. It can become difficult for these banks to detect and prevent misuse of their correspondent banking facilities.
Introducing robust systems to identify high-risk customers and dubious transactions is essential for preventing misuse of these services. A simple network visualization which shows the correspondent relationships between banks gives a very clear picture of potential risks involved. For example:
Here, each originator or beneficiary is represented by a simple risk categorization, based on the country in which the bank is situated. This makes it easy to see the high value, high-risk transactions that are passing through the bank’s correspondent banking services.
This information can be aggregated and viewed on a map, providing a complete overview of a bank’s exposure to potentially high-risk regions:
The KeyLines risk scoring mechanism takes into account only the locations of the different banks. In practice, more complex risk measures, for example, based on debt exposure, changing political situations and the bank’s historic trading position, could also be deployed. Enhancing this data with an interactive visualization tool makes it intuitive to explore and easy to understand.
Enhance your compliance practices
In this post, we’ve explored just a few possible uses for network visualization to simplify and enhance AML activities. Whenever there is a need to understand complex connections between accounts, people or institutions, a powerful visual tool embedded into the user’s workflow can help. It lets analysts and managers understand their data more quickly and effectively, leading to more robust compliance processes.
Our visualization toolkits have been deployed by hundreds of different organizations around the world, from banks to national governments.
To learn more or to try KeyLines & ReGraph yourself, get in touch.