The Finance Foundation
Reinventing capitalism for all
AUTHOR
Michel
Gabrysiak
President of the Finance Foundation

Are financial institutions becoming criminals? Falsifying documents, money laundering, etc. Data governance to the rescue.
December 18, 2014 , Michel Gabrysiak - Finance tech
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Big banks, Big fines, Big data, Big problems?
Since the global financial crisis, several large banks (e.g. JPMorgan Chase and Bank of America) settled multiple billion dollar with U.S. authorities related to foreclosures, mortgage backed securities and repurchases. More recently, penalties on banks have been announced related to money laundering.
 
From 2004 to 2012, BNP Paribas (BNP) cleared more than $190 billion of transactions in Iran, Cuba and Sudan, countries that are subject to U.S. sanctions. On June 2014, a record fine of nearly $9 billion slapped BNP. Additional penalties are expected such as a temporary ban on oil and gas dollar clearing in the U.S for 2015. Flouting the U.S. government erodes dividend payout and regulatory capital ratios.
 
Heavily sanctioning BNP, Europe’s second-largest bank, could destabilize the global financial system. In other words, they could entail an important systemic risk event. However, by doing business with countries “blacklisted” in U.S., BNP did not break any European or French laws, except for falsifying documents.
 
Past facts, future in jeopardy?
The movement of tainted money is not new. In December 2012, the British bank HSBC Holdings PLC was found accountable for failing anti money-laundering controls allowing drug proceeds and transactions from sanctioned nations. They agreed to pay $1.9 billion in fines. The same year, Standard Chartered and ING were condemned for money-laundering allegations.
 
Towards a brighter future
The problem is wide enough to raise concern among financial organisms such as the Financial Action Task Force (FATF) or the International Monetary Fund. They set standards for the implementation of legal and operational measures against money laundering and financing of terrorism.
 
The Basel Institute on Governance has developed the Basel Anti money-laundering (AML) Index. The AML index is published annually since 2012 and is computed from publicly available data sources. It measures the likelihood of money laundering activities or terrorist financing on a 0 to 10 scale for 162 countries. Currently, the top three of highest risk countries are Iran, Afghanistan and Cambodia.  
 
Along with complying with changing regulations, tracing financial transactions and costumers is complex. Moreover, storing relevant information in data centers is insufficient. Hence, information governance and analytics could play a key role in fraud prevention and detection by assessing information and by extracting unseen criminal transactions.
Timing efforts to select, store, retrieve and dispose of data are of paramount importance in order to provide timely and accurate information. Information governance systems align with with regulators to establish a solid foundation for data quality. Driven by the right data, information governance can highlight potential areas of risk allowing reliable screening systems.
 

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