Challenges Financial Institutions Face in Aml

The Federal Deposit Insurance Corporation (FDIC) just published a very interesting #consentorder (and hearing notice) for a tiny bank in #Illinois. Vermont State Bank (not in VT) was found deficient in the management of risks related to RDC and RCC. Yes, you read that correctly. #RDC Wow. At first it seems like they are grasping, but as the order goes on it is apparent that the risks found in the RDC and RCC program were just indicators of other #AML issues occurring throughout the $24MM asset bank. The #bank had 3 co-BSA Officers. The basic, foundational tenet of a BSA program is a BSA Officer appointed by the Board. They did not have one. An executive committee was solely responsible for "compliance" regarding the RDC/RCC program, yet none of the 3 co-BSA Officers were on that committee. Overall, the #FDIC noted on pg. 4 that the Bank violated 3 of the 4 pillars of the #BSA. (I thought it was 5 pillars now?) Some lessons to learn for institutions of all sizes - 1) No matter how small or "low risk" your institution is, a single BSA Officer is a must-have. 2) A good examiner will take indicators of basic issues within a seemingly lower-risk area, like RDC/RCC, and can use it to find other areas of risk knowledge and management deficiency. 3) Areas that bring higher #revenue must have input and oversight from the #AML area. Not just an afterthought, but a real seat at the table during the discussion and vetting of new products/services. 4) Lengthy policies that essentially regurgitate requirements is not an effective one. Ensure your policies and accompanying procedures act as a guide for what your institution does. I know that seems basic. But I think when BSAOs inherit policies, they just add to it. The next thing you know its 100 pages long but misses the forest for the trees. 5) My clients will know this is familiar.... cash management underwriting for RDC must incorporate #AML risks. Banking higher risk clients like MSBs, PATMOs, CRBs, car dealers, brokers, etc... they should have a different process for RDC/RCC underwriting and most times, a different dollar allowance. 6) While RDC/RCC risks, in my opinion, are a bit exaggerated re: ML/TF threats, examiners rightfully expect there to be written evidence of AML involvement in the entire timeline of a new product/service; substantiation via risk assessment; impact on the customer's risk; and training to support the new product/service. 7) "Earnings are insufficient to adequately support operations..." the lesson here is, that if your FI can't afford the right people, technology, training, then do not go down the path of new products/services. And if execs and board are assuming there is no impact to resources, then they did not invite the right people to the table. The highlighted pdf is attached... take a read. There is a hearing before an administrative judge in Springfield, IL to determine if the Bank should get a C&D. #ifollowdirtymoney #risk

Current Anti-Money Laundering (AML) transaction monitoring systems are often dependent on outdated technology and focus on prioritizing regulatory requirements over effectiveness. Unfortunately compliance with regulations, as most professionals in the industry are aware, is only a start - not a full solution. I think where our conventional approaches to transaction monitoring fall short, is in the use of predefined red flags without integrating any clear data points or context associated with the underlying reasons or patterns driving suspicious behaviors. In other words, we don't recognize the true patterns and typologies of financial crime or their role in the ecosystem. This has to change. By shifting our focus to integrating targeted behavioral data and typologies, such as spending patterns linked to human trafficking or drug-related laundering, we can move beyond generic risk indicators. Instead, we extract truly meaningful signals from the noise, enabling a much more precise and impactful approach to detecting financial crime. Real world example of the impact of this approach: ⚪️ Using only regulation-adherent, red-flag rules at a prior bank, we saw a false positive rate of 94% and filed only 2 actual SARs (basically missing all the real suspicious transactions) ⚪️ After applying more stringent rules that incorporated behavioral data as well, the false positive rate dropped to just 18% and we filed over 600 SARs on the same transaction base. Innovating within compliance is a challenge, but it’s possible, and it’s essential if we want AML to become a real barrier against financial crime.

💡 Lessons from Singapore’s AML Fines: A Nudge for all of us Singapore recently fined nine financial institutions—including Citi, UOB, DBS Bank and Julius Baer over S$27 million tied to a massive $3B money laundering case. These weren’t gaps in policy—they were gaps in follow-through. That’s what makes this so important. Some examples from the MAS findings: • Citibank didn’t verify source of wealth and missed acting on flagged transactions. One ex-employee was even charged with forgery and laundering. • UOB & UOB Kay Hian didn’t follow up on red flags quickly enough. • Julius Baer had onboarding weaknesses. • Others like DBS, RHB, CIMB, and Swiss Life had documentation and monitoring lapses. 🔍 My 2 Cents.. I’m not an AML expert, but based on what I’ve seen working with banks, a few things stand out: 1. AML has to be part of daily behavior—not just paperwork. Policies are important, but people make the difference. The best controls fail when culture doesn’t support them. 2. One-time checks just don’t cut it anymore. Customers evolve. So should our risk models and monitoring. 3. Red flags are only useful if someone acts on them. Generating alerts is the easy part. What matters is who’s closing them—and how quickly. 4. Gen AI can help—but we’ve got to be careful. There’s real promise in how AI can spot patterns or summarize complex docs. But without strong governance, explainability, and clear rules, it’s not ready to lead AML decisions on its own. Not yet, completely. 🔐 This isn’t about pointing fingers—it’s about staying sharp. Financial crime risk doesn’t sit still. And neither can we. Would love to hear how others are thinking about culture, tools, and trust in the AML space—especially those closer to the front lines. #AML #FinancialCrime #Compliance #RiskManagement #ExecutionExcellence #GenerativeAI #ResponsibleAI #CultureMatters #Banking #LeadershipThinking

The recent arrest of Leonardo Ayala, a former TD Bank employee, highlights some crucial challenges for financial institutions when it comes to preventing money laundering. Ayala, who worked at the bank from February to November 2023, allegedly helped launder drug proceeds by issuing debit cards for accounts tied to shell companies. These funds were then withdrawn in Colombia, illustrating how internal employees can play a direct role in facilitating financial crime. This incident comes on the heels of TD Bank's larger $1.8 billion settlement for violations of the Bank Secrecy Act and money laundering laws. The U.S. Department of Justice emphasized that weaknesses in the bank's anti-money laundering (AML) controls enabled over $670 million to be laundered, with the involvement of at least five bank employees. What This Means for Compliance Professionals Insider Risks are Real: Even trusted employees can misuse their roles. This case is a reminder to have strong employee monitoring systems and encourage a culture where people feel comfortable reporting suspicious behavior. Robust AML Controls are Non-Negotiable: TD Bank’s massive penalties are a wake-up call. Regularly evaluate your AML program to ensure it can effectively detect and stop suspicious activities. A program that’s just on paper won’t cut it. https://lnkd.in/e9AevUpT

The Oldest Vulnerability in Banking is Still the Biggest Vulnerability in Banking – People This time, a Bank of America insider allegedly enabled a massive global money laundering scheme. The DOJ says Bank of America employee Rongjian Li (38) was a member of a money laundering and drug trafficking outfit headed by Jin Hua Zhang moving over $25 million over several months. “As part of his involvement, when the bank’s financial auditing systems flagged or froze accounts for suspicious activity, Li helped Zhang circumvent the bank’s anti-money laundering protocols and move illicit funds elsewhere.” But let’s be clear: this isn’t a new problem. For all the billions spent on anti-money laundering (AML) systems, forensic accounting, and AI-driven compliance, the biggest vulnerability in banking has always been insiders—and it will continue to be.  🫰 Why?  - Systems don’t approve fraudulent accounts—people do.   - Algorithms don’t look the other way—employees under financial or external pressure might. - Compliance protocols are only as strong as the integrity of those enforcing them. Criminals have long understood this. While financial institutions race to build better digital defenses, bad actors target the human element, corrupting gatekeepers to bypass controls from the inside.  🕵♂️ So what’s the real solution?  - Stronger insider risk programs—not just for detection, but for early intervention.   - Continuous monitoring & behavioral analytics—because red flags aren’t always in transactions; they’re in people’s actions.   - A culture shift—banks must recognize that stopping financial crime isn’t just about better technology; it’s about better people management.  Financial institutions will never eliminate risk entirely, but until they take insider threats as seriously as they do external cyber threats, history will keep repeating itself. #AML #FinancialCrime #InsiderThreats #RiskManagement