Anti-Money Laundering (AML) software

Due to the increased pressure being heaped on them by anti-terrorism laws, banks will be spending billions of dollars over the next few years on aml software to counter money laundering. This anti-money laundering software not only automatically tracks suspicious financial transactions, but it will monitor millions of innocent ones as well.

Because of the stringent requirements of the USA PATRIOT Act, (enacted after 9/11) with the intention of choking the supply of terror funds, and the threat of heavy fines and possible imprisonment of bank directors if their organizations assist in money laundering, U.S. financial institutions are very enthusiastic about having anti-money-laundering software or AML software installed.

According to Neil Katkov, an analyst with Celent Communications, between 2005 and 2008 banks in the U.S. are forecast to spend close to $14 billion on AML software, hardware, maintenance and other compliance-related activities.

Around this same period, both Europe and Asia are expected to spend over $11 billion on anti-money laundering software.

According to Celent, by 2006, 94 percent of large financial institutions in the United States will have installed AML technologies.

Already, the U.S. is the world leader of anti-laundering software. And the number of transactions being reported to government agencies, such as the Financial Crimes Enforcement Network (FinCEN), is growing fast. In 2004, U.S. banks reported over 14 million transactions to FinCEN using AML software, which is 600,000 more than reported in 2003.

"Anti-Money Laundering software will change international banking forever," said Suheim Sheikh of SDG Software, an Indian AML software firm hoping to tap into the big new market.

"Governments across the world will have their eyes on bank customers," he added. "Since the anti-money laundering software can monitor so many accounts, so many transactions, all kinds of people will be scrutinized, even those who in theory are just regular people. By default, not just money laundering but anything that violates the law, like tax evasion, will be hard to hide."

As a consequence of AML software surveillance, bank officials have said that even citizens with no criminal intent or underworld ties will have to become more law abiding. Even small breaches of the law, or just indifference, will no longer go unnoticed.

A bank official, who asked to remain anonymous, said "Chances are that most of the time the anti-money laundering software will catch not a money launderer, who is always wary, but a regular person. If you got a fat birthday gift from your brother who works in the Middle East, would you like to get calls from the bank or the government asking for an explanation? In theory, that can happen."

Even small transactions seen by AML software may be flagged as suspicious. Based upon the withdrawals and deposits of 9/11 terrorists, funds for terrorists are known to be small. Being small does not mean being invisible.

"Any unexplained deposit will get you calls from the bank or the authorities, and you better have the correct answers," said Cherian Varghese, chairman of Union Bank of India.

When installed at a large bank having several branches across the world, a comprehensive anti-money laundering software system will monitor millions of transactions daily.

Here is how a typical anti-laundering system works: First, it pulls in customer data; it then classifies each into varying levels of suspicion, from high risk to low; it builds patterns of customer behavior; and then searches for anomalies within those patterns, such as sudden surges in funds or huge withdrawals.

The AML software will also keep a lookout for blacklisted names, or "specially designated nationals," and takes note of transactions from countries that are perceived to be hostile to the host nation.

The anti-money laundering software will report both suspect transactions and customers to bank officials, who then forward the information to the appropriate government agency, such as the FinCEN.

"Good AML software is a very complex tool," said Hanuman Tripathi, managing director of InfraSoftTech, another Indian software vendor that is eyeing the AML market. "Its job is not to churn out data. Instead, it makes intelligent use of data."