Com­plex trans­ac­tions chal­lenge banks’ money-laun­der­ing battle

China Daily (Canada) - - FRONT PAGE - ByWUYIYAO in Shang­hai wuyiyao@chi­

The na­tion’s anti-cor­rup­tion cam­paign and drive to track down eco­nomic fugi­tives and cor­rupt of­fi­cials may help banks crack down on money laun­der­ing, an­a­lysts said.

Banks have been updating watch­lists for sus­pected money-laun­der­ing ac­tiv­i­ties and height­en­ing scru­tiny of trans­ac­tions and ac­counts. But they may be chal­lenged by new forms of money laun­der­ing as China fur­ther opens its fi­nan­cial mar­kets, with trade fi­nanc­ing, pri­vate bank­ing and off­shore com­pany fi­nanc­ing among the likely sec­tors.

Money laun­der­ing is dif­fi­cult to de­tect be­cause the ac­tiv­i­ties can in­volve many par­ties and lo­ca­tions, and they are also highly struc­turedand­com­plex.

Dur­ing a tele­con­fer­ence on money laun­der­ing held by the Peo­ple’sBankofChina, the cen­tral bank, in Jan­uary, ex­perts said that in this com­plex en­vi­ron­ment, do­mes­tic banks must shoul­der more re­spon­si­bil­ity and prove they can han­dle th­ese emerg­ing chal­lenges.

As com­plex­ity in­creases, “more tech­nolo­gies and mea­sures are re­quired from fi­nan­cial in­sti­tu­tions and com­pli­ance of­fi­cers”, said Man­him Yu, part­ner in global ac­count­ing firm EY’s fraud in­ves­ti­ga­tion and dis­pute ser­vices prac­tice.

The re­cent penal­ties and fines im­posed on ma­jor global banks for money laun­der­ing show that sim­plely screen­ing and mon­i­tor­ing cus­tomers and trans­ac­tions are in­suf­fi­cient to man­age the cur­rent com­pli­ance risks, said Yu.

Bank­ing sources said that one prob­lem is syn­the­siz­ing the data that can help iden­tify sus­pi­cious trans­ac­tions and ac­counts.

“My bank has di­vided its busi­ness into sev­eral sec­tors, like many banks, such as re­tail bank­ing, cor­po­rate bank­ing and pri­vate bank­ing. If an ac­count in re­tail bank­ing shows ab­nor­mal ac­tiv­ity, and I want to see if the client has con­ducted trans­ac­tions in his pri­vate bank­ing ac­count or the cor­po­rate bank­ing ac­count of a com­pany un­der his name, it may take days to com­mu­ni­cate with other de­part­ments and find out, be­cause the in­for­ma­tion plat­forms are not linked and we must op­er­ate un­der pri­vacy pro­tec­tion guide­lines,” said Chen Mei, com­pli­ance of­fi­cer with a Shang­hai-based com­mer­cial bank.

Chen said the sit­u­a­tion can be even more com­pli­cated at multi­na­tional banks, be­cause one can open ac­counts in var­i­ous lo­ca­tions around the globe.

When it comes to money laun­der­ing, “it is a ba­sic rule to ‘know your client’. We have in­vested heav­ily in this area to im­prove our un­der­stand­ing of clients and ver­ify in­for­ma­tion”, said Chen.

Banks in­China have al­ready rated clients’ risk of crim­i­nal con­duct on a scale of one to five as part of ef­forts by the PBOC to curb laun­der­ing and fraud­u­lent trans­ac­tions, ac­cord­ing to a post on the cen­tral bank’s of­fi­cial web­site.

Fi­nan­cial in­sti­tu­tions must iden­tify their riski­est clients and use dis­cre­tion to re­port sus­pect deals. The ac­counts of high-risk clients must be checked fre­quently, the PBOC said.

Guo Qing­ping, deputy head of the PBOC, said fight­ing money laun­der­ing will serve the na­tional in­ter­est and help fi­nan­cial in­sti­tu­tions de­velop in a sound way.

Eric Young, who spe­cial­izes in foren­sic data at E&Y, said that data min­ing and risk fore­casts based on real-world sce­nar­ios are cru­cial. In­tel­li­gent busi­ness in­sights can al­low banks to make strate­gic de­ci­sions, he said.

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