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Sonny Singh May 29, 2019

An Avengers endgame, banking style: Uniting the industry to fight financial crime

The biggest blockbuster movie this year (and soon to be of all time), Avengers: Endgame, centers around an unlikely group of heroes, each with unique strengths and weaknesses. Together, they must put their differences aside to defeat a seemingly invincible enemy and restore order to the universe.

Meanwhile, back in the financial services galaxy, a parallel narrative unfolds. And while there’s certainly no interplanetary peril, various stakeholders in the industry—banks, regulators, technology vendors, payments processors, clearinghouses and fintechs—must unite in Avengers-like fashion to fight a common enemy. And just who is this financial equivalent of Thanos?

While the enemy has no figurehead, it brandishes countless tentacles the encircle the globe—embodied in fraudsters and financial criminals. Each year, these malefactors conceal globally $800 billion worth of transactions.

What’s more, today’s threat landscape evolves faster than ever, creating for banks what BAI managing director Karl Dahlgren has called “a game of Wack-A-Mole.” As nefarious organizations discover and deploy increasingly sophisticated ways to commit fraud, it’s time for the industry to come together and act now to overcome these threats.

Today’s cybercrime battlefield

Recent financial crime scandals have savagely exposed the shortcomings of banks worldwide as they struggle against cybercrime. Most recently, police have raided the largest lender in the Baltics, Sweden-based bank Swedbank. The bank is now under severe scrutiny as U.S. regulators investigate its conduct and the risky money that infiltrated its accounts. Since the news broke, chief executive Lars Idermark has quit, while the banking giant has set up its own internal investigation unit even as its shares have fallen by a third.

And last year, the Danske Bank disaster saw the suspicious transactions of billions of dollars funneled through its Estonian branch via a complex network of 75 companies. In the ensuing fallout, the Danish bank dismissed its chief executive and chairman Thomas Borgen, lost 28,000 customers and suffered crippling reputational damage. (The percentage of Danes who now find the bank credible has plummeted to just 46%.) What’s more, lawsuits have started to flood in from investors, which could cost Danske Bank in excess of $475 million.

Earlier this month, Danish prosecutors charged Borgen—and the two banking incidents were found to be connected, amounting to one of the world’s biggest money laundering scandals.

These linked episodes have brutally unmasked the failure of regulation to keep up with the sophisticated nature and behaviors of modern financial criminals. Banks worldwide must treat these damaging incidents as a serious wake-up call, as they review their compliance processes and grow their standards teams. They should also take note that the Danske Bank scandal was exposed not by a concerted cybercrime fighting effort, but a sole whistleblower.

Superpowers at an urgent hour

While all banks must comply with regulations and prove they have robust procedures and processes in place to protect against money laundering and fraud, the unfortunate reality is this: Regulations have lost touch with the nature of today’s sophisticated threat landscape.

The advanced technologies, strategies and networks of shell companies—as well as other systems criminals use to avoid detection or exploit gaps in the financial services system—can only be overcome by higher levels of industry collaboration.

As banks and regulators create a more collaborative culture, they must make it a high priority to sort their data and share information and intelligence. Relational databases have undoubtedly made this easier and more intuitive, as they provide users with tools that can access and manipulate information into a style and structure that resembles how people organize their thoughts on a whiteboard or in a PowerPoint presentation. From there, systems can leverage parallel processing and the enormous memory modern servers provide to directly model the relationship between all that shared data and find commonalities.

Once this information is modeled into a graph or network, it becomes possible to amalgamate various alerts generated by financial systems to create case sets that can be identified and prosecuted efficiently. This marks a vast improvement from when investigators and analysts were previously forced to probe each alert or case individually. Instead, technology makes it possible to fold these alerts into a small network where investigators can examine cases as a whole.

The advancement of artificial intelligence and machine learning solutions are also starting to reach a maturity level far beyond identifying and flagging suspicious activity. The latest solutions can run comprehensive Know Your Customer (KYC) analysis—tracking connections between people and entities, as well as ascribing a risk value to a developing transaction or newly onboarded client.

Adopting a collaborative culture of information sharing

In financial services, most would agree that a culture of collaboration has been absent for far too long. Big global banks too often hold their cards overly close to their vests and at the same time keep regulators at arm’s length. But cooperative cultures can thrust the industry forward into a digital era of combatting crime.

In today’s interconnected global financial system, crooks channel fraudulent transactions through a complex network of multiple banks, technology systems, payments processors, clearinghouses and third-party organizations. Take the Danske Bank scandal, for example. Though the bank ultimately authorized the billions of dollars in dirty cash transactions that swept across its branches, there’s a strong chance this money also muddied other banks and payments processors  along the way. Clearly, a stronger-than-ever call sounds to embrace openness, transparency and teamwork.

Banking avengers assemble, fraudsters tremble

Though many assume that money laundering only affects corporate bigwigs atop wealthy financial institutions, the crime has never been victimless or faceless.

Indeed, this shameful act inherently links to other, more sinister forms of organized crime—including human trafficking, the illegal drug trade, terrorism and more. We’re talking about serious bad guys who take advantage of a disparate, disconnected financial system. The only way to stop these evil players is for all financial services players to join forces and unite against the common enemy. 

There’s even a Hollywood script banking leaders can borrow. When Iron Man asks in the film, “How do we cope with something like that?” Captain America simply replies: “Together.”

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Sonny Singh is senior vice president and general manager, Oracle Financial Services Global Business Unit.

Hear Sonny Singh on the BAI Banking Strategies podcast “High-tech, high-level access and the 720-degree view of the customer.”

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