Instant money. Rapid globalisation has enabled criminals to effect instantaneous transfers of funds across the globe at the touch of a button. Photo/FILE
When Transnational Bank, a local financial institution, instructed an international bank to process payment for a sugar consignment from Sudan, the global institution raised the red flag effectively stopping the payment.
The alert was raised because the party which was to be paid had been blacklisted for being involved in questionable transactions.
Early this month Wachovia Bank, the largest financial institution in the US, was fined $162 million for failing to detect transactions linked to money laundering.
The ease with which the payment was stopped was due to information technology that linked the beneficiary to a databank of blacklisted entities.
The Wachovia Bank case illustrates emerging challenges of tracking illicit transactions, and ability to circumvent existing IT systems, despite the use of modern technology.
Real time tracking
The episode, said Transnational Bank managing director Dhiren Rana, led the financial institution to instal an anti-money laundering (AML) system to ensure that transactions within their system are scanned.
“We decided to install the AML system to ensure that we are able to verify all transactions against a global watch list to detect any questionable transactions,” said Mr Rana.
The installation was done even before Parliament passed the anti-money laundering law last year.
The law, gazetted last month, requires firms offering money transactions such as financial institutions, casinos, real estate agencies, dealers in precious metals and accountants to filter transactions with an eye on detecting suspicious deals.
In the last two decades over Sh7 billion is estimated to have been laundered.
“Rapid globalisation has created new risks emanating from technological advances, enabling criminals to effect instantaneous transfers of funds across the globe at the touch of a button,” said Kenya Bankers Association chief executive John Wanyela.
Cases of piracy along the Indian Ocean coast have brought upon Kenya the hard task of “cleaning” dirty money obtained as ransom for the release of crew of hijacked vessels.
In addition, Kenya’s advanced air transport has placed the country at the centre of drug trafficking activities.
Mr Wanyela said the rapid development of the local financial sector has created a window of opportunity for laundering illicit proceeds; from drug trafficking, to piracy and other illegal transactions.
Hence deployment of technology is critical as it allows real time tracking.
“The deployment of automated systems allows for ease of profiling and risk rating which enables the red flag to be raised where necessary,” said Anthony Gitonga, head of Risk and Compliance at I&M Bank.
Suspicious transactions
With the new law requiring reporting of suspicious transactions to the Financial Reporting Centre (FRC) within seven days, the use of technology is critical to probing transactions in real time.
Experts said that financial institutions will need to deploy technological solutions that allow timely access to reliable and accurate customer transaction data, effective transaction monitoring of customer activity, and comparison of the activities for ease of flagging unusual undertakings.
Compliance with the new law is expected to raise operational costs as financial institutions deploy new technology to replace the current manual process which is slow in tracking transactions.
“The implementation is costly in terms of acquisition and integration of a new system and retraining staff to enable them check potential risky transactions,” said Mr Rana.
Improving reputation
According to experts, the deployment of new IT systems should be seen in the light of easing transactions hence improving the reputation of organisations.
“The cost of installing a new system can be recovered over time, but the potential loss of reputation, associated legal risks, and the business risk of being singled out as a risky business partner to transact with is enormous and may not be easily regained,” said Hanuman Tripathi, the managing director of Infrasoft Technologies.
Infrasoft specialises in providing software solutions used for detecting fraud and preventing money laundering.
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