Bank Software is likely to unleash ‘harassment’

The Economic Times Mumbai
Tuesday 26th April 2005

A Good AML software builds models around the banking patterns of various organizations and professionals. “ It will not just remember that a customer is an engineer and is 30 years old,” says Hanuman Tripathy of Infrasoft, the most prominent among Indian AML vendors. “It will remember that his palls into his account on the fifth of every month. It will study the profiles of other engineers in the same age group and build a pattern based on common traits, like say, the monthy periodicity of salary. If another customer comes along, says he is a 30-year old engineer and receives deposits every week, the software will raise what we call a Red Flag. He is suspect though he may turn out to be harmless.”

The software will look carefully at huge surges in deposits or withdrawals and alert the bank. It will also track transactions of black listed individuals and report a customer’s dealing with a select list of rogue nations. But, as its evident from the publication of these software features, a money launderer would know all about the different methods of tracking him. “In anti-money laundering seminars, a lot of launderers are right there in the audience because they want to know what’s being done to catch them,” according to Colin Lobo from KPMG.
That’s why the software is complex and intelligent, “It thinks like a launderer,” says Suheim Sheikh, MD of SDG. “One of the simple examples of its intelligence that I can divulge is the daily transaction limit of $10,000 in America. The software will search for transactions that appear to purposely fall just below $10,000.”

AML software can monitor such high volumes that it is inevitable that almost all major customers will come into the scanner. But, by definition, most people are just regular people.
The fear is that the war against money laundering may unleash an era of harassment just because the software could not fully comprehend the nuances of human banking behaviour . For example, a salaried man could find Rs.10 Lakh deposited in his account. The software would raise a Red Flag because the fortune is an anomaly in a pattern. But it might turn out that the reason behind the windfall was that the man had sold his house. “Yes, such issues are a matter of concern,” Mr Sheikh says, “But as the software improves, it will get smarter and smarter.”

While the RBI has asked Indian banks to put stringent AML measures in place by December this year, It has only mentioned the use of technology in passing. But, as Indian Banks Association chief executive HN Sinor says, “It ‘s not requirements without the use of technology.” Though the RBI is clear in its instruction to the banks that customer privacy not be put at risk, the fear is that monitoring will only get more extensive.

“ The prospect of banks and governments sharing customer information is an area that banks and consumers alike are very concerned about across the world,” says Neil Katkov, an analyst with Celent Communications.
“It is not inconceivable that inter-regional AML systems and regulatory oversight will someday reduce an international Information –sharing system that keeps tabs on all customers and their bank accounts no matter where they reside. Not only money launderers, but a fair number of ordinary citizens as well would rather that governments and banks not have this kind of reach.”

According to Nasscom, Indian banks are showing, “an increasing enthusiasm” for AML but it is not only the self-preserving fear for the RBI. “If Indian banks don’t comply with AML measures,” Mr. Sinor says, “they will find it difficult to do business with American financial institutions.”

AML may not have the celebrity status of Y2K but in the corridors of international banking , the software is riding on similar hysteria. Celent Communications has estimated that between ’05 and ’08 , America will spend about $14.7 bn. on the software. Europe and Asia are estimated to spend over $11.6bn in that period for the monitoring system that could cost anywhere between $500 and $1m, depending on quality, installation and scale.