On June 5, 2021, the Australian Transaction Reports and Analysis Centre (AUSTRAC) sent a chilling letter to the National Australian Bank (NAB). It notified the bank of an escalation of its investigation into potential serious and ongoing non-compliance with anti-money laundering (AML) laws.
News of the potential probe forced the bank to explain why it had extensively used casual, unskilled workers in its financial crimes department and why it was struggling to overcome a year-long backlog for reviewing high-risk customers.
The news also encouraged multiple former employees from NAB’s AML department to speak with the press. They allege that the division is riddled with problems such as high staff turnover, unrealistic performance targets, and outdated technology systems, which leaves the bank exposed to potential risks.
Much can be learned from this situation. Here are three key lessons for financial institutions:
Lesson 1: The NAB AML/BSA Disaster Is a Warning: Don’t Stagnate. Automate!
While NAB, a top 50 global bank, is not likely to face financial penalties from AUSTRAC, analysts expect it will face higher costs as it scrambles to fix its compliance issues.
The steep cost, regulatory scrutiny, and reputational damage associated with NAB’s “huge remediation project” are consequences of AML/BSA program decay spanning decades. It serves as a lesson to banks of all sizes. Compliance programs should never be left to stagnate.
Besides the bank’s decades-old legacy systems, the only technology mentioned in the developing NAB story is a computer system called “real-time management,” which tracks how many minutes each employee takes to clear suspicious transaction alerts. Contrast that with the current capabilities of AI and machine learning solutions for automating AML/BSA investigations.
Even regulators are calling for AML/BSA programs to be modernized. Bank’s programs should be getting more consistent at monitoring their high-risk customers and identifying suspicious behavior. Financial institutions that don’t innovate risk being left behind and falling foul of the regulators — just like NAB.
Lesson 2: Avoid Backlogs by Automating High-Risk Entity Reviews
Ask anyone in the industry and they’ll confirm that high-risk entity (HRE) reviews are a time-consuming, costly, and inconsistent requirement — especially when it comes to highly active entities. In most cases, human investigators must manually sift through multiple databases and websites to determine customer risk. Lack of access to data, competing AML/BSA priorities, human biases, and staffing issues can easily produce backlogs and inconsistencies.
The investigation into NAB’s non-compliance with AML laws, and the backlog caused by legacy systems and staffing issues serve as a warning. Your financial institution could come under similar scrutiny and be exposed to similar bad press if you let your HRE review program fall behind.
Fortunately, an institution’s HRE review process can quickly and easily be automated. For example, the QuantaVerse High-Risk Entity Report (HRER) documents risk discovered by the QuantaVerse Financial Crime Investigation Platform. The platform automates the research work required to assess entity risk, such as adverse media, jurisdiction, transactional relationships, and typologies that indicate potential money laundering.
Automating these processes helps financial institutions overcome staff-related challenges and avoid the significant backlogs they cause. The costs are reasonable and the solution is designed to integrate into an institution’s existing AML system. Automated HRE reviews can double a team’s efficiency, provide better insights, and establish consistency in judgement and reporting. It also demonstrates to regulators that your program is using technology to innovate and improve results.
Lesson 3: Unskilled Financial Crime Investigators Cannot Clear Backlogs
Talented compliance professionals are hard to come by globally. However, while not unusual for major banks to use third parties to assist with hiring sprints for major projects, it is less common in sensitive areas such as financial crimes departments. This is why it is surprising when it was broadly reported that the NAB AML contractors said they “received no or little training when they joined the bank’s financial crime team.”
NAB took this tact in an attempt to hurriedly clean up its AML compliance following a rebuke from regulators. A challenge made only more difficult by pandemic-related stay-at-home orders across the globe, especially in areas where AML is commonly managed and where work-from-home infrastructure is underdeveloped, further stressed NAB’s investigative capacity.
While not mandating that firms invest in technology to automate financial crime investigations, regulators are certainly encouraging it. They are noticing that advanced BSA/AML teams are using robotic process automation (RPA) bots to gather data for investigations. They are aware that those same firms are using machine learning to analyze huge data sets, identify patterns, and pinpoint where exceptions or anomalies exist.
In other words, firms and regulators everywhere are quickly realizing how automated analysis makes AML/BSA investigations far less laborious and time-consuming. It provides investigators with accurate and relevant information, and dramatically improves their decision-making capabilities.
The recipe for avoiding all the mistakes made by the NAB is simple. Financial institutions need to focus on adjudication, not data wrangling. They need to automate as much of their financial crime programs as possible. Doing this will result in less time spent on each case, more expertise applied to higher order thinking and the tough cases that need attention, as well as improved consistency and better risk avoidance.