Infosec: Transaction monitoring not stopping money laundering

Infosec Europe 2008

Transaction monitoring (TM) tools have lulled many large banks into a false sense of security, according to anti-money laundering firm Datanomic.

This incorrect assumption by the banks is not due to a failing of the systems themselves, but because TM tools issue alerts only when a suspicious transaction is made.

Money laundering is an increasingly sophisticated threat which carries very heavy penalties, and many fraudsters are currently lying dormant because they have not yet been caught doing anything suspicious.

"Sophisticated criminals and terror cells have woken up to what triggers a transaction monitoring alert inside a bank's system and have adapted their behaviour accordingly," said Dr Jonathan Pell, chief executive at Datanomic.

The company reckons that this reactive approach is addressing the issue far too late in the process, and that banks should regularly screen their entire client base to avoid association with dubious individuals in the first place.

"A TM tool has never once identified a terrorist," said Dr Pell. "The foiled Heathrow terror plot was funded for less than £100,000, and every single transaction looked normal and therefore went undetected by the TM systems at the banks involved."

Dr Pell concluded that relying entirely on TM tools for compliance with anti-money laundering legislation equates to waiting to catch criminals in the act of doing something wrong before admitting to their existence.