Cleaning bills

The investigation into money laundering currently going on in the UAE has highlighted the importance of strict policies and procedures to stamp out the practice. IT Weekly looks at the role technology can play in stopping this illegal activity.

Money laundering has hit the headlines in the UAE recently, with a widely-reported investigation into a number of firms in Dubai and the arrest of several individuals. While details of this case were still unclear this week, it has thrown the spotlight on the issue yet again, highlighting the difficulties banks here in the region face.

According to Haround Dharsey, vice president and head of projects at Dubai Islamic Bank, the challenge of defeating the money launderers is one that needs the help of the IT department.

Managing the processes needed to stop money laundering is “a huge task” Dharsey argues. “Your core banking operations need to support this and you need to ensure that your compliance officer can extract the data fairly easily and also do this in as little time as possible,” he points out. “There are a number of money laundering tools and compliance tools all over the world being applied in all kind of countries, especially in city banks, and all of these tools are working.”

Dharsey feels that compliance is the real problem for IT departments at banks in the Middle East, rather than people attempting to launder money. This is due to there being a number of other channels available to the criminals, such as exchange houses, independent exchanges, physical trading across the open trade and cross-border traffic.

He explains: “There are a huge amount of channels, so the perception that money laundering is happening within the region, is it correct? I’m not sure. But I can confidently say that it doesn’t happen in our bank because we monitor transactions and profile transactions. In my view the banks are the last resort for these guys as it has the highest risk of being caught. So why would they go to a bank?”

Tens of billions of dollars are now being spent globally to find and report suspicious activity. While there are no regulations set in stone from the region’s governments in relation to money laundering, any bank that wants to deal with partners in the Western world has to show a level of compliance with overseas regulations and follow similar rules.

“Financial institutions want to make sure that their partners are following the same rules as them because of ‘KYC’: know your customer and know your customer’s customer,” says Parth Desai, CEO at Ace Software, a specialist solution provider for payments and securities processing. “So Western institutions can’t do business with banks in the Middle East if they don’t have some procedures in place. There is no mandatory requirement from the governments in the Middle East, but a bank needs to impress upon the Western world that it is a professional player in the global market for payments and international trade.”

The task of keeping money launderers at bay is not an easy one though, as criminals continually come up with new ways to try and beat the system.

“Money laundering is like a cat and mouse game,” Desai says. “Terrorists and other people keep on coming up with various new schemes of money laundering and the banks and financial institutions need to stay ahead as much as possible to make sure all the avenues available for money laundering are made as difficult as possible.

“Money laundering is one of the ways that terrorism is financed so, in order to stop that financing, all unusual transactions or any suspicious operations need to be looked into and trapped,” he says.

”Banks need to make sure that no money is passed from one party to another without there being a valid business reason. It has to be a proper business transaction and the only thing banks can do is have a good process in place,” Desai adds.

It is, therefore, up to the IT departments at banks to make sure they have versatile technology in place that can be enhanced and adapted to meet the ever-changing needs.

American-based Gifts Software, an anti-money laundering and compliance solutions provider, has a number of customers worldwide and is in the process of making its first implementation at a Middle East bank. Paul Campanaro, vice president at Gifts Software is sure the money laundering challenge is not going to get any easier.

“Unfortunately, no end is in sight because as the methods of detection improve so do the schemes, methods and sophistication of the abusers. Banks must remain diligent and constantly tweak their systems and be willing to adjust their methods and techniques to catch the bad guys,” Campanaro states.

“Based upon our experiences in other parts of the world it’s safe to say that the problem has always been present and, now that regulatory and law enforcement agencies are paying more attention to money laundering and terrorist financing, more money laundering cases will be found,” he adds.

From the perspective of Dubai Islamic Bank, compliance is a very important issue. “At Dubai Islamic Bank we have two issues to deal with,” says Dharsey. “First, we are in the region and two, we have an Islamic connotation behind our name, which makes it even more imperative to make sure we have some sort of compliance environment.

“Having said that, compliance is not as easily applied as most people think because we run into a number of variances. We have 174 ways of spelling the word Mohamed in our system, but where do you stop it?” he asks.

The bank opted to put a compliance environment into its organisation and formally appointed a head of compliance; it also follows due diligence ensuring that it has value transactions reviewed and accounts validated.

Before people open accounts they have to meet certain criteria — Dubai Islamic Bank uses its own processes along with the US and European Union black lists.

The bank has a screening process in operation, but it is by no means an easy exercise, says Dharsey.

“If you’re dealing with a person called Mohamed Bin Laden, is this Osama Bin Laden? Is it Laden with an ‘e’ or an ‘i’? And we have to go through a rigorous process of actually looking at the account details,” he points out.

“This is what we do and we’ve been doing this for a few years now. We’ve realised that compliance is not necessarily a requirement driven by regulatory pressure from outside markets, but it’s also an internal requirement,” Dharsey says.

The bank has been making an effort to ensure good banking practice, customer base and regulatory governance within its own organisation. “For us, compliance extends beyond hyper-political sanctions around sanctions of the UN and European Union. It relates to a lot more than that.” Dharsey explains.

“It relates to our client base. We are an Islamic bank, but it doesn’t mean we will let just anyone open an account just because they have an Islamic connotation behind their name — not at all. We reserve the right to bank with whomever we feel like banking with. It’s our bank.”

While money laundering is currently attracting a lot of attention in this part of the world, Steven McTigue, solutions manager at SAS, says the region is actually working hard to counter it.

“In terms of which parts of the world are doing more money laundering, the city of London probably does more money laundering than there is out here,” he argues.

“In terms of the pressure the banks are under to comply with international regulations, in Saudi Arabia they’re very strict — they put the banks there under quite a bit of pressure. The UAE is following to a similar degree, and then in places like Kuwait, Egypt and so on there are varying levels of pressure from the governments,” McTigue concludes.