The quality of Anti Money Laundering investigations varies enormously from organisation to organisation. Just to be clear, we are talking about the whole process from the initial analysis of a hit from a screening system or transaction monitoring system, through alert decision making, review, escalation, detailed investigation and ultimately, if necessary, reporting to the authorities.
Larger organisations will have separate teams in place for each part of the process – with each team having specialised training and subjected to detailed QA – but in smaller organisations, there will be far fewer people involved in the chain.
However many people are involved, for the process to be effective, it’s really important that everyone approaches each case with the right mindset. The ‘Investigator mindset’ means keeping an open mind, being on the lookout for clues or red flags and one key attribute of this mindset is known in some circles as ‘Professional Scepticism’.
The Institute of Chartered Accountants of England and Wales (ICAEW) defines professional scepticism as ‘an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence[1].’
The ICAEW’s definition applies to audit and accountancy but we can tweak it to be more relevant to the world of AML investigations. Here it would be a case of being alert to conditions that might indicate money laundering, concealment of identity, obfuscation of the nature of a transaction or other criminal behaviour.
In essence, this means not just taking things at face value and being aware that something might be wrong. This is an under-appreciated skill and it can be difficult to define and difficult to train. A good investigator will look at the information in front of them, apply the process they have been trained on and make a decision on whether the hit is suspicious or not. A better investigator will also use their intuition, sixth sense, spidey senses… call it what you will… to consider the context relating to the hit as well as the component facts. Sometimes, analysing a hit according to the ‘rules’ of the organisation will determine that a hit is not suspicious and can be discounted, but something about it doesn’t seem right.
A simple example of this might be where an organisation defines a close match on a name as having up to 2 characters different between the hit and the customer. On this basis, a hit with the name D. Baronetski against a customer name of David John Varronesky would be discounted. An investigator applying a bit of professional scepticism might think a bit more broadly and realise that the two surnames are pretty close homonyms and there are a multitude of reasons why this could be the same individual with different spellings of the name.
This mindset can also be really powerful when considering whether a transaction is consistent with a customer’s normal behaviour or business patterns. Someone applying the Investigator Mindset won’t just take a description of a transaction at face value but will look at the context of the transaction and consider whether there are other factors that might indicate that something suspicious is going on. This doesn’t mean assuming everyone is a crook, it’s more subtle than that.
One obvious step is to employ the right people. During the interview process, don’t just ask candidates what they’ve done, who they’ve worked for etc. Give them a couple of challenging case studies. Ask them to talk through their thought process. This should give you an idea of whether or not they are just taking things at face value.
Another is to make sure that your procedures allow investigators/analysts to think outside the box. Yes, you want clear, repeatable procedures to make sure there is a consistent approach across the teams. But that doesn’t mean you have to stamp out creative thinking. A good set of procedures will carefully define the minimum set of steps that must be followed but can be caveated to let analysts know they should also use their experience and intuition to follow up things that concern them. Importantly, procedures should make it clear that hits should be referred or escalated if there are matters they are concerned about – even if those matters relate to the things that are not specified in the procedures. Time and again, we see hits discounted by an analyst when there are attributes that another analyst would find suspicious.
SQA Consulting can help organisations understand the quality of their AML investigations.
If you would like to hear more about our work, then please contact us.
[1] https://www.icaew.com/technical/audit-and-assurance/professional-scepticism/
