To 314(b) or Not to 314(b)…
By Doug Wood, Infoglide Senior VP
That is the question. Or is it?
We all know that financial institutions compete with each other at every turn. They are all in the business of earning our business, so to speak. One thing they share, however, is the need to be compliant across many different governmental requirements as they do so.
Privacy, Disclosure, Fraud Prevention, and Anti-Money Laundering (AML) efforts require financial institutions to assist government agencies to detect and prevent terrorist financing. Fines for non-compliance are heavy, and damage to reputation for penalized institutions directly affects top line revenues. As a result, banks have implemented a variety of technology ‘point’ solutions across compliance efforts.
Individuals looking to launder money, however, are typically well-informed and patient. Their ability to test institutional alert thresholds, modify identifying attributes and seamlessly move from institution to institution is well documented. As a result, when one bank works through the AML investigation triage process, the others remain completely unaware and are ‘sitting ducks’ for the terrorists’ next move. Since it’s not feasible – and often unlawful due to data privacy laws – for banks to openly share their data with each other, fraudsters and terrorists easily move on to the next target bank.
Yet the U.S. Patriot act specifically addresses data sharing as an element of AML. Specifically, sections 314(a) and 314(b) provide guidelines and a ‘safe harbor’ mechanism for organizations to share sensitive data with The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN), and with other financial institutions.
Section 314(b) specifically addresses voluntary data sharing between financial institutions. The section permits and encourages financial institutions, upon providing notice to the US Department of Treasury, to share information with one another in order to identify and report activities that may involve money laundering or terrorist activity. In fact, a financial institution or association that shares information pursuant to this section is protected from liability under the safe harbor.
Many financial institutions, however, are reluctant to share information because of the complexity involved in determining the specific activities or transactions that may be considered money laundering or the fear that confidential information will somehow be inappropriately disclosed by a downstream recipient. Throw in the reality that the voluntary process is largely manual – with large gaps in efficiencies – and it becomes clear that the system is in need of a technology infusion such as that provided by a new program called Inter-Bank Intelligent Risk Data Search (I-BIRDS).
I-BIRDS is a collaborative, member-based AML technology framework created by Infoglide Software Corporation (ISC) of Austin, TX. In consultation with leading financial institutions and industry experts, ISC has developed a secure method for banks to perform AML due diligence by searching into each member’s known ‘bad guy’ data. Unlike traditional search capabilities, I-BIRDS searches the data en situ (behind the secure firewalls of each member) and accounts for spelling and cultural variations of attributes and data quality.
The key to maintaining this inter-bank framework is Infoglide’s flagship Identity Resolution Engine™ (IRE) software. With IRE at the core, I-BIRDS provides unique, patented capabilities to search into member data stores, and return only a mathematical probability that a match or relevant social link to the source data was found. No defining attributes are ever returned to the requestor; only the probability that the search criteria exists in other members’ risk data. To help banks become more compliant, I-BIRDS delivers an accurate view of whether or not an entity is likely to have committed fraudulent acts upon a competitor bank. Armed with this information, the querying bank can make decisions as to what – if any – additional due diligence might be required before approving or disapproving a transaction with that entity.
Even though no identifying attributes are returned, the search is productive as the enquiring bank knows that the person of interest was found in the AML data from other participating institutions. So, if the question is whether or not to improve compliance efforts and keep terrorists out of our financial institutions via 314(b)… perhaps the answer is I-BIRDS.