NetPractice Exchange Vo. 2 No. 3

pg 1

Vol 2No. 3

NetPractice Exchange Jan/Feb 09Jan/Feb 09 Vol 2

No. 3

Fiserv’s Fraud and Compliance Best Practice Community

Housing Crisis: Great for Real Estate

Launderersand Fraudsters pg 14

Check Kiting: Is Your Institution

Still at Risk?

pg 4

Vol 2No. 3

NetPractice Exchange Jan/Feb 09

Not a NetPractice member yet?NetPractice is an online Fiserv Fraud and Compliance user community that develops, delivers and supports innovative services and resources that helps its members improve the way they control the risks associated with fi nancial crime management and compliance initiatives.

To become a member, please visit our online community portal at www.netpractice.org.

NetPractice ExchangeThis newsletter is a quarterly publication by Fiserv Fraud and Compliance for NetPractice members and others interested in NetPractice or Fiserv Fraud and Compliance in general.

NetPractice Advisory BoardFlorisela Bentoera, CAMS, Manager Compliance and AML Operations, RBTT Dutch Caribbean, Curacao, Netherlands Antilles

Deborah King, CAMS, VP Director AML Investigations, Citizens Financial Group, Medfort, MA, USA

Michiel Peeperkorn, CAMS, Compliance Offi cer, ING Bank, Amsterdam, Netherlands

Saskia Rietbroek, CAMS, Financial Crime Advisor, Fiserv Fraud and Compliance, Miami, FL, USA (Chair)

Cindy Shelton Ryan, CAMS, Compliance Offi cer, Bank-Fund Staff Federal Credit Union, Washington D.C., USA

Aleksejs Truhans, IT Development, Parex Banka, Latvia

NetPractice StaffDirector: Stanley Harmsen van der Vliet, CAMS

Marketing Coordinator: Roos Goosen

This newsletter is for general information purposes only. The views expressed in this newsletter are not necessarily those of Fiserv Inc. Fiserv Fraud and Compliance has taken all reasonable measures to ensure that the material contained in this newsletter is correct. However, Fiserv Fraud and Compliance offers no warranty and accepts no responsibility for the accuracy or the completeness of the material. In publishing this newsletter, neither the authors nor Fiserv Fraud and Compliance are engaged in rendering legal or other professional advice.

NetPracticeHeadquarters United States of AmericaLoire 200-202 Ansonia Station 2491 AM, The Hague P.O. Box 230887The Netherlands New York, NY 10023

Tel: +31 (0) 70 452 5448 Tel: +1 (917) 825 3910Fax: +31 (0) 70 452 5444

[email protected]

© 2009 Fiserv, Inc. All Rights Reserved.

Jan/Feb 09Vol 2No. 3

INSIDE

Word from the NetPractice Director .......................... 2

Stay Up-to-Date with NetPractice RSS ....................... 2

NetPractice Member List ........................................... 3

Check Kiting: Is Your Institution Still at Risk? ............. 4

Fraud and Compliance Must Converge ...................... 6

Fiserv Fraud and Compliance Product Overview ......... 8

Hot Docs and Downloads .......................................10

AML International Master Class ..............................11

Fraud Prevention Success Story ...............................12

Housing Crisis: Great for Real Estate Launderers and Fraudsters .......................................................14

Results Poll Question ..............................................15

PAC Update ...........................................................16

Featured Functionality NetEconomy ........................16

Financial Crime News from Around the World .........18

Calendar of Events .................................................20

10 Reasons to Join NetPractice ...............................21Financial Crime News from Around the World

pg 18

Industry Thought Leadership:Housing Crisis

pg 14

Hot Docs and Downloads

pg 10

Case Study: Fraud Prevention Success Story

pg 12

NetPractice Stay Up-to-Date

pg 2

Fiserv’s Fraud and Compliance Best Practice Community

Vol 2No. 3


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One of the benefi ts of being a Fiserv Fraud and Compliance Group software user is our

extensive network representation of fi nancial institutions across the U.S. and around the world. With the merger of the user communities of NetPractice and RiskXchange, we have more than doubled our membership: more than 2,000 members at more than a hundred fi nancial institutions worldwide.(See list of member institutions on the following page.)

The combination of two user communities within the Group is a prime example of how our Fiserv 2.0 strategies come together to benefi t clients from different business units. To leverage this network opportunity, RiskXchange.com, the online resource for Carreker’s risk solutions customers, is being combined with NetPractice.org, the website specifi cally designed for NetEconomy users and NetPractice members.

The new site, providing shared value among the entire user base, will be launched soon. It will offer a range of valuable information about money laundering controls, risk management and fraud issues. Your questions and issues will be addressed by experts who know the most about the Fiserv Fraud and Compliance solution that your institution is using.

As you can see, we also have a new format for the NetPractice Exchange magazine. The new format conforms to the house style of Fiserv Fraud and Compliance. We hope it will inspire you to send us your valued contributions and input for the magazine.

While the Carreker and NetPractice communities are being merged into a new online platform, NetPractice will continue to serve its members through www.netpractice.org. NetPractice together with its members and committees will continue to lead the effort to deliver value in the crucial realm of enterprise risk management.

Stay Up-to-Date with the NetPractice RSS News Feeder

The NetPractice RSS news feeds provide a convenient way for you to receive content “feeds”

from a variety of topics, including the latest news headlines from the NetPractice Web site. When you subscribe to an RSS feed, new stories and updates are automatically delivered to you the moment they

are published. RSS (Really Simple Syndication) is a quick, easy and lightweight format for monitoring new content added to our site and is a great supplemental communication method that gives you access to any kind of updates directly into your email client such as Outlook® or Lotus Notes®.

Getting StartedYou can simply start by subscribing to our service by visiting the RSS

web page www.netpractice.org/memberarea/rss.aspx. Click on the subscribe option and check your email client for any updates on our Web site. For more information or instructions on how to install the RSS news feeds, please watch the tutorial video on the “New Members Start Here” page on the NetPractice Web site (www.netpractice.org/New-Members-Start-Here.aspx).

NetPractice Stay Up-to-Date

Word from the NetPractice DirectorStan Harmsen van der VlietDirector NetPractice

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Vol 2No. 3

AmericasUnited States of America

1st Bank Oklahoma »1st CU of Gainesville »Athol-Clinton Co-operative Bank »Bank-Fund »Barre Savings Bank »Beverly Cooperative Bank »Calyon Financial Inc. »Central Bank »Chicopee Savings Bank »China Trust USA »Citizens Bank »Collins Community Credit Union »First Citizens Federal Credit Union »First Federal Savings Bank of Iowa »First Federal Savings Bank »First National Bank of Omaha »First Personal Bank »Florida State University CU »GCF Bank »Greenfi eld Savings Bank »Hancock Bank »Higher One »Home Savings Bank »Huntingdon Savings Bank »InsurBanc »Investment Savings Bank »Manasquan Savings Bank »Medina Savings and Loan »Association Merchants Bank »Metropolitan National Bank »Miami Savings Bank »Millbury Federal Credit Union »NBT Bancorp »NetSpend »NewAlliance Bank »Newton Federal Bank »North Akron Savings Bank »North Shore Bank »Panther Community Bank »Platinum Community Bank »QCR Holdings Inc. »Reliance Savings Bank »Savings Bank of Hegewisch »Security Savings Bank »Stephens Federal Bank »

Sunset Bank and Savings »Sunshine State Federal Savings »Texas Capital Bank »The Pittsfi eld Cooperative Bank »Union Building and Loan Savings »Bank United Roosevelt Savings Bank »

Canada Sun Life »

Jamaica First Caribbean International Bank »

Suriname DSB Bank »

Trinidad and Tobago First Citizens Bank »RBTT Bank »

EuropeAndorra

Banca More »

Belgium Dexia Group »

Cyprus Bank of Cyprus »Emporiki Bank »Hellenic Bank »Laiki Group »Universal Bank »

France AXA Banque »Banque AGF »

Guernsey Credit Suisse Trust »

Ireland Bank of Ireland »

Latvia Parex Banka »Rietumu Banka »

Luxembourg RBC Dexia »

Malta Bank of Valletta »

NetherlandsCredit Europe Bank »Friesland Bank »ING Group »Triodos Bank »Van Lanschot Bankiers »

Portugal Banco BPI »

SwedenSEB Group »Lansforsakringar AB »

SwitzerlandAmas Bank »

United Kingdom Abbey »Adam and Company »Close Private Bank »Nationwide Building Society »Saffron Walden Herts and Essex »

AsiaIndia

Bank of Baroda »

KuwaitKuwait Finance House »

OmanBank Muscat »

PhilippinesBank of The Philippines Islands »

United Arab EmiratesAbu Dabi Commercial Bank »Emirates National Bank »

AfricaMauritius

The Mauritius Commercial Bank »

MoroccoCredit Immobilier et Hotelier »

Meet and network with your fellow NetPractice members. Visit www.netpractice.org to see the full member directory: thousands of people worldwide!

NetPractice Member List

Vol 2No. 3


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Check kiting is the most common form of check fraud and it’s possible that you

may encounter it at your fi nancial institution. In the Commercial Bank Examination Manual, the U.S. Federal Reserve states that kiting occurs when a person takes advantage of the “fl oat time,” or the time it takes one institution to collect payment from another. Basically, a person who has two or more accounts writes checks between the accounts knowing that there are insuffi cient funds to cover those transactions. Although writing checks against insuffi cient funds is in itself a crime, it takes a series of such transactions before it is considered a check kiting scheme.

Many thought that after the passing of Check 21, or the Check Clearing for the 21st Century Act, that check kiting would become a distant memory. This law allowed for checks to be cleared faster by allowing institutions to clear

substitute checks electronically, which in theory drastically reduces the fl oat time of the check. However, many banks are not Check 21 ready. And fi nancial institutions in the effort to become more competitive are offering their customers shorter clearing periods on credit, as well as offering branches in different markets, which makes kiting harder to detect.

Regulation Weakens Institutions’ DefensesIn addition, another regulation that institutions must comply with can also put them at risk for kiting. According to the Federal Reserve, “The requirements of Regulation CC, Availability of Funds and Collection of Checks, increased the risk of check kiting, and should be addressed in a bank’s policies and procedures.” Regulation CC mandates the length of time that banks are allowed to hold checks before making those funds available to their customers.

For example, checks drawn on an account held by your institution and deposited in person must be made available by the next business day. On the other hand, if a check is from another institution not in your check processing region, this check must be made available by the fi fth business day after the deposit was made. It is this type of situation that a kiter can take advantage of, which is why they often deposit out-of-state checks.

Not Worth the RiskSeveral cases this year saw banks losing millions of dollars due to this type of scheme. In one instance, an Ohio-based bank suffered a loss of more than US$4,000,000. The defendant named in the case allegedly made use of three levels of banks accounts. The fi rst level consisted of 15 accounts in the name of restaurants. Every day the balances in these accounts would be transferred to the next level of

Check Kiting:

Is Your Institution Still at Risk?By Saskia Rietbroek, CAMS

›› continued

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Vol 2No. 3


Check Kiting: Is Your Institution Still at Risk? ›› continuedtwo “disbursement accounts,” then the balances in these two accounts would be transferred to the third level of accounts. The defendant in the case fraudulently wrote checks between the three levels of accounts, which caused the balances to become infl ated. Unfortunately, the bank gave the defendant instant credit on the transactions. In the end, the defendant wrote more than 44,000 checks totaling $824 million dollars in order to continue the check kiting scheme.

Detection and PreventionIt is important to implement proper check kiting prevention and detection systems. Proper training of your staff is very important. Your tellers and frontline employees in particular need to be well versed in Regulation CC time limits. For many institutions, a transaction monitoring system fi ne-tuned to detect suspicious behavior is instrumental in detecting check kiting. It is a good idea to watch out for the following warning signs:

Signature and payee are the • same

Changes to the amounts that are • normally deposited

Checks are drawn on other • banks and signed by the same depositor

Checks are deposited regularly • and signed by the same maker

Customer makes frequent • inquires about his or her balance or other account activity

Deposits are always made in the • early morning or late afternoon

Business is in a deteriorating • fi nancial condition

Accounts have a high average • daily deposit relative to the ledger balance

Place of business or residence is • inconveniently located in relation to a regularly used branch or branches

Wide and sudden fl uctuations in • account balances

Escalating balances•

The fi rst kiting

signal, when signature and payee

are the same, is an indicator most often associated with cases involving a fraudster working alone. These people often use two or more types of accounts – for example, personal, custodial or business – and kite among them. In addition, to avoid suspicion, the fraudster may make a memo entry at the bottom of checks to provide justifi cation for the increasingly large amounts of the checks. According to a report of the FBI, one kiter wrote checks to himself with memo entries for a

trip to Spain and for the purchase of furniture, a car, and even a forklift. Such actions should raise a red fl ag to bank offi cials, because individuals rarely make checks out to themselves when making purchases – they write checks payable to the merchant.

Despite technological advances and Check 21 check kiting is still on the rise. According to the January 2008 Suspicious Activity Report (SAR) released by the U.S. Financial Crimes Enforcement Network, kiting-related SARs are up by 58 percent from the preceding year.

A kiting scheme can be extremely costly to a fi nancial institution if it is not caught early. An institution cannot afford to be a victim of this crime, and should take early warning signs seriously.

Saskia Rietbroek is Financial Crime Advisor at Fiserv Fraud and Compliance. From 2001-2005, she was the founding Executive Director of the Association of Certifi ed Anti-Money Laundering Specialists (ACAMS). She is Partner of AML Services International (www.nomoneylaundering.com) and chairs the NetPractice Advisory Board.

A kiting scheme

can be extremely

costly to a fi nancial

institution if it is

not caught

early.

Vol 2No. 3


pg 6

A ccording to Richard McCarthy, chairman of the Fiserv Fraud and Compliance Product

Advisory Council, combining fraud and compliance efforts is crucial in effectively taking on the modern-day criminal.

Just a few years ago, fraud and compliance departments were two worlds apart. Each served a different purpose, and each pursued a different goal. While compliance offi cers were driven by the fear of large fi nes imposed by the regulators to improve the detection of money laundering, fraud managers were tasked with the growing problem of tackling the fi nancial losses incurred by new types of fraud, from credit cards to the Internet. All this is changing.

In some cases, banks are already consolidating fi nancial crime efforts into a single “group integrity” department that combines anti-money laundering (AML), fraud and, in certain cases, security. Additionally,

they are turning to advanced multi-channel fraud and compliance detection technology to help them take on the modern-day criminal.

In part, this is due to changes in the way that criminals commit fi nancial crimes. Criminals are increasingly organized in the way they infi ltrate customer accounts. They also attack across many or all payment channels, assaulting customer accounts globally. Consequently, fi nancial institutions are accepting the fact that, to effectively combat fi nancial crime, they need to group fraud and money laundering prevention resources together.

Regulatory BackingFinancial regulators are also adding their weight to these efforts to combine fraud and compliance. In a recent speech by the director of FinCEN, James Freis said, “I want to emphasize that fi nancial institutions can benefi t by leveraging their fraud resources with their AML efforts and starting to take advantage of the

signifi cant effi ciencies that I see beingavailable through this leverage.”

Freis added that fi nancial institutions tend to associate his agency’s mission “exclusively with fi ghting money laundering and terrorist fi nancing. In reality, the breadth of fi nancial crimes and, therefore, our mission, is much broader.”

The general verdict is that money laundering and fraud are often connected. Money laundering can be a malignant product of fraud, where perpetrators seek to disguise the proceeds of a fi nancial crime by laundering it through the fi nancial system.

Yet the challenge of modernizing the way we detect and prevent fraud and money laundering will not be an easy one. Many compliance and fraud departments in banks have become entrenched in the methods they follow and in the detection tools they use. This is confi rmed by Freis, who reports that “FinCEN is in

Industry Insight:

Fraud and Compliance Must Converge

›› continued

pg 7

Vol 2No. 3


the middle of an ongoing outreach initiative with some of the nation’s largest fi nancial institutions in order to learn more about how their AML programs operate.“ Among the lessons learned by his agency, is that many of those programs “are run separately from the bank’s fraud detection departments.”

The need for change is apparent. In a recent user survey conducted by Fiserv of its customers who use the NetEconomy product to help them in their anti-money laundering efforts, 68% of respondents stated that they plan to or already combine fraud and AML efforts. One of these customers includes NetSpend Corporation, a pioneer in the prepaid card industry.

Founded nine years ago, NetSpend has become a U.S. leader, processing over $3.5 billion in card payments annually. NetSpend uses Fiserv’s NetEconomy Financial Crime Suite to detect money laundering, fraud and employee fraud. Thomas J. Firnhaber, director of compliance at NetSpend reports, “we are extremely pleased with the results of this implementation, as well as our ability to use one integrated solution across three crime areas.”

By implementing this platform, NetSpend has saved money and optimized processes by investing in one solution that covers both fraud and money laundering prevention. For instance, it uses the NetEconomy system to monitor transaction activity at its partners’ locations and, as a result, was able to detect instances of fraud perpetrated by employees of its partners. Through early detection of this fraud with the NetEconomy system, NetSpend was able to help its partners prevent signifi cant losses.

Money MattersFor many industry experts, this convergence will not come as a surprise. Gartner Research, a leading information technology research and advisory company, reported last year that compliance and fraud mitigation needs are driving increased interest among large banks in securing enterprise-wide fi nancial crime management solutions. Celent, a research and consulting fi rm focused on information technology in the global fi nancial services industry, also recognizes this market demand and has given presentations on the subject of fraud and compliance convergence.

Celent outlines some of the reasoning behind using a general detection platform for AML and fraud (see box, below). Both involve the monitoring of transactions and both share similar functional needs, including the generation of alerts and support for strong case management.

A consequence of this is that an increasing number of vendors are

offering fi nancial crime suites, and fi nancial organizations appear to be increasingly selecting them to simplify their systems and improve their total cost of ownership. However, fraud, like AML, has its own particular needs. The demand for real-time monitoring is greater in fraud, and the volumes of data to be analyzed are also often greater.

Combining fraud and compliance will therefore not be easy, and for this reason, many fi nancial institutions are turning to the external experts, including the fi nancial crime vendors. Fiserv, for one, has carried out an increasing number of projects of this nature. The lessons learned indicate that, with the right skills set and complementary technology, large benefi ts similar to those reported by NetSpend can be derived. Financial institutions need to adapt their approach to fi ghting fi nancial crime, by incorporating both fraud and AML compliance to see the real benefi ts and effi ciencies of this convergence.

Fraud and Compliance Must Converge ›› continued

Vol 2No. 3


pg 8

Recent rankings show Fiserv fraud and compliance solutions as superior in the marketplace.

CheckFree/Carreker ranked fi rst in the OpRisk & Compliance Survey for its anti-fraud software; NetEconomy ranked fi rst in the anti-money laundering software category and ranked second in the anti-fraud software category, and together with CheckFree/Carreker, gathered 48 percent of the total vote. In addition, NetEconomy was ranked fi rst by IBS Publishing as the top-selling provider of anti-money laundering solutions for 2007. Below is an overview of what we have to offer.

Fraud Prevention Solutions

Multi-Channel Fraud

NetEconomy Fraud ManagerThe NetEconomy Fraud Manager provides real-time detection for various forms of fraud including

check fraud, debit card fraud, credit card fraud and identity theft. The NetEconomy Fraud Manager identifi es a range of fraudulent activity across multiple channels, product lines and geographies, giving fi nancial institutions a holistic view to effectively mitigate risk and reduce fraud losses across their organization. Once alerts on fraudulent activity have been generated, a step-by-step workfl ow with built-in case management drives users through investigation, case tracking and reporting within one fully integrated environment.

NetEconomy Advanced Peer Group AnalysisThe Advanced Peer Group Analysis module profi les average behavior for certain peer groups over various time periods using advanced statistical techniques to determine when account or customer behavior signifi cantly deviates from its peer group’s behavior. When combined

with the NetEconomy solutions, the module can further reduce alert numbers for more accurate results and less time spent on investigation and reporting.

NetEconomy Case ManagementCase Management System tracks, prioritizes and manages suspicious cases, automates reporting, and records an audit trail with complete case history and detailed log of all actions taken and reports fi led.

Check Fraud Detection

FraudGuardFraudGuard is designed to meet the needs of fi nancial institutions seeking comprehensive check fraud protection in a less expensive, out-of-the box solution. The solution combines the performance of fi ve industry-leading FraudGuard solutions to improve the likelihood of detecting any alterations made to the negotiable fi elds on a check.

Fiserv Fraud and Compliance

Product Overview

›› continued

pg 9

Vol 2No. 3


This powerful combination delivers unparalleled speed in the detection of check alterations, forgeries and counterfeits, all in a single processing cycle.

Key Applications:

Payee Name Verifi cation •

Signature Verifi cation •

Secure Marks •

Counterfeit Detection•

FraudLinkFraudLink includes advanced software applications for bank fraud detection and risk management. Solutions include conventional check fraud detection systems, which allow fi nancial institutions to prevent and reduce losses from check fraud, deposit fraud, electronic (ACH) fraud, and check kiting. Our solutions also address the growing concerns related to check truncation, remote deposit capture and the migration to an electronic payments processing environment.

Key Applications:

ACH Fraud •

Check Kiting •

Counterfeit and Forged Checks •

Deposits Fraud•

Internal Fraud Prevention

NetEconomy Employee Fraud ManagerThe NetEconomy Employee Fraud Manager detects employee fraud through monitoring employee behavior and any links to suspicious customers that might indicate internal fraud. Once alerts on suspicious employee activity

have been generated, a step-by-step workfl ow with built-in case management drives users through investigation, case tracking and reporting within one fully integrated environment.

Compliance Solutions

Money Laundering Detection

NetEconomy AML Compliance ManagerThe NetEconomy AML Compliance Manager is a comprehensive and award-winning anti-money laundering solution. The NetEconomy AML Compliance Manager identifi es a range of money laundering and terrorist fi nancing activities across multiple channels, product lines and geographies, giving fi nancial institutions a holistic view to effectively mitigate risk across their organization. NetEconomy monitors fi nancial transactions such as cash, checks, wire transfers, and alerts its users to the appearance of suspicious activity. Once alerts have been generated, a step-by-step workfl ow

with built-in case management drives users through investigation, case tracking and reporting within one fully integrated environment.

NetEconomy Customer Due DiligenceUnique features such as dynamic risk scoring help fi nancial institutions conduct ongoing due diligence with existing customers, placing a higher importance and priority on alerts generated from high-risk accounts and customers.

NetEconomy Advanced Peer Group AnalysisThe Advanced Peer Group Analysis module profi les average behavior for certain peer groups over various time periods using advanced statistical techniques to determine when account or customer behavior signifi cantly deviates from its peer group’s behavior. When combined with the NetEconomy solutions, the module can further reduce alert numbers for more accurate results and less time spent on investigation and reporting.

NetEconomy Automated Alert InvestigationThe Automated Alert Investigation (AAI) Module reduces alert investigation on manually generated alerts (SARs), focusing on only the highest risk to your fi nancial institution. The AAI module automatically fi lters out false positives through a series of checks and a scoring mechanism to present users with a recommended action. The module can be used for frontline teller/branch SAR analysis as well as automated post-alert investigation and analysis.

Leverage

the combined

effi ciencies and

power of a portfolio

of top ranking

solutions

FFC Product Overview ›› continued

›› continued

NetEconomy ReportingNetEconomy Reporting automatically generates paper or e-fi les for various regulatory reports, including SARs and CTRs (USA), SOCA (UK), TRACFIN (France), CFI (Belgium), GIFI (Poland) and reports for eleven other jurisdictions.

Watch List Matching

NetEconomy List MatchingWith the List Matching module, alerts are generated if a match is found when checking customers or transactions against a specifi c watch list such as SDN List (OFAC). NetEconomy automatically checks transactions of new or existing

customers against watch lists or exception lists as required in real time or in batch mode.

For more information on these products, please contact your account manager, or visit www.fi serv.com/fraudandcompliance.htmor www.neteconomy.com.

Vol 2No. 3


pg 10

Examination Procedures on Identity Theft “Red Flags”The FDIC, a U.S. bank regulator, issued exam procedures to assist fi nancial institutions in implementing the Identity Theft Red Flags, Address Discrepancies, and Change of Address Regulations requirements (Red Flags Rule). The regulations require fi nancial institutions and creditors to implement a written identity theft prevention program; card issuers to assess the validity of change of address requests; and users of consumer reports to verify the identity of the subject of a consumer report should an address discrepancy arise. Compliance is required by November 1, 2008. State-chartered credit unions that fall under Federal Trade Commission rules however, were granted an extension and have until May 1, 2009 to comply.

http://www.fdic.gov/news/news/fi nancial/2008/fi l08105a.pdf

Report on Fraud in UKGovernment DepartmentsAn annual report on fraud was released in October by Her Majesty’s Treasury. This document focuses on fraud within UK government departments. 761 cases of fraud or theft (down from last year) were reported by 25 different departments, with losses totaling more than 4,278,000 British pounds. The report mentions fraud types including payment fraud, GPC/credit card fraud, personnel management related fraud and theft of assets. To decrease instances of fraud, HM treasury suggests better monitoring of GPC/credit card usage by government and staff supervisors who have key responsibilities.

http://www.hm-treasury.gov.uk/d/govt_fraudreport031008.pdf

Fine Issued to Money Laundering Reporting Offi cerFor the fi rst time ever, the UK Financial Services Authority fi ned a money laundering reporting offi cer on October 29, 2008. Michael Wheelhouse must pay a £17,500 penalty for failing to take the steps necessary to control his fi rm’s money laundering risks. The fi rm, Sindicatum Holdings, Ltd, a corporate investment advisory fi rm, was also fi ned £49,000

for the defi ciencies. Wheelhouse co-founded the fi rm, where he also held a senior management position. Specifi cally, the fi rm and Wheelhouse did not adequately verify the identity of its clients and did not properly maintain records pertaining to customer identifi cation.

http://www.fsa.gov.uk/pubs/fi nal/m-wheelhouse.pdf

Withdrawal of Proposed AML RulesThe U.S. Financial Crimes Enforcement Network submitted a withdrawal of the proposed AML rules for unregistered investment companies, commodity trading advisors and investment advisers; it would have become effective November 4, 2008. The withdrawal is part of the agency’s attempts to increase its effectiveness and effi ciency in ensuring Bank Secrecy Act compliance. The proposed rules were fi rst issued in 2002 and 2003, yet no further action has since been taken by the agency. FinCEN stated in a press release that it would not mandate that these entities follow BSA requirements until new proposals are published and they are allowed to comment.

http://edocket.access.gpo.gov/2008/pdf/E8-26204.pdf

FFC Product Overview ›› continued

Hot Docs and Downloads

pg 11

Vol 2No. 3


A nti-money laundering (AML) has become a major issue in the corporate world and

particularly in the fi nancial services industry. The main reasons for that are the signifi cantly enhanced general awareness that money laundering is a severe threat to our economic system and the – obviously related – expansion of AML laws and regulations.

Over the past decade the role of those dealing with AML has changed consequently and has become much more senior. Their working environment is now more demanding and AML activities are more integrated in commercial processes. AML has become an area where many professional disciplines meet under the umbrella of the basic business principle of profi tability.

The knowledge and skills needed for the implementation and maintenance of AML concepts, policies and programs have developed rapidly. Nowadays the competence to turn concepts into action is key. It requires the ability to deal effectively with internal politics, strategic planning and external stakeholders.

Enhanced AML EducationTo prepare AML specialists for the changing environment, their education must be updated continuously. AML education must aim to develop an attitude that enables AML specialists to face the future challenges in a conceptual and fl exible, yet pragmatic way. An exam preparation program that combines an academic approach with existing AML education is one option to address this need. This concept is not new and has a proven track record in Europe regarding the education of Chartered Accountants and Chartered Controllers.

Money laundering is a global issue. Combating money laundering can be effective only when the professional standards, working methods and the level of knowledge are comparable worldwide.

Therefore the Association of Certifi ed Anti-Money Laundering Specialists (ACAMS) and the Maastricht University Business School (UMBS) are organizing the Master class Anti-Money Laundering. This is one of the initiatives to respond to the evolution of AML education needs

and to establish new channels for promoting ACAMS as the globally leading professional body of AML specialists.

The applied methodology is a combination of self-study, lectures, cases and discussions among the participants. The highly qualifi ed lecturers involved are dealing actively with the lectured disciplines in their daily professional life. All lectures have proven track records in turning AML concepts into operational environments in their specifi c professional discipline. The Master class is an international oriented and comprehensive program. It is offered in a six-day seminar and is followed by the offi cial CAMS exam organized by ACAMS.

The second edition of the Master class is scheduled for March 2009. Detailed information on the Master class Anti-Money Laundering is available on www.umbs.nl/aml.

Any further questions can be directed to Drs. Ingrid Voncken [email protected].

Competencies in a Changing World of AMLProf. Dr. Eddy Vaassen RA Maastricht UniversityThe Netherlands

Anti-Money Laundering International Master Class

Vol 2No. 3


pg 12

Fraud Prevention Success Story:

NetSpend Prevents Fraud Losses with NetEconomy’s Solution

›› continued

A Case Study

The Challenge:

Ensure full compliance, and • exceed wherever possible, all Federal and State regulations to meet NetSpend’s goals of maintaining an aggressive and comprehensive program of risk and compliance management.

Employ the best available • measures to protect partner banks, distributors and their customers from the risk of unlawful activity.

The Solution:

NetEconomy’s Financial Crime • Suite implemented by a cross functional team including NetEconomy consultants, internal IT resources, risk management and compliance analysts, and investigators.

The Results:

Direct cost savings, optimized • processes and a greater business insight into risk across the NetSpend environment.

Through early detection of • employee fraud with the NetEconomy system, NetSpend was able to help its partners prevent hundreds of thousands of dollars in losses.

A pioneer in the prepaid card industry, NetSpend was founded seven years ago and has grown to be a U.S. leader, processing over $4 billion in card payments annually. NetSpend uses NetEconomy’s Financial Crime Suite to detect money laundering, fraud and employee fraud with one fully integrated solution. By implementing this platform,

NetSpend has saved signifi cant dollars, and optimized processes by investing in one solution that covers three crime areas.

For instance, they use the NetEconomy system, to monitor transaction activity at partners’ locations and as a result were able to detect instances of fraud conducted by employees of its partners. Through early detection of this fraud with the NetEconomy system, NetSpend was able to help its partners prevent hundreds of thousands of dollars in losses.

“Beginning this project, our initial goal for the implementation of NetEconomy’s Financial Crime Suite was to ensure that our processes for monitoring customers met or exceeded AML/CTF guidelines,”

pg 13

Vol 2No. 3


said Thomas J. Firnhaber, Director of Compliance of NetSpend. “We are extremely pleased with the results of this implementation, as well as our ability to use one integrated solution across three crime areas.”

“In addition, we have quickly reaped a ROI well beyond what we had imagined by detecting employee breaches, saving our partner hundreds of thousands of dollars while at the same time ensuring ongoing protection against these threats now and into the future,” Firnhaber added.

NetSpend maintains an aggressive and comprehensive program of risk and compliance management to ensure its full compliance, and to exceed wherever possible all Federal and State regulations. “Working with NetEconomy continues our effort to employ the best available measures to protect our partner banks, distributors and their customers from the risk of unlawful activity. NetEconomy has proven it possesses innovative, fl exible and confi gurable features for us to continue to expand the solution platform as new crime areas or product launches open us to new risks.”

NetSpend initially selected NetEconomy in order to comply with regulatory requirements and to remain vigilant in its fi ght against fi nancial crime. NetSpend added fraud detection and employee fraud detection as a follow-on phase.

Today, NetSpend monitors over 700,000 cardholder transactions per day across the U.S. and all card sales and deposits at over 60,000 distributor locations. The system is exceptionally fl exible and can adapt to new scenarios and rules easily, and can scale as the NetSpend business grows exponentially.

A Holistic Approach to Financial Crime ManagementNetSpend has embraced the progressive and holistic approach to fi nancial crime management – combining silos and integrating risk areas. With one NetEconomy implementation instead of three, one department could oversee multiple crime areas and risks resulting in direct cost savings, optimized processes and a greater business insight into risk across the NetSpend environment. And, with one solution and technology environment, NetSpend benefi ts from less

expensive technology platform costs, as well as reduced personnel overhead for installing and operating back-offi ce environments – driving down the total cost of ownership (TCO).

With NetEconomy’s implementation NetSpend was able to combine systems and aggregate transaction data, delivering cost savings, reduced revenue loss and a greater business insight. With this integrated approach, NetEconomy can also uncover links and associations of suspicious activity broadening NetSpend’s view of risk.

“Today, we have more in-depth knowledge of what the customer does and how our business operates,” Firnhaber said.

In summary, by leveraging one solution, there is direct costs savings – one solution cost instead of three – as well as optimized processes, saved resources, and lowered operational and labor costs. Adding to these innovations and effi ciencies is the detection of employee fraud that would have resulted in hundreds of thousands of dollars of lost revenue.

NetSpend’s progressive approach for prioritizing and addressing these risks demonstrates a strong commitment to innovation, risk management and fi ghting fi nancial crime within the prepaid card industry.

Fraud Prevention Success Story ›› continued

We have quickly

reaped a ROI well

beyond what we

had imagined by

detecting employee

breaches

Vol 2No. 3


pg 14

Now is the time to revamp your institution’s protection from money laundering via

real estate purchases and transfers. U.S. Federal offi cials agree that the current economic state and the depressed housing market may lend itself to an increase in real estate and mortgage loan related suspicious activity. In fact, a recent report released by the U.S. Financial Crimes Enforcement Network in May of 2008 states that SAR activity related to the residential real estate industry is on the rise and with the refi nancing of mortgages this trend will continue.

A report released in the same month by the U.S. Federal Bureau of Investigation on mortgage fraud corroborates this statement. According to the FBI, fraudsters often take advantage of desperate real estate owners and personnel trying to maintain their standard of living.

Statistics in the report indicated that mortgage fraud related SARs rose by more than 10,000 in 2007.

There is a clear connection between mortgage loan fraud and money laundering, as the money launderer often commits mortgage loan fraud in order to conceal ill-gotten gains. Launderers often make use of “straw buyers,” people who allow their names and credit ratings to be used to secure fraudulent mortgage loans.

FinCEN believes that this may have been the case in one example listed in their report. According to a SAR, a mortgage offi cer of a bank was discovered supplying reference letters to non-resident aliens on mortgage loans. It was discovered that this employee had a business relationship with both an appraiser and a real estate agent involved in the sale of all the properties involved. Because all of the loans were performing and

did not default, it may be indicated that these were straw buyers who obtained mortgages, which were then used to launder funds as payments were made.

Most SAR Subjects Outside Real Estate IndustryThe above-mentioned case is not the norm. As a fi nancial institution you might feel that scrutinizing real estate industry clients may be enough to protect you; however, according to the FinCEN report more than 75 percent of residential real estate-related SAR subjects were unaffi liated with the real estate industry.

It is very important that your institution’s policies include conducting due diligence on customers who ask for mortgage loans. In one example from the FinCEN report, a bank declined a

Housing Crisis:

Great for Real Estate Launderers and FraudstersBy Saskia Rietbroek, CAMS

›› continued

pg 15

Vol 2No. 3


borrower’s mortgage loan application because of information it had obtained on the Internet. As it turned out, the customer was under investigation for laundering up to $500,000 in dirty money per week.

In addition, there are red fl ags that your institution can watch out for in order to make sure that you are not involved in a scheme like this. The Financial Action Task Force, an international organization dedicated to aiding governments in establishing anti-money laundering controls, lists several red fl ags in a 2007 report on money laundering through the real estate sector. A few of these include:

Individuals who unexpectedly • repay problem loans or mortgages or who repeatedly pay off large loans or mortgages early, especially if in cash.

Transactions involving recently • created companies when the amount is large compared to their assets.

Indications that the parties are • not acting on their own behalf and are trying to hide the identity of the real customer.

The customer is not interested in • improving the terms of the loan.

The customer does not appear • interested in the specifi cs of the transaction, for instance the date on the loan or when the property will be handed over.

Customers who express strong • interest in buildings in a certain area, regardless of what price the property is going for.

Transactions made by a third • party that is not involved in the initial sale of the property.

Another step that some institutions are taking in order to protect themselves involves the form 4506T. This form is fi led with the U.S. Internal Revenue Service to verify tax information and is normally required at the closing of the loan. However, according to CCH, some institutions

have begun to require this form during the application process instead.

Fraud and AML UniteOther institutions are more closely integrating their fraud and AML departments, specifi cally because of the connection between fraud and money laundering as mentioned earlier. An effi cient anti-money laundering program is instrumental in protecting an institution from mortgage fraud. Integrating these departments allows each to work more effectively by eliminating common redundancies.

As the housing market crisis worsens, it will be increasingly important for your institution to fi ght fraudsters and money launderers who are abusing the situation. By paying attention to these red fl ags and working together, your institution can protect itself from money laundering through real estate and mortgage fraud.

Housing Crisis: Great for Real Estate Launderers and Fraudster ›› continued

After how many SARs/STRs do you typically close the account?

After how many SARs/STRs doyou typically close the account?

2 - 21.05% •

3 - 42.11% •

No specifi c limit, • we can’t close the account - 36.84%

The poll question for next month:

How frequently do you update country risk profi les for purposes of monitoring for suspicious activity?

Answers:

Once per month•

Once per quarter•

Once per year•

Cast your vote at www.netpractice.org

ResultsPollQuestion

•

•

•

Vol 2No. 3


pg 16

Following the Product Advisory Council (PAC) meeting held in June 2008, Senior Management

at Fiserv Fraud and Compliance have participated in a number of meetings to look at the business objectives and the recommendations made by the council members. Some of the council members have already been approached during the normal course of business and have given replies on a number of topics and issues raised.

In general, Fiserv Fraud and Compliance has looked at each of the requests to fi nd which are commonly perceived as the most urgent between all its members. Additionally, the results of this year’s NetEconomy Product Evaluation Survey have been reviewed to add importance and help prioritize topics brought up by the PAC members.

During several internal meetings, the Fiserv Fraud and Compliance management team has identifi ed the most important areas of the NetEconomy product to focus on based on the information gathered via the above channels. As some subjects, such as “usability,” need further clarifi cation, the next step is to clarify specifi c requests made under each subject among the PAC

members and those that took part in the Product Evaluation Survey.

Product Management at Fiserv Fraud and Compliance has continuously been involved in this product review process, and begins to access how these requests can be added to the product line, and when best to add them given the existing product release cycle.

What Is the PAC?The Product Advisory Council (PAC) is a strategic platform where NetPractice members and the Fiserv Fraud and Compliance product management team meet for strategic product direction and product suggestions. The PAC has eight board members and was founded in June 2008.

In NetEconomy (ERASE) 4.1.6, Case Management Confi guration has been introduced, allowing

fi nancial institutions to add fi elds to Case Management screens, change fi eld labels, make fi elds protected, change presentation and make fi elds mandatory.

The Case Management Confi guration functionality, which is part of the “Maintenance” function group in the CONFIGURE module, allows you to do the following:

Maintain custom fi eldsYou can add fi elds to the case management windows. When you add a fi eld, it will appear in a newly added Additional Information tab of new or existing cases in the system. The following elements can be defi ned:

Object: a custom fi eld must be • linked to one of the available objects (case, incident, transaction, account, person or company).

Name: the name that is used to • store the fi eld in the database.

Label: the fi eld name that • is displayed in the case management windows.

Type: the type of the fi eld, for • example “Text” or “Drop-down.”

Mandatory: you can make a • custom fi eld mandatory. Case investigators will then be required to enter a value for the fi eld; they cannot leave the fi eld empty.

Featured Functionality NetEconomy: Case Management Confi guration

›› continued

Product Advisory CouncilUpdateRichard McCarthyChair PAC

pg 17

Vol 2No. 3


Maintain standard fi eldsYou can modify standard fi elds to some extent. The limitation is that you can only make standard fi elds more restrictive. This means that you can do the following:

Make a non-mandatory fi eld • mandatory so that users are required to enter a value for the fi eld.

Change an open text fi eld into a • drop-down fi eld by specifying a drop-down set for the fi eld.

A button is available to reset the customized standard fi elds to their default.

Maintain custom setsYou can maintain custom sets of values that are available in drop-down lists for custom fi elds or for modifi ed standard fi elds. Custom sets are similar to static tables, which contain values that are displayed in the standard drop-down boxes for standard fi elds. When you add a custom set, you must specify a

name and description, and defi ne the elements of the set. Each element consists of a code and a description. Depending on how you confi gure the custom fi eld, either both the code and the description or only the description will be displayed in the drop-down box.

For more information, please contact NetEconomy Product Management at [email protected].

›› Figure 2 - Custom fi eld for Person displayed in the case

›› Figure 1 - Add custom fi eld for Person

Featured Functionality NetEconomy ›› continued

Vol 2No. 3


pg 18

U.S. FinCEN Proposes New Organizational Structure for RegulationsOn October 23, 2008, the U.S. Financial Crimes Enforcement Network submitted a proposal to simplify anti-money laundering regulations by reorganizing them within the Bank Secrecy Act.

This change would create a new chapter within the Code of Federal Regulations in which all the AML rules would be located. According to the press release, the agency also proposes creating general and industry specifi c sections to the regulations. The numeric system that the code will use in this reorganization will also be more logically constructed. The release offers this example: .320 might be used for all requirements to report suspicious transactions, so a bank’s SAR requirements would be found at

1020.320, a casino’s at 1021.320, a securities’ at 1023.320, and so on.

Currently the AML rules are found in the CFR as Part 103 in Chapter One of Title 31. Under this proposal, the rules would be found in a newly-created tenth chapter entitled “Title 31 Chapter X – Financial Crimes Enforcement Network.” FinCEN offi cials hope that this change will make the regulations easier to navigate and therefore easier to understand, the release states.

Loan Broker Indicted in $15 Million U.S. Fraud CaseA loan broker from the Philippines was charged on October 7, 2008 with defrauding the Export-Import Bank of the United States. An indictment handed down by the federal grand jury in the District of Columbia alleged that Bettina Balderrama brokered approximately

$15 million in fraudulent loans between Philippine companies and U.S. lending institutions. The Ex-Imp Bank acted as guarantor or insurer in these transactions.

As the offi cial export credit agency of the U.S., the Ex-Imp Bank issues loan guaranties to U.S. banks on behalf of foreign companies. The purpose of these loans is to purchase U.S. goods. When the borrower defaults on the loans, the Ex-Imp Bank pays the loan back to the lending institution.

According to the press release, Balderrama, as part of the scheme, enlisted a U.S. exporter to create fraudulent shipping documents stating that the loan was being used to purchase goods when the money was actually being funneled to accounts held by Balderrama. She faces charges of fraud and money laundering.

Financial Crime

News From Around the World

›› continued

pg 19

Vol 2No. 3


Haiti Still Behind in Combating the Financing of TerrorismThe Caribbean Financial Action Task Force released a report in September assessing the Republic of Haiti’s anti-money laundering and terrorist fi nancing controls. The evaluation, performed by experts from the World Bank, was based on the FATF’s 40 Recommendations and Nine Special Recommendations.

The report states that although Haiti passed a law in 2001 with the purpose of fi ghting money laundering, the country has yet to establish a legal framework to counter the fi nancing of terrorism. According to the evaluation, even the AML laws are weak when compared to the international standards. For instance, there are still restrictions on the lifting of bank secrecy and some non-fi nancial businesses and professionals are not covered.

The World Bank also called the current regime ineffective, citing the lack of money laundering convictions

and low number of suspicious transaction reports (STRs) (fi led only by the banking sector) as examples. The lack of STRs seems to be explained by grave concerns about the confi dentiality of the reports, the protection of the identity of the reporting person and the personal risks that the reporting individual might incur.

It was recommended in the report that Haiti adopt a more strategic approach in its AML regime, that the country pass a terrorist fi nancing law and that a major training effort be launched.

OLAF and Eurojust Agreement Aims to Improve Financial Fraud FightIn September, the Europe Anti-Fraud Offi ce (OLAF) and Eurojust (the European Union judicial cooperation body) entered into a practical agreement that will enhance their cooperation on fraud cases that endanger the fi nancial interests of the European community.

This agreement calls for closer collaboration and includes provisions on the exchange of information between the two agencies. Specifi cally, it calls for close and regular contact through teams consisting of members of OLAF and Eurojust who will meet on a quarterly basis, or even more frequently. These teams will exchange case summaries on cases involving corruption, fraud and other fi nancial crimes. In addition, the teams will provide feedback on progress, including decisions to close or not to pursue cases, in the attempt to reinforce the collaboration between the two bodies.

The avenues through which the two agencies must exchange personal data is also set forth in the agreement, as are guidelines for the protection of personal data. The agreement also provides for the exchange of strategic information, such as fraud and corruption trends.

Financial Crime News From Around the World ›› continued

Vol 2No. 3


pg 20

Calendar of Events

Fiserv Fraud and Compliance European User Group Event 2009

Event

ACAMS 2nd Annual Anti-money Laundering & Counter Terrorism

Financing Conference

9th Annual Florida International Bankers Association (FIBA) AML

Compliance Conference

Alert Global Media’s 14th Annual International Money Laundering

Conference & Exhibition

European Insurance Forum

Location/Website

Dubai, UAEwww.acams.org

Miami, Floridawww.fi ba.net

Hollywood, Floridawww.moneylaundering.com

Dublin, Irelandwww.eventznet.com

Date

January 25-27, 2009

February 19-20, 2009

March 16-18, 2009

March 30-31, 2009

The 2009 European User Group event will take place on 11th and 12th June 2009.

This event offers you an invaluable opportunity to discuss the fi ght against fi nancial crime with your colleagues and peers.

The day-and-a-half program will include customer presentations, interactive workshops and training sessions with plenty of networking opportunities as well. A gala dinner is traditionally held on the evening of the fi rst day.

Visit www.netpractice.org/Fiserv-User-Event-2009.aspx to tell us which city you prefer for the event: Amsterdam, Brussels or Paris?

NetPractice is a highly specialized service that focuses on the specifi c needs of

one niche group: fi nancial crime professionals who work with Fiserv’s Fraud and Compliance technology. NetPractice’s value and advantage lie in its focused best-practice information, its dedicated services and its commitment to enriching the professional lives of its members.

NetPractice combines our technology with the human element, an online user community to enrich the professional development, learning, connectivity and the professional lives of the members through the sharing of knowledge.

10 Reasons to Join NetPracticeOnline member community of 1. thousands of peers using Fiserv Fraud and Compliance solutions for fast real-world problem-solving and idea sharing

Watch online videos with step-2. by-step instructions about how to best use our solutions

Receive monthly training on 3. solutions, compliance strategies and fi nancial crime

Receive NetPractice Exchange: 4. a print newsletter with thought leadership articles, news and best-practice techniques for improved risk detection and management

Get immediate online access to 5. dedicated tools and resources to enhance performance, streamline processes and reduce costs

Enhance your anti-money 6. laundering and fraud investigation skills so you can take yourself to a new professional level

Get continuous access to an 7. international network of other users of our solutions to ensure up-to-date knowledge and expertise in using monitoring techniques

Receive insight into the latest 8. anti-money laundering and anti-fraud initiatives

Get involved! NetPractice is a 9. rewarding way for you to share your expertise while meeting new people and making new contacts around the world

Get ACAMS continuing 10. education credits for selected NetPractice webinars

For more information on NetPractice, please call +31 (0) 70 452 5448, email [email protected], or visit www.netpractice.org.

“Compliance communities address a deep need for sharing experience and best-practices to help address these challenges. Organized by a leading compliance solution vendor, the NetPractice user community is a welcome addition in this area.”

Neil KatkovSenior Analyst of Celent

Vol 2No. 3


10 Reasons to Join NetPractice

A chance to interact with other AML and fraud detection experts

pg 21

NetPractice Exchange © 2009 Fiserv, Inc.All Rights Reserved.

NetPractice Headquarters: Loire 200-202, 2491 AM The Hague, The NetherlandsTel: +31 (0) 70 452 5440 Fax: +31 (0) 70 452 5444, [email protected]

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Documents

NetPractice Exchange Vo. 2 No. 3