BSA Merges with Anti-Fraud: Anti-Money-Laundering Efforts Increasingly Overlap with Anti-Fraud Detection, Prompting Some Banks to Consolidate Functions

Article excerpt

Six months ago, Brian Wimpling took part in a significant merger. It wasn't a business combination for his employer, $2.5 billion-assets Capital City Bank, Tallahassee, Fla. It was the merger of the investigative staffs of the bank's anti-fraud and Bank Secrecy Act/Anti-Money Laundering units.

The move came at a time when Wimpling, senior vice-president, and a former IRS Criminal Investigation Division investigator, had been hearing of layoffs and budget cuts of other banks' compliance staffs. His bank hadn't gone that way. The merger came in the course of some internal combinations for the sake of streamlining, but Wimpling feels comfortable with the new arrangement. He thinks it makes perfect sense: "Many of the cases that you see coming out of the fraud area have to be reported on a Suspicious Activity Report anyway."

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From overlap to trend

Capital City isn't alone in taking this step, or preparing for it.

At $5.7 billion-assets Johnson Financial Group, Racine, Wis., John Topczewski, vice-president and compliance officer, says his institution is in the midst of moving its AML investigative team over to the company's fraud protection department.

"We think there are great synergies to putting all that together," says Topczewski. He points to coming consolidations that will change the way that wire transfers, for instance, are reviewed.

The bank once had four different groups looking at the same wire transfer data when its alert system kicked out transactions selected by its rules and filters. "Now we are going to have one person looking at the wire data for four reasons," he says.

Topczewski has no illusions that compliance activities will ever become regarded as profit centers, but he says efforts already undertaken have yielded business intelligence. For instance, followup to monitoring system data has identified individuals operating businesses out of personal checking accounts. This has enabled the bank to pitch those customers on switching to more-appropriate (and potentially more-profitable) business checking instead.

In many institutions, there is a growing realization that fraud and money laundering often are related, "even if it's with five or ten degrees of separation," says Paul Henninger, head of the financial crimes product group at Actimize, which recently acquired Fortent (an ABA-endorsed provider).

Melding BSA/AML and anti-fraud activities isn't a universal trend by any means. Some bankers aren't so sure the synergies will be there. "There should be communication between the two groups, but we're not sure that merger is the right approach," says Marfa De Lourdes Jimenez, senior vice-president and manager of the corporate compliance division at San Juan's $23.8 billion-assets Banco Popular de Puerto Rico.

Breather brings structural reflection

Debate over taking such steps comes at an unusual time for the banking industry and its BSA compliance contingent.

The BSA/AML area "has been kind of quiet," says Robert Rowe, ABA vice-president and senior counsel specializing in the field. While it isn't a case of nothing happening, this area, marked by controversy and frantic adaptation both before and certainly after 9/11 has, Rowe and others say, come to a point of "maturity," for lack of a better word. There's plenty of work to be done. BSA examinations continue to be conducted. But in the absence of sweeping new regulatory regimens and in the wake of the financial crisis, executives in charge of these matters have turned attention to efficiencies, economy, and navigation of the recession in all its implications for their functions.

Many bankers, consultants, and vendors say that the news, for once, is inside the banks, in the BSA/AML field. And that is the potential for the kind of strategic shift that banks like Capital and Johnson are trying.

Factors driving shifts

"Financial institutions are being called upon to do more with less," says S. …