Business Intelligence and Counter-Terrorism in Financial Services

Federal anti-terrorism regulations are requiring financial institutions to rapidly deploy sweeping new financial reporting mechanisms that have executives throughout the banking industry deeply concerned, as evidenced by a recent letter to the US Treasury Department by a group of 28 banking industry groups.

As reported by industry experts, the effort of banks to comply is “undermined” by a lack of clarity by the government as the new laws are drafted. Fincen, the Federal Crimes Enforcement Unit, manages the new financial reporting mandates. The new requirements have “teeth” — in the past several years there have been five criminal enforcement actions against banks for failing to comply with laws to combat money laundering.

Clearly there are strong parallels between business intelligence and datamining activities on the private sector side, and the intelligence gathering objectives of Fincen, which is essentially driving to create a national suspect transaction ODS from the nation’s thousands of commercial banks – an enormous challenge on both sides of the equation.

But it is an open question whether a bureaucratic organizational culture will have the nimble speed necessary to intercept emerging techniques for funding terrorism. And as anyone who has developed a data warehouse knows, the key foundation in long-term effectiveness is the thoughtful specification and design of the base ODS transaction store which contains all of the potentially relevant financial data. But it seems that Fincen has not clearly articulated what this design is or should be.

About Fincen. In its own words, Fincen:

“…is the largest overt collector of financial intelligence in the United States. The information we collect is highly valuable in combating terrorism and investigating money laundering and other financial crime. We mine data collected under the Bank Secrecy Act as well as law enforcement, commercial, and other intelligence to follow the money trails of terrorists and other criminals and to identify networks of people and accounts engaged in unlawful activity. To enhance the value of our efforts to combat terrorism and money laundering, we seek to broaden the types of data available to our analysts. To make better use of our resources, we also aim to focus the analytic resources of the Financial Crimes Enforcement Network on complex investigative case support and assessments of terrorist financing and money laundering threats.”

Here are excerpts from Fincen strategic objectives for FY 2006-8. Note the strong links to web services and data warehousing / BI / data mining disciplines:

Strategic Objective 4.1.
Accelerate the secure flow of financial information from the industries subject to Bank Secrecy Act requirements to the law enforcement agencies that use it to prevent, detect, and prosecute financial crime, including terrorist financing; and to the regulators who must assess the adequacy of that information as well as oversee Bank Secrecy
Act compliance.

4.1.1 Move aggressively to implement and enhance BSA Direct, a major initiative that will provide secure, user-friendly, web-based tools for accessing, analyzing, and filing Bank Secrecy Act data.

4.1.2 Provide the technology, education, and support needed to accommodate e-filing of 90% of Bank Secrecy Act reports by FY 2009. (Don- web service)

4.1.3 Increase the number of law enforcement agencies and regulators accessing Bank Secrecy Act data through our web-based technology.

4.1.4 Maintain strict controls, appropriate training, enhanced outreach and
guidance, and a robust audit program to ensure that Bank Secrecy Act data are accessed, disseminated, and used in accordance with applicable legal requirements.

4.1.5 Enhance processes for networking law enforcement and intelligence agencies investigating the same subjects and for getting feedback on the usefulness of networking activity.

Strategic Objective 4.2
Enhance communications between the government and the financial industry to ensure expeditious notification to law enforcement of possible terrorist or other illegal activity.

4.2.1 Improve the information-sharing established between law enforcement and the financial industry under Section 314 (a) of the USA PATRIOT Act.

4.2.2 Seek innovative, faster, and more efficient technical channels for dialog between government and the financial industry.

Measuring Success. Success will be measured by the increase in users accessing Bank Secrecy Act data though our web-based technology, an increase in the number of BSA forms filed through electronic means, and evaluation of government-industry information exchange programs.

In CY 2005, Fincen is developing guidelines for all this. The effort will be massive – there are at least a half-billion international wire transfers a year totaling trillions of dollars, and Fincen new requirements will likely total several hundred million records across the industry.

In order for Fincen to accomplish this objective, it faces the daunting task of collecting an enormous store of financial data from U.S. and international banks – and then to interface this data with other countries.

The international coordination is facilitated by The Egmont Group, a cooperative financial crime law enforcement group composed of FIUs (Financial Intelligence Units such as Fincen) from 92 countries. Fincen has an explicit objective in its 2006-08 strategic plan to champion the development of common IT / data standards through Egmont.

And for good reason. Sadly, the international sharing of financial investigative data is in a deporable state. Egmont’s published guidelines for member FIUs allow them to respond to written requests for fraud data by other FIU’s not within hours or days – but gives them an entire month! Obviously by that time, a terrorist attack financed with the suspect funds could already be completed and with the tragic results of which we are already too familiar. Egmont knows this, and last year created a working group to address the issue:

“… in the IT component research, analysis and information exchange in order to combat money laundering, terrorist financing and other financial crimes, it was recognized that Information Technology (IT) issues are in such great demand by both experienced and nascent FIUs, that a Working Group was created to focus solely these issues.”

I will continue to track developments in this arena and report new issues – the devil will indeed reside in the details. The safety of us all, both in the U.S. and abroad, may depend on the effectiveness with which industry and government cooperate in this highly complex and difficult initiative.


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