How can AML analysts effectively make the most of alternative data

Part of an AML analysts’ workload involves the scrupulous investigation of ‘suspicious activity’ that could pass through a financial institution and be alerted through their internal systems. One way in which an analysts’ life can be made easier is through the use of alternative data.

Alternative data can be defined as external sources of information of intelligence to assist with investigations. As capabilities and techniques increase through more advanced technology, we can see such efforts as geo-spatial mapping and satellite imagery to help fight financial crime. However, if alternative data is to be used correctly for decision-making, it must be assessed with some form or risk or reliability checks.

Many financial institutions are, in fact, willing to just be reactive to risk alerts, which could be harmful in a tough regulatory environment where failure to be compliant in mitigating risk can result in hefty fines. If institutions are proactive in their risk assessment, using alternative data, these penalties can be curbed.

Luckily, many companies are developing more proactive ways to look into risk with alternative data being an integral part of the process. Here are some valuable, real-world examples.

Risk based assessment

To achieve any risk based assessment, a continuous understanding of present and future AML risks must exist. One way to stay on top of this is to source and collate multiple reports on AML risks threats on a domestic, regional and global scale, to be assimilated into a risk matrix. Varied and wide-reaching source material is possible, but great examples include Global Financial Integrity’s report on Transnational Organized Crime and their yearly reports on illicit financial flows within trade.

Daily media monitoring

Domestic and regional “early warning” risk alerts can be found using a daily media monitoring tool. These risks could be classified as those that affect the institution; those that affect a peer institution; clients or counterparts arrested for major cases such as corruption; or large transactions in high-risk industries or jurisdictions.

In order for a daily media monitoring tool to work effectively is the need to create a coordinated programme that manages and distributes alerts internally, and monitors how many of these alerts result in positive matches and suspicious activity. These can be developed in house or through a third party provider; some firms have crafted a system whereby, if used correctly, can flag up to 20% of risk relationships that were unidentified through usual KYC processes.

Core resources library

Building a library of useful resources can assist to inform on risk internally and externally. This should also pool a variety of sources, from differing trade bodies and associations, to investigative journalism reports and NGO account in core industries or key issues, including human trafficking or the trading of contraband.

With this library being constantly updated for new insights, the risk assessment can be strengthened over time as an ongoing exercise. AML efforts are thus improved in the present and future also.

When risks are identified, combining alternative data sources with traditional sources (KYC, CDD, transaction monitoring, sanctions lists) to conduct proactive investigations, these can be used further:

OSINT resources

Open Source Intelligence (OSINT) is part science, part art, in being about to search through a large variety of online sources in a structured way. It is invaluable for a compliance officer or analyst to have OSINT skills, as they can be used to identify information that may be of further assistance to an AML investigation or disregard any elements of suspicion.

It comes recommended for these intelligence and investigations professionals to attend courses on the enhanced use of OSINT before using the array of online libraries, tools and resources that are now available. Recognised and respected courses include:

• Toddington International Free OSINT and Online Research Resources
• OSINT & i3 Training and Resources
• The Intelect Group

Social media

All sorts of written sources from social media can be used as invaluable information to add context to an investigation. Users on these platforms can often reveal (unwittingly) information about themselves that may be at odds to presentations elsewhere, building a more complete risk perspective.

Corporate and company registries

These registers can be a useful go-to for information on a company’s directors, shareholders, service providers, accounts or filings. As can be the case, individuals can hide any illicit activity they are involved with through the use of:
a) a ‘shelf’ company – a company that has been long established by a service providers for sale or transfer, or;
b) a ‘shell’ company – a company created to hold and manage another entity’s financials without employees or assets.

Access to both local and international registries can help to identify if a client has other business interests (declared or undeclared). Good examples include Open Corporates, and paid-for databases such as Dun & Bradstreet or LexisNexis.

Databases

There are numerous databases and data sources available, including those above, but OSINT courses can help an AML analyst understand what is available and how these databases can be safely accessed and used to maximum effectiveness. AML analysts should use a range of external databases.

By taking into account these processes, information sources and skills, AML analysts can enhance their risk detection using alternative data, which is becoming ever more an invaluable asset in the fight against financial crime, while helping institutions to conduct investigations more thoroughly in line with strict regulations.

Read more in our interview with Steve Farrer, MBA CAMS CFE from the white paper AML Alternative Data – Detecting