Know and Improve Your Odds with Anti-Money Laundering Regulations
Financial crimes are becoming serious business for casinos. Over the last 12 months, casinos have faced an increasing amount of attention from FinCEN, the United States Department of Treasury’s Financial Crimes Enforcement Network, the Internal Revenue Service, and various other state entities with regards to their Anti-Money Laundering (AML) compliance programs. Risk management professionals in most casinos are struggling to keep up with the wave of inquiries, and are burning valuable resources in the explanation and proof of prior actions and decisions. Every moment spent on inquiries can hinder the discovery of new risks.
The United States Patriot Act was established in October 2001 and mandated that banks and other financial institutions have robust AML compliance programs. Prior to this legislation, banks were similar to casinos today, in that they had individuals within the organization that were very skilled at detecting and mitigating potential money laundering activities. However, back in 2001, very few banks had a systematic, analytically driven approach to detecting anti-money laundering activities. Under increasing regulatory scrutiny, it did not take the banks long to realize that the status quo was not sustainable and they needed to leverage data analytics to minimize their potential risks; risks that not only included losses from bad actors, but also included the risk of significant fines for non-compliance.
One of the major hurdles preventing the introduction of technology to manage risks of AML was the amount of disparate data throughout the organization. It was this hurdle that lead the banks to experience the following issues, and these same issues challenge casinos today.
An incomplete view of the patron
Without patron and transactional data in one place, risk management professionals could not determine the potential fraudulent activities for one casino, let alone for two or more casinos. If an investigator reviews a patron, but does not have complete information about that patron, the patron’s behavior may appear to be perfectly legitimate. However, there could be other activities by the patron within the same property, or even at another casino property that would flag that same patron for investigation. Without a complete view of patron, it is difficult to ensure that investigative decisions are accurate.
Inconsistent treatment of patrons across the operation
When you are dealing with disparate data sources, it is difficult to flag individuals so that they are treated consistently by all areas of the operation. For example, when the investigative team flags a certain patron’s activity as a potential risk, that same patron could be receiving incentives from casino marketing to return to the casino. This kind of inconsistency greatly increases the casino’s potential risk.
Managing time spent on manual detection and documentation
Investigators and risk management professionals are often extremely knowledgeable about the activity and behaviors within their casino. Most AML investigations are initiated when there is an existing area for concern. For example, when the casino has certain previous players that seem to pose a greater risk, or where a certain patron’s potential for suspicious activity has been reported by a casino employee. But what about the risks that are not known? Even when the risks are known, the investigative process is very manual and requires substantial effort and time to complete. Most of that time is spent in struggling to bring together disparate data.
Management view of risk trends
Some casinos have been involved with high profile money laundering cases, and as a result have changed their policies to lessen their level of risk. Financial crime organizations like to take the path of least resistance so they will move their activities from casinos with tighter controls to those operators where they are more likely to succeed. Understanding and tracking trends around risk is critical to ensuring that you are well equipped to fight financial crimes. As the regulatory environment becomes more stringent, not having a firm handle on your risk-level is a very dangerous position to be in.
It all starts with data, and ends with analytics
So, how do you start to remove the challenges that are preventing you from proactively managing your risk? Industry best practices have shown SAS and our clients that “it all starts with data.” Your organization can take simple steps now to discover, understand, and anticipate the “what and how” questions posed by regulators. However, first you must be able to access and aggregate clean data stored in a place and format that can be queried easily.
Once this data is placed in a centralized area, sophisticated data management practices are needed to ensure that the data is accurate and actionable. Patrons may have multiple profiles across the enterprise, so the first step is to consolidate all possible patron profiles into one master profile. Then you can link transactions from all of your properties to accounts, link accounts to patrons, and link your patrons to external entities and seemingly unrelated counterparties, such as wire originators and beneficiaries, which money launders use to layer their criminal proceeds. All of this helps you create a holistic customer view.
When you have a complete view of your patron, investigative decisions can be trusted and validated because you know that you are looking across all available information. When you combine this complete view of the patron with a centralized risk management repository, you can ensure that the actions of all departments and all properties are in line with the risk tolerance of the company as a whole, and thus avoid inconsistencies in how high-risk patrons are managed and treated.
Advanced analytics allow casinos and investigators to harness data and turn it into useful information. Advanced analytics help investigators identify the key information that needs special attention out of the millions of patrons and their millions of transactions. By automating the decision process, analytics allow investigators to more successfully separate low- and high-risk activities. This analytically-based prioritization increases productivity and allows you to investigate more with fewer resources.
Automating AML detection also has the following benefits:
• Accounts for new risks to the firm by picking up previously undetected patterns in the centralized database
• Facilitates a more proactive approach to risk mitigation because resources are freed up to develop new scenarios
• Streamlines investigative processes
• Streamlined documentation for risk reporting
When risk management practices are moved from reactive to proactive, risk professionals can detect patterns or changing risk trends in advance, before they are asked by senior management or regulatory bodies. This alone can save the firm millions of dollars in regulatory fines, legal costs and the very real cost of risk to reputation.
Leveraging analytics to improve your odds with Anti-Money Laundering regulations
In this article we have reviewed the similarities between banks in the post U.S. Patriot Act era and what casinos are facing today. We have looked at how bringing together disparate data into a consolidated view can ready the casino organization to enhance their AML program to keep pace with the increasing regulatory demands. With a centralized database and robust analytical insights at your fingertips, just like doubling down on a great blackjack hand, the odds now are in your favor.
Jason Grasso, Financial Crimes Solutions Specialist, SAS Security Intelligence Solutions As a Financial Crimes Solutions Specialist within the SAS Security Intelligence Practice, Jason Grasso provides domain expertise in the development, sales support, and implementation of the practice’s financial crime solutions.
Prior to joining SAS, he spent over 13 years in the anti-money laundering industry. Jason has held several senior management positions including BSA/AML Officer of a top 25 U.S. based financial institution. While working in industry he focused on the management of regulatory exams, governance and oversight, merger and acquisition due-diligence, enhancement of risk methodologies, investigative practices, and operational efficiency.