AML Compliance: How is Bad Data a Colossal Mistake?
2 weeks ago by Lamia Massaad

AML Compliance: How is Bad Data a Colossal Mistake?

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Bad quality data can have a direct effect on the likelihood of money laundering through your company and make anti-money laundering (AML) compliance extremely difficult. The 2020 PwC Global Economic Crime and Fraud Survey found that a staggering 47% of the 5,000 companies they interviewed had experienced fraud in the past 24 months, resulting in a total loss of an astounding US$42 billion. Fraud and economic crime don't only cause financial damage to businesses; they also affect local governments through the loss of tax revenue. As a result, in the last few years, governments have increased the number and severity of financial regulations such as AML and of course, the taxpayer picks up most of the bill. So AML compliance in business is certainly in everyone’s interest and having reliable customer data is the key.

For companies to comply with AML regulations, they are required to have a system that:

·         Reviews Transactions.

·         Calculates how potentially fraudulent a transaction is.

·         Creates risk alerts and compiles them into cases.

An essential component to successful AML transaction monitoring is the quality of data that sales representatives collect during the client onboarding process. Bad data collected at that stage can cause enormous problems for businesses that don’t immediately take corrective action. But of course, salespeople want to sell, so their focus may be on the potential income rather than the possibility of fraud or money laundering.

So, how big of a challenge is bad data and how does it impact regulatory compliance? Let’s break it down:

What is Bad Data?

Bad data is any information that can be flawed, misleading, and without structure. No one is immune to it, and if it is not acknowledged and fixed at an early stage, it can cause serious complications.

How does Bad Data occur – The Causes?

Traditionally companies will collect their consumer's data during the onboarding process and will continue to do so for CRM management purposes. CRM allows brands to manage their relationships with their customers to improve, retain and grow that relationship. However, now companies are required to collect data as part of AML and other financial regulatory compliance. Therefore, data collection has become more complicated, which means that to be able to fix dirty data, you must first understand the cause:

  • Inaccurate data: Incorrectly entered or maintained information.
  • Missing Data: There are empty fields with missing information.
  • Poor data entry: Spelling mistakes, substitutions, and differences in spelling, naming, or formatting.
  • Non-conforming data: Data which is not standard to the system of records.
  • Inappropriate data: Submitting information in the wrong field.
  • Duplicate data: Entering the same information under multiple fields.
  • Poorly translated data: Names, for example, can be translated several different ways from various languages when the scripts or characters used are different (eg; Arabic to English).

What are some additional causes of bad data?

The first comes from the assumption that companies feed their consumer’s information directly into AML transaction systems. However, because the data is collected and maintained according to the different stages of the consumer life cycle, it rarely meets KYC (Know Your Customer) requisites. Therefore, because the collection of information does not comply with AML/KYC requirements, the result is bad data. 

Furthermore, because sales and support reps manually enter all the data pertinent to a transaction into their software before it reaches the AML Transaction Monitoring Systems (TMS), it can result in low-quality data. This process is known as enrichment, and it is highly sensitive to the smallest variation in data quality, i.e. due to human error, the slightest mistake in the data entry will impact its relevancy and usefulness in regards to TMS.

Lastly, the fact that many businesses work with affiliate brands that target or benefit from the same customer base can complicate the collection of accurate and connected data even further. Meaning that the more parties are part of the transaction process, the easier it is for inaccurate data to enter the AML monitoring system and the harder it is to make connections between data sets.

How does bad data affect AML compliance?

AML monitoring can only be successful when it has detailed info on the initiating entity, the business processing the transaction and on the parties who benefit from the exchange. The more quality details the system has, the more accurately it can detect fraudulent behaviour and high-risk customers. Therefore, when the info entering the database is inaccurate or irrelevant, it creates a 'Garbage in. Garbage out.' scenario that makes the monitoring process ineffective.

Low-quality data negatively affects AML compliance in following ways:

  • Results in an excessive amount of false positives
  • Creates the need for additional due diligence
  • Creates missing opportunities for identifying/detecting real hits 

Generating an excessive number of false positives

False positives are alerts for behaviour that seems fraudulent but isn't. According to the Global Risk Institute in larger entities, false-positive rates can be anywhere from 85% to 92% of all alerts generated. Each time this happens, an AML analyst must conduct further research to provide proof of why each highlighted activity is not fraudulent. To investigate each alert, companies require additional workforce and resources, which means compliance teams must redirect their time and focus away from dealing with actual fraudulent cases.

Inability to comprehensively detect true positives

Even if companies employ the latest AI technology to monitor and alert them of risky customers, many AML systems will miss many true positives if the information in the database is inaccurate. And because employees are responsible for the data that enters a company’s database, they play a large part in low-quality data decreasing an AML program’s ability to detect true positives. 

According to PwC's survey, 43% of reported incidents come from internal sources and amount to a substantial US$100 million. Therefore, companies are not only losing money; they also face potential civil and criminal class actions, discredit their brand's reputation and damage their business relationships due to failure to comply with AML laws.

Creates the need for additional due diligence

In both cases of excessive false positives and failing to detect fraud entirely, the result is a need for additional due diligence. For example, every time the software identifies fraud, the organisation's compliance team must (i) file a Suspicious Activity Report (SAR) and, (ii) go back and review the missed behaviour to retune the monitoring program to include that behaviour. Then they also must re-examine all the transactions that occurred within the last six months up to a year to see if any of the previous dealings from that time frame matched the same behavioural profile.

So how can Cedar Rose help?

Cedar Rose Guiding Your Way Through AML Compliance

At Cedar Rose, we are your one-stop-shop for all your KYC and AML compliance needs. Our innovative database uses the latest in technology to ensure extremely accurate, correctly translated and transliterated, well-structured and analytically linked company, director and shareholder reports. Furthermore, we make sure to regularly and automatically clean and update our data so that we can promptly identify any incomplete, inaccurate, duplicated or irrelevant information and then either replace, modify, or delete it. Our data warehouse currently contains identifying information on millions of companies and individuals and with a completely free Salesforce Add-on - or by connecting to us via API - this data can be viewed directly in your own system. You could even begin with our Marketing Lists containing thousands of verified genuine companies within your industry and target market. If you don’t use a CRM, the same data is available in our CRiS MENA database. Correct, accurate customer data - in the format you like to see it - on millions of customers and potential clients can be yours today.

And when you need more information, you can make smart business decisions by ordering one of our 15 KYC due diligence reports and receive instant verified results that rely on the highest quality of data and our 20+ years of meticulous research experience.

For more information, call us Monday to Friday on +357 25 346630 or email info@cedar-rose.com

  • due diligence
  • AML
  • data
  • compliance
  • regulation