AML/CFT Puzzle or Mystery

Reading the article “Open Secrets” by Malcolm Gladwell (published in 2007, but reprinted in his bestseller “What the dog saw”) about puzzles and mysteries makes me wonder if there are any analogies with the field of AML/CFT.

His basic line of thinking is that “a puzzle grows simpler with the addition of each new piece of information”. He uses a few historic cases like the Watergate scandal and the search for Osama bin Laden as classical examples of a puzzle. And he uses the Enron disaster as an example of a mystery. Enron used – amongst others – Special Purpose Vehicles to inflate revenues; they used thousands of them. But all information about these SPV’s was disclosed; the journalists starting the investigations had access to all data. The problem was not a lack of information, the problem was an overflow of information. Information that was not only overwhelming in quantity but also in complexity.

Relating this to CFT we’re often dealing with partial hits if we’re filtering transactions. In that case we need to solve a puzzle; we need more information to determine if we’re dealing with e.g. a black listed beneficiary.

In AML processes however we’re more often than not dealing with mysteries… We have lots of transaction information at our disposal but we cannot detect a pattern that indicates we’re dealing with a money launderer. We have all information about a PEP we can possibly think of, but we cannot properly assess the risk that this poses for our organization. We have risk information and corruption indices of all countries our clients operate in and yet we have difficulty to use that information to allocate an adequate risk rating to our client.

The key learning point is that dealing with a puzzle differs from dealing with mysteries. The approach needs to be different and the mindset of people needs to be different. A puzzle requires a black-or-white approach; hit or no-hit; the transaction is blocked or not. A mystery needs a risk based approach, an assessment of different bits and pieces of information and an investigative mind that can connect-the-dots and can think out of the box.

In our design of processes, allocation of tasks, segregation of duties and training approach we should remember the characteristics of the tasks at hand.