One rule for every money trail in an anti-money-laundering review
Twenty-three customer cases had been prepared in different ways, so the same check gave different answers. One layout and one tracing rule, first in, first out, now give one answer that anyone can check.
From our own project and product work. Client names and identifying details are removed, and some figures are rounded.
The situation
An anti-money-laundering review had bank statements for 23 customer cases. For each person, the question was whether money comes in and goes out again in a way that may point to laundering.
The workbooks had been prepared in different ways, so the same check could give different results. Worse, without a fixed rule, almost any set of debits that happens to add up to a credit can be shown as a money trail.
The rule: first in, first out
Money that comes into an account first is treated as the money that goes out first. Three rules follow:
- Each credit is matched to the earliest debits after it that use it up exactly.
- A debit already matched to a credit cannot be used again.
- Money cannot leave an account before it has arrived.
With this rule, each credit has one correct answer, and anyone can check it against the bank statement.
What we did
- Five checks on every transaction. Large or frequent payments, amounts far from normal (Z-score), sudden spikes, unusually busy days and unusual descriptions.
- Trace with whole transactions only. A chain is kept only when money in equals money out, within 18 days and in no more than 10 steps.
- Five kinds of chain, one rule.
| Chain | How it is traced |
|---|---|
| Forward | One credit, used up by the earliest debits after it |
| Reverse | One large debit, paid for by the oldest unused credits before it |
| Multi | Several credits on the same day, used up by the earliest debits after them |
| Cross-account | Money moved to another of the customer's own accounts and followed until it leaves |
| Targeted | A large credit followed through the debits in date order, without skipping any, until it balances within 2% |
- Check again. Every chain was re-run separately to confirm it gives the same result.
Results
| Measure | Cases | Bank accounts | Transactions |
|---|---|---|---|
| Received | 23 | 66 | 51,379 |
| Analysed so far | 11 | 29 | 25,603 |
| Still to analyse | 12 | 37 | 25,776 |
In the 11 cases analysed so far, 752 chains were found, all following the rule and balancing to zero or within 2%. Every chain links back to the exact row in the bank statement.
The strict rule also changed one important finding. A large company credit that had been shown as traced did not balance once its debits were taken in date order. It is now listed as unmatched for the reviewer to look at, not shown as a confirmed trail.
What changed
- One answer per credit. Trails are found by a rule, not by whichever numbers happen to add up.
- Comparable cases. Every case uses the same layout, so results can be compared from one person to another.
- People decide. The analysis shows what needs attention; the reviewer makes the call.
Products and services
ForenCity follows money across accounts and entities. See investigations and forensics and financial services.