Credit Suisse breach highlights need for better accountability
- Credit Suisse was also previously embroiled in the collapse of the US hedge fund Archegos Capital and the supply chain finance firm Greensill Capital
- A big part of Credit Suisse’s lapse in judgment was not implementing proper Know Your Customer (KYC) processes
- Sophisticated tech with AI capabilities can help transform KYC and anti-money laundering (AML) compliance to the next level
Recent news about the Credit Suisse data breach has highlighted the importance of due diligence procedures in financial institutions. The massive leak exposed the hidden wealth of clients across the globe.
The leaked details, which amount to about 30,000 accounts and more than US$108.72 billion, revealed that Credit Suisse hid money for clients who were involved in corruption, drug trafficking, money laundering, torture, and other serious criminal allegations.
Credit Suisse empirical data leak and scandals
An anonymous whistleblower leaked the massive trove of data to the German newspaper Süddeutsche and showed that the bulk of the clients came from countries including Egypt, Venezuela, Ukraine, and Thailand. More than 90 countries, most of which are developing nations, remain in the dark when wealthy taxpayers hide their money in Swiss accounts, which are notorious for their secrecy and tight financial anonymity.
Credit Suisse was previously embroiled in the collapse of the US hedge fund Archegos Capital and the supply chain finance firm Greensill Capital. It was fined US$475.63 million over its role in a loan scandal in Mozambique.
A big part of Credit Suisse’s lapse in judgment was not implementing better Know Your Customer (KYC) processes. And yet, Credit Suisse professes to have stringent control mechanisms to carry out extensive due diligence and comply with KYC checks.
Know Your Customer processes
Know Your Customer (KYC) processes are normally undertaken by financial institutions and organizations to verify, and better protect, the identity of their clients. KYC regulations are designed to understand the nature of clients’ businesses, monitor transactions for suspicious activity, and report any red flags to the appropriate regulatory agencies.
KYC policies ensure that all new prospective clients are verified, and help avoid severe reputational and financial penalties for the institutions, that can be imposed by regulators. It, however, can be difficult for banks to comply with KYC requirements with the current regulations. Every bank needs to improve its procedures to fight financial crime, but they can’t stop crime wherever possible.
Right tools helping financial institutions avoid KYC failures
According to the United Nations Office on Drugs and Crime, the estimated amount of money laundered globally in one year is US$800 billion to US$2 trillion. The current approach is not delivering results, despite the vast resources deployed by financial institutions to combat money laundering.
Financial institutions are under immense pressure to maintain a robust know-your-customer (KYC) process. KYC functionality within financial institutions has become increasingly challenging due to the growing complexity of regulations, technology, and global business requirements.
With so many new regulations to keep up with, some financial institutions may inevitably fall short of meeting their compliance requirements, such as customer identification procedures.
Sophisticated technologies with artificial intelligence (AI) capabilities can help transform KYC and anti-money laundering (AML) compliance to the next level. These solutions use pattern recognition and natural language processing algorithms that quickly extract data from unstructured documents such as contracts, invoices, or emails.
Improve KYC procedures to stop financial crime wherever possible
“For financial institutions as large as Credit Suisse, KYC procedures are of such a scale that errors are bound to happen. Individuals cannot take responsibility in silos, and technology has to manage and monitor activity,” commented Donald Gillies, Head of PassFort, a Moody’s Analytics company.
“We’re demanding compliance professionals be perfect constantly, a wholly unrealistic goal to ask of an individual, which is bound to lead to these nefarious people successfully onboarding into financial institutions,” Gilles added.
“The goal here, however, is not merely to improve KYC procedures, but to stop financial crime wherever possible. Without their finance being legitimized by institutions without the right checks in place, the likes of human traffickers and corrupt politicians will find it increasingly difficult to get away with their crimes.”
22 February 2024
21 February 2024
21 February 2024