Brandi B. Reynolds, CAMS-Audit, CCI
Economic indicators increasingly show that the economy is beginning to recover from Covid-related lockdowns. It’s a recovery that’s not uniform – yet. But many states are finally delivering vaccinations to most of their population. They are lifting mask restrictions and restrictions on travel and on mass gatherings. Increased activity means there is more cash moving through institutions than moved a year or even six months ago.
The increased activity means there is more reason to be concerned about possible money laundering. Most AML software systems have some capacity to generate alerts on activity that exceeds the normal or expected average activity over the past “x” months – perhaps 3 months or even 6 months. This capacity could generate a high number of cash activity alerts—and even other alerts –over the next few months as consumers return to getting out more and spending more cash (to the extent cash is still used) or conducting transactions in general.
Increased Alerts in Cash Reliant Businesses
One area where a system may generate alerts is in consumer accounts where the accountholder works in the hospitality industry and receives tips. Extra alerts might also show up in businesses located in typical vacation spots and businesses where cash is still widely accepted – such as a boardwalk ice-cream stand . Commuter businesses may also see increased alerts – the commuter businesses are those shops commuters stop at when going to or from their work, as employers begin to call their workers back in to the office.
When alert settings are set to compare current-month activity to the average of the prior three months, and if the average of the prior three months was low or zero, then any amount of cash activity will trigger new alerts.
What to do?
Documentation is Protection
First, document the increased alerts phenomenon. Auditors and examiners alike should be aware of this situation and should accept a BSA Officer’s approach if makes sense and is well-documented. A BSA Officer may wish to avoid the risk of criticism by generating a report on all cash activity per month for the past six months (for example.) This report will help document that the current month’s overall cash has truly gone up significantly.
Second, the BSA Officer should decide if a month or two of current cash-spike alerts can be “simmered” or “watched”, especially if there are no other signs of suspicious activity. Each software system has a different way of simmering alerts. The officer should be clear in the documentation that management is not ignoring or disregarding the alerts, but is, instead, responding to this “economy re-opening” phenomenon.
Third, once the institution has decided on a course of action to allow the alerts to “simmer,” the BSA Officer should establish the parameters to use to “turn up the heat” and begin investigating these alerts. Will the parameters be solely time focused? Or volume based? Maybe a combination of the two? Whichever parameters seem best, the officer should record the methodology and if need be, write up a new procedure. This documentation will ensure that all monitoring and investigation staff are performing the work the same way and to the company standard. Remember it’s a regulatory and auditing axiom, if it is not written down, it does not exist.
Increased Alerts from Other Activity
Could this phenomenon affect other alerts in addition to cash alerts? It could. As consumers return to old spending habits all type of transactions could increase. You can’t buy a freshly scooped double-decker ice cream cone online, so it’s likely that all types of consumer transactions could increase – especially those driven by vacation and travel activity. Similarly, commute-driven expenses, such as purchases for gas and that favorite latte will likely increase as well.
Last, management should be sure to include this phenomenon in the BSA pandemic risk assessment. Most BSA Officers have written something about the impact that the pandemic has on their BSA operations. This entry may be the last update to that risk assessment. A sort of “all’s back to normal” entry to close the loop.
Simmering – How the Watched Pot May Pay Off
In short, as the economy reopens in the United States and across the world over the next few months, there could be a tsunami of alerts being generated. While these might not all be indicative of suspicious activity and might just simply be triggering because the economy is waking up, it is important that institutions carefully monitor the alerts being generated and record and document these events.
With the right approach, BSA Officers won’t have to worry about working double or even triple the number of alerts they’re they become used to during the pandemic. Simmering or watching these alerts for a few months might be the compromise that works for everyone.
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