May 22, 2024 • 23 mins
Welcome to Crosstalks, Conversations that Drive Innovation. In this episode, we continue our exploration of compliance development in in the Money Transfer & Remittances industry with renowned payments expert Hugo Cuevas-Moore.
The episode delves into the early AML measures enacted in Colombia and Latin America during the early 90s, highlighting the challenges faced in implementing KYC and transaction monitoring. Discover how intuition and manual processes were vital in detecting suspicious activities before the advent of sophisticated technology.
Marcela Gonzalez shares her experiences and insights, illustrating how financial institutions navigated compliance without modern tools like AI. The narrative also touches on the complexities and dangers associated with money laundering prevention and the evolution of risk matrices in managing these risks.
Join us for an eye-opening discussion on the journey of compliance in the remittance industry, from manual vigilance to algorithm-based decision-making systems, and the ongoing need for robust risk management tools.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Music.
(00:06):
Welcome to Crosstalks, Conversations that Drive Innovation.
In this podcast, we feature well-known payments expert Hugo Cuevas-Mohr.
This series is based on his 2023 book, Sending Money, Forex,
Remittances, Immigration, and the Fintech Revolution.
Crosstalks is published by CrossTech, a conference and consultancy service company
(00:26):
based in Miami, Florida. Thank you for listening.
Hi, this is episode 14, The Development of Compliance Part 2.
The first AML measures that were enacted in Colombia was in 1992 and 1993,
and other countries in Latin America followed suit.
(00:49):
Latin American banks gradually began understanding and managing the compliance
implications of KYC and transaction action monitoring.
For NTOs in the region, we felt that we had been facing all these compliance
implications for some time now,
especially because of the cross-border implications we faced with money laundering
(01:11):
issues since we needed to be holier than the Pope.
During the dozen of training sessions we did in Titana at that time,
we used an expression that the team understood clearly. Our job was to weed out customers.
It was to manually remove the undesired customers from coming to our branches
(01:36):
without affecting the service that we were providing,
the kindness and the respect that
we had spent so much time and energy to develop with our customer base.
The staff's intuition, developed and trained, was the only way to generate healthy doubts in their minds.
(01:59):
Detecting the red flags came into existence as a concept sometime later.
The first task in detecting warning signs occurred when calling the beneficiary
to inform that the remittance had arrived.
For example, our call operator detected the same voice answering different telephone numbers.
(02:22):
If they called Maria, a person who said her name was Maria answered.
But if we were calling Carmen, the same voice said it was Carmen.
So that was a warning sign and we decided immediately to block these phone numbers
besides the corresponding names of senders and beneficiaries.
(02:42):
Over time, our team developed the skills to concatenate lists, beneficiary names,
sender names, fund numbers, as well as where the remittance was coming from,
to discover any relationships that might exist between these customers,
the telephone numbers, and find any patterns.
(03:06):
We gradually come up with ways to use the statistics.
As better versions of Excel were released and we began programming our software to help,
we verified the average amount per transaction received by a correspondent or
by the city where the transfer was coming from if we had that information or
(03:26):
by the place of destination,
neighborhood, town, etc.
This allowed us to monitor the transactions and provide those red flags that
led the team to further check.
Listing transactions above a threshold different by every correspondent was
the early work in creating these risk matrices and gave us a good view of the
(03:51):
transactions we should analyze further.
To detect irregularities without generating distrust from the customers,
we created a series of questions to ask the client as he collected his remittance
or her remittance at the cash register.
The cashiers were instructed to initiate short conversations like.
(04:13):
Hey, is your daughter doing well?
And where is she? Or comments like, Does she send this amount often?
Creating these dialogues helped us determine whether or not we should be suspicious.
If the beneficiary was talking about other remittances, inquiring about other
people, or feeling insecure about the transaction,
(04:35):
it was relatively easy for our cashiers to detect those irregularities.
Most of our clients, especially in the early years, were poor,
vulnerable, and with little education. They really didn't have the skills to
come up with sophisticated lies or make up stories.
(04:56):
If they were good at that, that was in itself a suspicious transaction.
Marcela Gonzalez, who worked with Universal de Cambios and later with Titan,
before developing a brilliant career in the industry in Europe, first in the US,
remembers that the system to prevent money laundering came from the intuition
(05:19):
of these team members, the ability of the employees who worked in the company to read people.
Let me read the interview that she did for the book.
The issue of compliance did not officially exist in the first six to eight years
of providing remittance services.
The AML procedures were developed were part of an internal company culture,
(05:42):
a matter of ethics, of always being vigilant.
For example, if we saw large orders arriving, we would react and analyze them
closer. At that time, there was no artificial intelligence, but rather visual intelligence.
We had to realize that maybe something unusual was happening.
(06:03):
We did everything manually, but we had a sense of ethics.
In addition, we had the concept of taking care of ourselves and the company
so that nothing would happen to all of us.
Situations arose when we had
to cancel transactions because they could not be paid. It was difficult.
We couldn't pay them, but we knew that the possibility of a confrontation with
(06:27):
a client will probably take place.
And maybe some of these clients could be dangerous.
So we had to think about how we can deny this person their remittance,
what can we say, what was the best way to avoid any confrontation, any dangers, etc.
There was also the issue of explaining these things to the correspondent overseas.
(06:52):
So it was not easy at all.
That was Marcela's account.
Informing the correspondent that we had not paid transfers and blocked beneficiary
names and senders in our system created problems for all of us. We knew that.
Also, MTOs in the US and Europe faced the problem of returning the funds to
(07:12):
the sender, which was a major operational problem.
Since the remittance was coming from an agent, cancelling and returning the
funds was highly complex.
Some correspondents continually asked us to please pay the remittances,
even though there may be some suspicions, and then block the names after.
(07:34):
We knew that some remittance companies preferred to do that,
to pay and block afterwards or to pay and report.
But that was more complex in Colombia back then.
At the time, providing information to the authorities of initial transactions was not mandatory.
suspicious activity reports, SARS, or suspicious transaction reports,
(07:58):
STRs, or in the Netherlands, unusual transaction reports or UTRs.
They were not instituted yet.
But when these requirements were implemented, the doubts of the industry between
pay and block or pay and report or do not pay, report and block,
creating many disagreements among correspondents regarding the implementation.
(08:21):
Now in the US, the SARS requirement was part of the Anuncio Wiley AML Act of 1992.
The 2001 Patriot Act also strengthened these measures.
It was implemented in the UK in 2002.
Eventually, financial institutions, for safety's sake, decided to over-report
(08:42):
rather than take risks, and the number of SARS in the US skyrocketed.
Many complaints originated in the financial sector due to the authorities' inefficient
processing of SARS and the inability to investigate thousands of incoming SARS.
Now that SARS must be presented digitally and more advanced data processing
(09:04):
systems are emerging, controlled entities can obtain statistics to detect patterns and trends.
Even FinCEN's website now has an excellent public system to obtain statistical
information on SARS by state, CD, month, year, reporting entity, etc.
(09:25):
This since 2014.
Consulting these statistics can help a compliance department be aware of what's going on,
A key reason for our decision to not pay and block was that we began to notice
that some of these money laundering attempts were too evident.
(09:45):
These attempts involved beneficiaries who, instead of hiding their motives,
were trying to make them noticeable.
We realized that some clients would converse with tellers or look to engage
coordinators or office managers to manifest the purpose of the remittances,
(10:05):
and it involved some kind of money laundering scheme.
Now, we already knew from the Money Laundering Alert newsletter that the U.S.
Government was conducting sting operations where money laundering schemes were being orchestrated.
Since the DEA and other government agencies assumed that remittance companies
(10:27):
and hero or houses, like they call them, were accomplices, paying them might
confirm in their minds our complicity.
Between crooks seeking to use our services for criminal activities and informants
plotting to trick us, the pressure on our cashiers and the entire team put a
lot of stress on operations.
(10:49):
And yes, it affected customer service.
Our clients were also very often frustrated by the the questions and doubts that we raised.
They didn't understand what was going on.
I must mention that while this pressure affected some remittance corridors more
than others, the industry landscape was rapidly changing throughout the region
(11:11):
and no one could let Durkauer down.
Understanding and Educating Customers. Yoke Wang Tok and Dyna Heng,
in a report published in 2022, wrote this.
FinTech has a higher positive correlation with digital finance inclusion than
(11:35):
traditional measures of financial inclusion.
And in examining the digital divide, they explained this.
The results indicate that greater use of fintech is significantly associated
with the narrowing of the class divide and the rural divide.
(11:56):
Financial literacy and financial inclusion are prolonged processes,
especially in populations with low socioeconomic status, such as most migrants and their families.
The process, which now has gone a step further, digital inclusion,
began decades ago with the work MTOs did when they first transitioned clients
(12:18):
from travelers and money orders to EFTs, as we saw in the past two episodes.
When I reflect on the work the money transfer industry did to understand and
educate our customers, I really see the value to society that we performed in
those aspects, financial literacy and financial inclusion.
(12:38):
And that same work was done for compliance requirements.
Without this early financial inclusion, work done in countless of cities and
towns across the developing world for many years, with patience and no government support,
I see the benefit we brought to our clients and the financial industry as a whole.
(13:00):
Most remittance senders and their recipients began to
learn about compliance necessities and requirements from our industry coercion
incitement and intimidation one of the most shocking situations we experienced
as a company was when one of our managers following her intuition,
(13:23):
discovered money laundering method that deeply impacted us.
The story begins when a young woman complains we have not paid her remittance.
Our records indicated that we had already paid the money transfer.
Using the copy of the ID given by the person that received the payment,
we confirm it was hers, the lady that was complaining.
(13:47):
And the signature on the receipt seems somewhat similar to the ID.
How could it be that she was claiming payment? Was she trying to be a smarty
pants and get paid twice? Didn't think so.
Upon analyzing the situation, the manager noticed that the paper of the ID copy
looked different from the whiter paper we use in the office on our photocopier.
(14:14):
Suspicious, she then checked the remittance receipts of that day and previous
days and discovered more transactions with the same pattern.
Different paper used to photocopy the IDs, and all of them were from the same cashier.
In addition, the timestamp in the computer provided information on the time
(14:40):
those transactions had been collected, and some of them were before the branch opening hours.
The investigation was thorough, and we confronted the young cashier with sufficient
proof that something was amiss.
He admitted that in the popular neighborhood where he lived,
low-cost housing with blocks of five-story buildings,
(15:02):
a gang will collect copies of ID cards, give them to him, and he was paying
these remittances to himself at the office.
He would print the receipt, sign it, put the photocopy of the ID,
and will leave with the funds at the end of the day. We'll give those funds
to the gang member and he will get a commission for doing that.
(15:25):
He guessed that people sharing those IDs were also being paid for using their names.
Now, the cashier, this young man, was intelligent, hardworking,
who went to school in the evenings and had been committing this scam for two, three months by then.
So we had to decide what to do. Our lawyer advised us to file a complaint with
(15:47):
the police, claiming that he had committed fraud against the company.
It was our first time doing this, since we knew it couldn't imply a police investigation,
unknown individuals coming to an office.
Even if they were associated with police, it made us vulnerable,
something we always wanted to avoid.
But we wanted to be extremely careful, since it could be a sting operation led
(16:12):
by U.S. law enforcement agents.
The employee went to jail for a while. But days after his release,
he was shot from a motorcycle at a bus stop.
He died in the street, two blocks from his home, a competent,
dynamic young man with a great future, preyed to the incitement,
(16:34):
doomed by his unrecognition of the dangers, his naivete,
common to so many people at that time.
And that caused his death. His family was in shock and his disappearance affected
everyone in the company and made us much more aware of the dangers we were all facing.
(16:55):
This fact impacted us.
Now, we printed a small poster that we distributed in all our branches with
the title, Don't Let Anyone Use
Your Name, and underneath a photo of hands tightly gripping prison bars.
We explain the danger of people lending their names for criminal activities.
(17:17):
In Colombia, that is called testaferrato.
This incident and others where criminals or law enforcement informants approach
employees with incitement to commit crimes,
intimidation, or coercion that led us to devise a way to involve our Human Resources
Department in a safety program involving employees' families.
(17:41):
The company's standing and protection lay in the stability and awareness of
the families of the dangers we were facing. The signing of the visits while
maintaining the family's privacy was difficult.
In one of his visits, we noticed that the employer's family had new household
appliances and a brand new motorcycle parked outside.
(18:06):
The employee worked as a cashier in one small branch. We analyzed his work habits
and found that he had set up his own business inside the office.
He was not registering exchange operations and were keeping the dollars to himself,
which he then sold to some customers.
He had learned to exchange dollars and was keeping these profits for himself. self.
(18:30):
My desire to go in all these details and share these anecdotes in these two
episodes is to help you understand the difficulties of bringing formality into
a financial market like ours that has served the vast majority of undocumented,
underserved, underprivileged populations for so long.
(18:52):
I know so many very similar stories in many parts of the world,
and they all demonstrate the importance of remittance companies in developing
the cross-border payment industry that we see flourishing today.
A final word for compliance development is the use of risk matrices that I mentioned
(19:13):
several times in these two episodes.
Risk matrices have been used to assess the risk of products,
services, clients, regions, correspondents, agents, etc.
As a tool, risk matrices were probably introduced around 1995,
and many articles point to the the U.S.
(19:33):
Air Force as the first entity that used it in evaluating risk in one project
that they were developing.
Companies began using risk matrices to help them prioritize risks by grading
them and developing appropriate mitigation strategies.
The risk is calculated by crossing the probability or likelihood of a risk happening
(19:56):
with the impact or severity it can have on the a process if it does happen.
The spread of risk metric tools in financial institutions grew exponentially
after 9-11, when the terrorism threat became a priority.
Other issues became involved in risk matrices, fraud for example.
(20:17):
Now every financial institution needs to develop risk matrices to evaluate compliance risks,
and regulators now demand to see how they are used in different situations and
how this guides the compliance decisions that are taken.
The arrival of RackTech and all the AI and ML applications have dehumanized
(20:40):
the management of money laundering prevention,
fraud, and other risks and turned this detection and responsibility over to the system.
Algorithms are trusted more than intuition, especially in companies with high transaction volumes.
Now, the idea is for the system to detect patterns, trends, and red flags and
(21:03):
act according to these results, proceeding with further human analysis if necessary.
However, algorithm design is vulnerable to many risks such as biased logic,
flawed assumptions or judgments, inappropriate modeling techniques,
inappropriate use of algorithms,
(21:25):
increasing complexity, coding errors, lack of transparency around the design
of the algorithm, and also weak governance.
We all know that growth in data analytics and cognitive technologies is the
only way to monitor compliance risk in today's high-volume payment industry.
(21:47):
Traditional checks and balances were designed for managing conventional risks,
where algorithm-based decisions weren't significantly involved.
However, these checks and balances are not sufficient anymore for managing risks
associated with today's algorithm-based decision-making systems.
(22:07):
So, on top of the compliance risks we face, the tools we use now to manage these
risks need also risk management themselves.
Thank you for listening to episode 14 of the Sending Money series.
See you later. Thank you for listening to this episode of Crosstux.
(22:29):
Conversations that drive innovation. The book Sending Money is available on
Amazon. For comments, questions, and feedback, use our social media channels,
LinkedIn, Facebook, and YouTube. See you soon.
Music.
Music.
(00:06):
Welcome to Crosstalks, Conversations that Drive Innovation.
In this podcast, we feature well-known payments expert Hugo Cuevas-Mohr.
This series is based on his 2023 book, Sending Money, Forex,
Remittances, Immigration, and the Fintech Revolution.
Crosstalks is published by CrossTech, a conference and consultancy service company
(00:26):
based in Miami, Florida. Thank you for listening.
Hi, this is episode 14, The Development of Compliance Part 2.
The first AML measures that were enacted in Colombia was in 1992 and 1993,
and other countries in Latin America followed suit.
(00:49):
Latin American banks gradually began understanding and managing the compliance
implications of KYC and transaction action monitoring.
For NTOs in the region, we felt that we had been facing all these compliance
implications for some time now,
especially because of the cross-border implications we faced with money laundering
(01:11):
issues since we needed to be holier than the Pope.
During the dozen of training sessions we did in Titana at that time,
we used an expression that the team understood clearly. Our job was to weed out customers.
It was to manually remove the undesired customers from coming to our branches
(01:36):
without affecting the service that we were providing,
the kindness and the respect that
we had spent so much time and energy to develop with our customer base.
The staff's intuition, developed and trained, was the only way to generate healthy doubts in their minds.
(01:59):
Detecting the red flags came into existence as a concept sometime later.
The first task in detecting warning signs occurred when calling the beneficiary
to inform that the remittance had arrived.
For example, our call operator detected the same voice answering different telephone numbers.
(02:22):
If they called Maria, a person who said her name was Maria answered.
But if we were calling Carmen, the same voice said it was Carmen.
So that was a warning sign and we decided immediately to block these phone numbers
besides the corresponding names of senders and beneficiaries.
(02:42):
Over time, our team developed the skills to concatenate lists, beneficiary names,
sender names, fund numbers, as well as where the remittance was coming from,
to discover any relationships that might exist between these customers,
the telephone numbers, and find any patterns.
(03:06):
We gradually come up with ways to use the statistics.
As better versions of Excel were released and we began programming our software to help,
we verified the average amount per transaction received by a correspondent or
by the city where the transfer was coming from if we had that information or
(03:26):
by the place of destination,
neighborhood, town, etc.
This allowed us to monitor the transactions and provide those red flags that
led the team to further check.
Listing transactions above a threshold different by every correspondent was
the early work in creating these risk matrices and gave us a good view of the
(03:51):
transactions we should analyze further.
To detect irregularities without generating distrust from the customers,
we created a series of questions to ask the client as he collected his remittance
or her remittance at the cash register.
The cashiers were instructed to initiate short conversations like.
(04:13):
Hey, is your daughter doing well?
And where is she? Or comments like, Does she send this amount often?
Creating these dialogues helped us determine whether or not we should be suspicious.
If the beneficiary was talking about other remittances, inquiring about other
people, or feeling insecure about the transaction,
(04:35):
it was relatively easy for our cashiers to detect those irregularities.
Most of our clients, especially in the early years, were poor,
vulnerable, and with little education. They really didn't have the skills to
come up with sophisticated lies or make up stories.
(04:56):
If they were good at that, that was in itself a suspicious transaction.
Marcela Gonzalez, who worked with Universal de Cambios and later with Titan,
before developing a brilliant career in the industry in Europe, first in the US,
remembers that the system to prevent money laundering came from the intuition
(05:19):
of these team members, the ability of the employees who worked in the company to read people.
Let me read the interview that she did for the book.
The issue of compliance did not officially exist in the first six to eight years
of providing remittance services.
The AML procedures were developed were part of an internal company culture,
(05:42):
a matter of ethics, of always being vigilant.
For example, if we saw large orders arriving, we would react and analyze them
closer. At that time, there was no artificial intelligence, but rather visual intelligence.
We had to realize that maybe something unusual was happening.
(06:03):
We did everything manually, but we had a sense of ethics.
In addition, we had the concept of taking care of ourselves and the company
so that nothing would happen to all of us.
Situations arose when we had
to cancel transactions because they could not be paid. It was difficult.
We couldn't pay them, but we knew that the possibility of a confrontation with
(06:27):
a client will probably take place.
And maybe some of these clients could be dangerous.
So we had to think about how we can deny this person their remittance,
what can we say, what was the best way to avoid any confrontation, any dangers, etc.
There was also the issue of explaining these things to the correspondent overseas.
(06:52):
So it was not easy at all.
That was Marcela's account.
Informing the correspondent that we had not paid transfers and blocked beneficiary
names and senders in our system created problems for all of us. We knew that.
Also, MTOs in the US and Europe faced the problem of returning the funds to
(07:12):
the sender, which was a major operational problem.
Since the remittance was coming from an agent, cancelling and returning the
funds was highly complex.
Some correspondents continually asked us to please pay the remittances,
even though there may be some suspicions, and then block the names after.
(07:34):
We knew that some remittance companies preferred to do that,
to pay and block afterwards or to pay and report.
But that was more complex in Colombia back then.
At the time, providing information to the authorities of initial transactions was not mandatory.
suspicious activity reports, SARS, or suspicious transaction reports,
(07:58):
STRs, or in the Netherlands, unusual transaction reports or UTRs.
They were not instituted yet.
But when these requirements were implemented, the doubts of the industry between
pay and block or pay and report or do not pay, report and block,
creating many disagreements among correspondents regarding the implementation.
(08:21):
Now in the US, the SARS requirement was part of the Anuncio Wiley AML Act of 1992.
The 2001 Patriot Act also strengthened these measures.
It was implemented in the UK in 2002.
Eventually, financial institutions, for safety's sake, decided to over-report
(08:42):
rather than take risks, and the number of SARS in the US skyrocketed.
Many complaints originated in the financial sector due to the authorities' inefficient
processing of SARS and the inability to investigate thousands of incoming SARS.
Now that SARS must be presented digitally and more advanced data processing
(09:04):
systems are emerging, controlled entities can obtain statistics to detect patterns and trends.
Even FinCEN's website now has an excellent public system to obtain statistical
information on SARS by state, CD, month, year, reporting entity, etc.
(09:25):
This since 2014.
Consulting these statistics can help a compliance department be aware of what's going on,
A key reason for our decision to not pay and block was that we began to notice
that some of these money laundering attempts were too evident.
(09:45):
These attempts involved beneficiaries who, instead of hiding their motives,
were trying to make them noticeable.
We realized that some clients would converse with tellers or look to engage
coordinators or office managers to manifest the purpose of the remittances,
(10:05):
and it involved some kind of money laundering scheme.
Now, we already knew from the Money Laundering Alert newsletter that the U.S.
Government was conducting sting operations where money laundering schemes were being orchestrated.
Since the DEA and other government agencies assumed that remittance companies
(10:27):
and hero or houses, like they call them, were accomplices, paying them might
confirm in their minds our complicity.
Between crooks seeking to use our services for criminal activities and informants
plotting to trick us, the pressure on our cashiers and the entire team put a
lot of stress on operations.
(10:49):
And yes, it affected customer service.
Our clients were also very often frustrated by the the questions and doubts that we raised.
They didn't understand what was going on.
I must mention that while this pressure affected some remittance corridors more
than others, the industry landscape was rapidly changing throughout the region
(11:11):
and no one could let Durkauer down.
Understanding and Educating Customers. Yoke Wang Tok and Dyna Heng,
in a report published in 2022, wrote this.
FinTech has a higher positive correlation with digital finance inclusion than
(11:35):
traditional measures of financial inclusion.
And in examining the digital divide, they explained this.
The results indicate that greater use of fintech is significantly associated
with the narrowing of the class divide and the rural divide.
(11:56):
Financial literacy and financial inclusion are prolonged processes,
especially in populations with low socioeconomic status, such as most migrants and their families.
The process, which now has gone a step further, digital inclusion,
began decades ago with the work MTOs did when they first transitioned clients
(12:18):
from travelers and money orders to EFTs, as we saw in the past two episodes.
When I reflect on the work the money transfer industry did to understand and
educate our customers, I really see the value to society that we performed in
those aspects, financial literacy and financial inclusion.
(12:38):
And that same work was done for compliance requirements.
Without this early financial inclusion, work done in countless of cities and
towns across the developing world for many years, with patience and no government support,
I see the benefit we brought to our clients and the financial industry as a whole.
(13:00):
Most remittance senders and their recipients began to
learn about compliance necessities and requirements from our industry coercion
incitement and intimidation one of the most shocking situations we experienced
as a company was when one of our managers following her intuition,
(13:23):
discovered money laundering method that deeply impacted us.
The story begins when a young woman complains we have not paid her remittance.
Our records indicated that we had already paid the money transfer.
Using the copy of the ID given by the person that received the payment,
we confirm it was hers, the lady that was complaining.
(13:47):
And the signature on the receipt seems somewhat similar to the ID.
How could it be that she was claiming payment? Was she trying to be a smarty
pants and get paid twice? Didn't think so.
Upon analyzing the situation, the manager noticed that the paper of the ID copy
looked different from the whiter paper we use in the office on our photocopier.
(14:14):
Suspicious, she then checked the remittance receipts of that day and previous
days and discovered more transactions with the same pattern.
Different paper used to photocopy the IDs, and all of them were from the same cashier.
In addition, the timestamp in the computer provided information on the time
(14:40):
those transactions had been collected, and some of them were before the branch opening hours.
The investigation was thorough, and we confronted the young cashier with sufficient
proof that something was amiss.
He admitted that in the popular neighborhood where he lived,
low-cost housing with blocks of five-story buildings,
(15:02):
a gang will collect copies of ID cards, give them to him, and he was paying
these remittances to himself at the office.
He would print the receipt, sign it, put the photocopy of the ID,
and will leave with the funds at the end of the day. We'll give those funds
to the gang member and he will get a commission for doing that.
(15:25):
He guessed that people sharing those IDs were also being paid for using their names.
Now, the cashier, this young man, was intelligent, hardworking,
who went to school in the evenings and had been committing this scam for two, three months by then.
So we had to decide what to do. Our lawyer advised us to file a complaint with
(15:47):
the police, claiming that he had committed fraud against the company.
It was our first time doing this, since we knew it couldn't imply a police investigation,
unknown individuals coming to an office.
Even if they were associated with police, it made us vulnerable,
something we always wanted to avoid.
But we wanted to be extremely careful, since it could be a sting operation led
(16:12):
by U.S. law enforcement agents.
The employee went to jail for a while. But days after his release,
he was shot from a motorcycle at a bus stop.
He died in the street, two blocks from his home, a competent,
dynamic young man with a great future, preyed to the incitement,
(16:34):
doomed by his unrecognition of the dangers, his naivete,
common to so many people at that time.
And that caused his death. His family was in shock and his disappearance affected
everyone in the company and made us much more aware of the dangers we were all facing.
(16:55):
This fact impacted us.
Now, we printed a small poster that we distributed in all our branches with
the title, Don't Let Anyone Use
Your Name, and underneath a photo of hands tightly gripping prison bars.
We explain the danger of people lending their names for criminal activities.
(17:17):
In Colombia, that is called testaferrato.
This incident and others where criminals or law enforcement informants approach
employees with incitement to commit crimes,
intimidation, or coercion that led us to devise a way to involve our Human Resources
Department in a safety program involving employees' families.
(17:41):
The company's standing and protection lay in the stability and awareness of
the families of the dangers we were facing. The signing of the visits while
maintaining the family's privacy was difficult.
In one of his visits, we noticed that the employer's family had new household
appliances and a brand new motorcycle parked outside.
(18:06):
The employee worked as a cashier in one small branch. We analyzed his work habits
and found that he had set up his own business inside the office.
He was not registering exchange operations and were keeping the dollars to himself,
which he then sold to some customers.
He had learned to exchange dollars and was keeping these profits for himself. self.
(18:30):
My desire to go in all these details and share these anecdotes in these two
episodes is to help you understand the difficulties of bringing formality into
a financial market like ours that has served the vast majority of undocumented,
underserved, underprivileged populations for so long.
(18:52):
I know so many very similar stories in many parts of the world,
and they all demonstrate the importance of remittance companies in developing
the cross-border payment industry that we see flourishing today.
A final word for compliance development is the use of risk matrices that I mentioned
(19:13):
several times in these two episodes.
Risk matrices have been used to assess the risk of products,
services, clients, regions, correspondents, agents, etc.
As a tool, risk matrices were probably introduced around 1995,
and many articles point to the the U.S.
(19:33):
Air Force as the first entity that used it in evaluating risk in one project
that they were developing.
Companies began using risk matrices to help them prioritize risks by grading
them and developing appropriate mitigation strategies.
The risk is calculated by crossing the probability or likelihood of a risk happening
(19:56):
with the impact or severity it can have on the a process if it does happen.
The spread of risk metric tools in financial institutions grew exponentially
after 9-11, when the terrorism threat became a priority.
Other issues became involved in risk matrices, fraud for example.
(20:17):
Now every financial institution needs to develop risk matrices to evaluate compliance risks,
and regulators now demand to see how they are used in different situations and
how this guides the compliance decisions that are taken.
The arrival of RackTech and all the AI and ML applications have dehumanized
(20:40):
the management of money laundering prevention,
fraud, and other risks and turned this detection and responsibility over to the system.
Algorithms are trusted more than intuition, especially in companies with high transaction volumes.
Now, the idea is for the system to detect patterns, trends, and red flags and
(21:03):
act according to these results, proceeding with further human analysis if necessary.
However, algorithm design is vulnerable to many risks such as biased logic,
flawed assumptions or judgments, inappropriate modeling techniques,
inappropriate use of algorithms,
(21:25):
increasing complexity, coding errors, lack of transparency around the design
of the algorithm, and also weak governance.
We all know that growth in data analytics and cognitive technologies is the
only way to monitor compliance risk in today's high-volume payment industry.
(21:47):
Traditional checks and balances were designed for managing conventional risks,
where algorithm-based decisions weren't significantly involved.
However, these checks and balances are not sufficient anymore for managing risks
associated with today's algorithm-based decision-making systems.
(22:07):
So, on top of the compliance risks we face, the tools we use now to manage these
risks need also risk management themselves.
Thank you for listening to episode 14 of the Sending Money series.
See you later. Thank you for listening to this episode of Crosstux.
(22:29):
Conversations that drive innovation. The book Sending Money is available on
Amazon. For comments, questions, and feedback, use our social media channels,
LinkedIn, Facebook, and YouTube. See you soon.
Music.
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