SMARAGD FPD IT-based system for the - cellent finance solutions AG

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SMARAGD FPD IT-based system for the - cellent finance solutions AG

07/2010

ANTI-FINANCE-CRIME SUITE

by Cellent Finance Solutions AG

SMARAGD

Successful solutions to

fight financial crime


ANTI-FINANCE-CRIME SUITE

by Cellent Finance Solutions AG

Crim

The challenge

of financial crime

2

The obligation. Financial crime has many faces.

No matter if it‘s money laundering, financing terrorism or

insider trading – Financial crime poses a serious threat for

our society and for the international financial systems. Financial

institutions are abused - most of the time without

their knowledge - as mediators for illegal transactions or

business deals.

It is a special obligation, to protect financial institutions

and therefore the entire financial system against financial

abuse. Intelligent IT systems support the financial institutes

in their fight against financial fraud.


e Contents

© Cellent Finance Solutions AG

All rights reserved. The contents of this document from Cellent Finance Solutions AG are

protected by copyright. Texts and graphics may not be used or reproduced, either in whole or in

part, without previous written authorizations from Cellent Finance Solutions AG.

ANTI-FINANCE-CRIME SUITE

by Cellent Finance Solutions AG

1. The financial crime challenge

2. Overview of the SMARAGD

product snite

SMARAGD MDS

Post Transaction Monitoring,

Anti-Money-Laundering

SMARAGD TCM

Watch List Filtering, financial

sanctions, customer screening

and combating of terrorism financing

SMARAGD CRS

IT-based Risk assessment

SMARAGD FPD

Detection of financial fraud

3. Internationality

4. Experience in fighting financial crime

3


ANTI-FINANCE-CRIME SUITE

by Cellent Finance Solutions AG

SMARA

Financial Crime

The financial crime challenge

Legal provisions

The national and international money laundering regulations

have undergone a phase of radical changes and

tightening.

Ever more frequent and comprehensive sanctions

against infringements of legal provisions, especially by

the U.S. American authorities, have increased the sustained

pressure to enforce national and international money

laundering regulations.

4

■ Directives of the European Union from 1991,

2001, 2002 and the 3. EU-money laundering

guideline of the EU commission from 2005 and

2006

■ General instructions for account opening and

customer identification from February 2003

■ Consolidated KYC (KnowYourCustomer) risk

management from October 2004

■ FATF (Financial Action Task Force), forty + nine

recommendations, report on money laundering

typologies

■ USA PATRIOT Act and Bank Secrecy Act

Innovation and further development

The SMARAGD product series is being continuously

further developed to meet the international requirements.

Thus, permanently protecting the investments of our

customers.


ANTI-FINANCE-CRIME SUITE

by Cellent Finance Solutions AG

GDAnti-Finance Crime Suite

SMARAGD – convincing facts

SMARAGD it is being utilized successfully

nationally and internationally by over 750

institutions

■ Our long-term international experience ensures

short implementation times

■ Several innovative functions that help ease the

work process within your organization

■ SWIFT certification of the payment

component S/MGS

■ Identification of Politically Exposed Persons

„PEP“

■ Since it is completely configurable, organizations

can promptly adjust their parameters to altered

money laundering behaviors

■ The effectiveness and functionality of

SMARAGD is confirmed by leading auditing

firms

■ It offers customers the highest degree of

security for the compliance with legal

requirements

■ Seven of the 10 largest banks in Germany utilize

SMARAGD worldwide

■ Deployed in more than 40 countries

The SMARAGD product snite consists

of modules with different

functions for combating financial

Crime:

SMARAGD MDS

■ Anti-Money-Laundering in financial

institutions

■ Fulfillment of the international legal

requirements

■ Risk based approach and

KnowYourCustomer-policy

SMARAGD TCM

■ Watch list filtering

■ Checking of the customer base against

institution specific, national or international

sanctions

■ Combating the of terrorism financing

■ Customer screening

SMARAGD CRS

■ Risk assessment regardingfinancial crim

■ Risk assessment of the current customer

and product base

■ Risk oriented procedure for the definition of

Countermeasures

SMARAGD FPD

■ Identification of financial fraud in banks and

insurance companies

■ Customer and business specific rule code

■ Short and long-term analysis to identify

financial fraud

5


ANTI-FINANCE-CRIME SUITE

by Cellent Finance Solutions AG

SMARA

MDS

Tackling money laundering

and financial fraud

Intelligent IT system for the analysis and defense Top Business Edition

against money laundering in financial institutions

The internationally employed, MDS fulfills the legal

requirements regarding the preventive measures against

money laundering and financial fraud.

Adaption to the institution specific threat situation

Known money laundering and fraud patterns are stored

in the system and can be flexibly adapted to the internal

threat analysis of the institution. The financial institution is

supported by the national and international experience of

Cellent Finance Solutions. Currently there are up to 200

money laundering and fraud typologies stored in

the system.

Money laundering scenarios

Money laundering scenarios, fraud typologies and indicators

can be freely configured within the system. They

are adaptable to new typologies at anytime - without any

program alterations - solely through the configuration.

To perform this, comfortable and easy to use dialogs are

available to the user.

Profiling: dynamic money laundering detection

The detection of money laundering activities is performed

dynamically, based on business profiles. These are

automatically updated on a daily basis. Through this, the

system learns to detect money laundering activities, if the

business behavior changes.

MDS also takes into account the complex network

structures of customer and account relations during the

analysis.

Simulation system

The rule code must be continuously adapted to new

threat situations. The organization can perform this task

very effectively and simply with the simulation system.

All new settings are automatically checked by the system

and projected to the expected results of the productive

system. The optimization steps can be repeated as often

as desired. The user then approves the best setting and

the simulation system automatically conveys the settings

into the productive system.

Changes to the scenario or indicator model are logged

in an audit-proof way and therefore completely fulfill the

requirements of the audit

6

The Top Business Edition is multi-organisation capable

and supports these organizational structures of international

financial institutions. Advanced functions such as the

gray zone database, data views and reference profiles

also a components of this addition, next to the simulation

system which includes the random testing and projection

features.

The threshold value generator supports the user in the

optimization and best possible setting of indicators and

threshold values. With SMARAGD MDS you are therefore

able to achieve a high hit rate and keep the „false

positive rate“ to a minimum.

Small Business Edition

The Small Business Edition is designed primarily for

small and medium-sized institutions and for foreign subsidiaries

of international companies. Predefined settings

enable a quick alignment with the institution‘s specific

threat situation and thus allow for a very short commissioning

time.

MDS overview

MDS incorporates all business activities as well as customer

and relationship structures of an institution into the

money laundering analysis process. A special feature of


GD

SMARAGD MDS is that all discrepancies detected by the

system are allocated to a customer. This customer view

greatly eases the analysis work for the user.

Innovations

MDS has been continuously expanded and further

developed since its introduction in the year 2000. The

following MDS innovations continue to strengthen its

success:

■ Simulation system

► Monitoring for alterations of the scenarios

through dynamic random data testing

■ Early warning system

► A „rolling“ detection of money laundering and

fraud behavior

■ Threshold value generator

► Prognoses of the results, after an alignment of

threshold values and the selection of the optimal

threshold values

■ Know Your Customer with the customer

profile module

► Automatic detection of a customer‘s business

profile for the money laundering and fraud

detection

ANTI-FINANCE-CRIME SUITE

by Cellent Finance Solutions AG

What can MDS perform?

MDS

■ Predefined rules and typologies for common

money laundering and fraud scenarios

■ Rule code with more than 200 indicators,

which can be adapted to new threat

situations through the compliance

organization.

■ Early warning system through a daily and

continuous monitoring

■ Configurable automatic profile creation for

all customers and accounts, to identify

unexpected and unusual business activities

■ Multi-Organisation capability

■ Analysis and monitoring of networks

■ Classification and monitoring of high-risk

customers

■ System-Side support for the threshold value

determination

■ Role and authorization-based concepts,

that also take the cooperation of a

centralized compliance and decentralized

customer areas into account

■ Audit-Proof documentation of all processes

for internal and external audits

■ Short and long-term analyses

7


ANTI-FINANCE-CRIME SUITE

by Cellent Finance Solutions AG

SMARA

TCM

Watch list filtering, financial sanctions and

combating the of terrorism financing

Early breackdetection

Low false-positive-rate

To ensure the embargo monitoring and to prevent terrorism

financing TCM checks financial transactions and

customer data for infringements against institution specific,

national or international regulations.

8

■ Embargo filtering of transactions

(SEPA, SWIFT and non-SWIFT)

■ Indentification of “bad guys” in the customer

database (customer screening)

■ Identifying PEPs (politically exposed persons)

By implementing TCM economical damages for the financial

institution can be avoided. International payments

with a terrorist background and/or that violate EU, US or

UN requirements or laws can be prevented.

Daily updated watch lists

The European Union, the OFAC (Office of Foreign Assets

Control) and other authorities publish watch lists

and make them available to financial institutions. If there

is an alteration in the list, the data files are checked on a

daily basis with the help of an automatic update mechanism.

A significant and indispensable characteristic of TCM is

the checking of name similarities using the undefined

search logic (fuzzy-logic).

■ Phonetic similarities, particularly due to various

spellings in various languages considered are

considered

■ Spelling errors do not prevent the detection

■ Phrases and permutations are taken into

consideration

■ Monitoring of documentary bussiness transactions, for ■ Differentiation of the similarity assessment for

example trading credits, securities

transactions

free-text fields

■ Online webcheck to reject unwanted customers

The similarity search can be parametrized so that it can

be quickly adjusted in case of increased security requirements.

Checking of SEPA, SWIFT and non-SWIFT

transactions

TCM monitors transactions, that are relayed to the financial

institution through the SWIFT-network. TCM performs

a complete checking of the embargo-relevant SWIFTmessages:

■ Customer transactions (payments and cheques)

■ Inter-bank transfers

■ Treasury, currancy trading, money

markets and derivatives

■ Collections and money orders

■ Securities transactions

■ Precious metals and cash letters

■ Documentary credits and guarantees

Insolvency-filter

Complex transactions in banks are automated and completed

nowadays, while taking into account a great deal

of additional internal and external information. This largely

poses the risk that payments are made, even though


GD

the addressee is already in financial difficulty or is even

close to insolvency.

These payments can be stopped with the „insolvencyfilter“

and thus prevented.

Identifying PEPs (politically exposed persons)

With the SMARAGD PEP component, politically exposed

persons can be identified through the

intelligent similarity search (fuzzy-logic). The checking

strategies are configurable, to take into account the heterogenic

data quality of the PEP lists.

Innovations

TCM supports the requirements of the EU regulation 1781

(on information on teh payer axxounpany transfer of

funds). SMARAGD TCM detects infringements

against this guideline and informs the compliance organization

about the violation. If necessary these transaction

can be stopped from being processed any further.

ANTI-FINANCE-CRIME SUITE

by Cellent Finance Solutions AG

What does TCM perform?

TCM

■ Complete checking of all transactions for

embargo breaches

■ Highly optimized customer base checking for

embargo infringements („bad guy“) with

similarity search, also suited for mass data

processing (>10 million partners)

■ Utilization of all relevant external and internal

watch lists for the embargo

monitoring, including PEP lists (Politically

Exposed Persons)

■ Simplified and quick partner checking with

the online webcheck to reject unwanted

customers/partners

■ Auditing security through a complete logging

of all relevant events and processes

■ Case processing for embargo infringements

with workflow

■ Flexible maintenance and expansion of the

checking rule code through the specialist

Compliance department

9


ANTI-FINANCE-CRIME SUITE

by Cellent Finance Solutions AG

SMARA

CRS

Risk management based on

a IT-driven Risk analysis

Corporate wide risk assessment

Risk oriented procedure for the definition of measures

CRS documents the group-wide risk analysis, by

recording, categorizing and evaluating all threats of fraud,

such as money laundering, terrorist financing, corruption

and economic crime. Analyses support the implementation

of countermeasures, and the action corresponding to the

threat is also recorded in CRS.

Risk structuring

Core of risk analysis is the structuring of all types of risk

present in the Institute, such as customer and product

risks, and risks allocated to different industries, geographies,

processes and transactions.

The risk assessment is performed with the help of predefined

centralized indicators. Through this an individual,

but yet uniform, objective and justified risk assessment

can be obtained for the respective institution.

This procedure fulfills the legislative audit requirements

and the requirements of audit firms regarding transparency

and traceability.

Risk assessment of the current customer

and product base

A substantial benefit of CRS is the correlation of assessed

potential risks with the actual customer base and

the marketed products. This results in various evaluation

and analysis capabilities, that can extend from the economically

independent unit, to business areas, and all the

way up to the corporate level. Temporal trends

are also transparent.

10

All risk areas are allocated to measures, whose quality is

derived from the respective degree of risk. The complete

documentation of the currently utilized or planned measures

in CRS for the second part of the risk analysis.

Risk-based approach through frequency distribution

This innovative function of SMARAGD CRS determines

a frequency distribution of the industry branch risk in an

economically independent unit.

In a graphical representation of the degree and frequency

of the risk, the risk distribution is made transparent

(heat maps). Through this, the institution can immediately

notice the main areas of risk.

In addition to individual evaluation of risk dimensions, the

distribution of the total customer risk as the aggregation

of all customer risk dimensions is of greatest interest, and

is also displayed by the system.

A further evaluation function is the combination of product

risks with the customer risks that arise through the

product usage by each individual customer.

Summary of the relevant functions:

■ Objective determination of the risk situation

within the company

■ Separated display according to money

laundering, terrorism financing and fraud

■ Risk model is preconfigured and flexibly

adaptable

■ Freely definable risk dimensions

■ Multiple evaluation options for the customer and

product risks

■ Preparation of the number-data as the basis for

a threat analysis

■ Assessments of new customers (CDD/KYC)


GD CRS

Innovations

SMARAGD CRS was designed in cooperation with leading

audit firms and numerous major German banks.

■ Risk Based Approach

► In addition to documentation of the risk

situation of the financial institution, the impact of

each risk combination based on the transactions

will be actively identified.

■ Customer Due Diligence

► dynamic risk classification of a customer,

structured according to the customer type, for

example private customer, business customer,

correspondence bank etc.

This module can be used both for the

continuous risk assessment as well as for the

risk classification during the customer

acceptance process.

ANTI-FINANCE-CRIME SUITE

by Cellent Finance Solutions AG

What does CRS perform?

■ Description of all customer, product and

other risks

■ Differentiation between money laundering,

terrorism financing and fraud

■ Corporate unified evaluation of all risks

■ Separation of potential risks and actual risks

■ Risk analyses and evaluations on all

organizational levels

■ Documentation and controlling of

countermeasures

■ Implementation of the indicator model in

SMARAGD MDS.

11


ANTI-FINANCE-CRIME SUITE

by Cellent Finance Solutions AG

SMARA

FPD IT-based system for the

detection of financial fraud

Financial fraud within banks has many facets and can cial institutions that detects and prevents all types of

sometimes only be detected after the fraud has been

committed. According to UN estimations approximately

5% of the real social product is accrued through financial

and economic crimes.

Companies are obligated to implement measures to

prevent financial fraud. This must be done preventively,

which means a detection of the fraud for short-term analysis.

On the other hand this must be performed during

normal operation, which means immediately prevent any

further business actions after the detection of a fraud

attempt.

Detection of financial fraud

12

■ Identification of complex fraud scenarios with

time series analyses

■ Daily checking of business activities for fraud

suspicion

■ Stopping of suspicious transactions based on

complex fraud patterns

■ Identification of frauds and the customer base or

as business partners

■ Exposure of corruption and internal fraud

financial fraud. The application is comprised of two components

that are combined in a professional way.

■ Fraud detection

The methods and procedures for the detection

of conspicuous business conduct will be used

together with the processing of historical data

of customers, accounts and transactions

(fraud-detection).

■ Fraud prevention

Prevention of fraudulent business through the

online monitoring of transactions

(fraud-prevention).

Fraud-Detection

■ Daily accurate monitoring of customers,

accounts and transactions for fraudulent

behavior

■ Detection of fraudulent behavior based on

predefined behavior patterns

■ Creation of customer and account profiles, that

described the business behavior of each

individual customer

Fraud-Prevention

In Fraud-Prevention the payment is monitored in real

time for a predefined set of risk factors, such as the payment

amount or involved risk countries.

If during a payment significant deviations are detected

which can indicate a financial fraud, the payment will be

stopped. Subsequently this transaction will be analyzed

by the case processing department.

■ Online checking of payment transactions based

on customer profiles due to a fraud suspicion

■ Stopping and evaluation of online transactions

with fraud suspicion

SMARAGD FPD contains intelligent rule codes as well Case processing

as scenarios and indicator models, which are adjustable The screening results are antomatically and audit-securely taken

by the staff of the Compliance Department. over in the application, where they can be processed in a work-

The SMARAGD FPD is the all-in-one solutio n for finan- flow. Case data is a relived and can be used in subsequent


GD FPD

Innovations

researches.

Examples for fraud patterns:

■ Detection of fraud and unwanted business

partners in the customer base

■ Monitoring of risk payments, such as

- risky business partners

- risky countries

- risky business types

■ Account looting through stolen/forged account

authorizations (phishing)

■ Capital collection points for illegal money or

illegal usage

■ Financial agents for camouflaging illegal money

■ Corruption

■ Direct debit fraud

■ Misuse of dormant accounts

ANTI-FINANCE-CRIME SUITE

by Cellent Finance Solutions AG

SMARAGD FPD combines the methods of long-term

analysis of abnormal movements of funds with the methods

of online transaction monitoring for the prevention

of fraudulent financial transactions.

What does FPD perform?

With SMARAGD FPD fraudulent behavior of customers,

business partners and staff can be detected

through a long or short-term analysis. The fraud

scenarios are configurable and can be modified or

supplemented at any time by the specialist department.

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ANTI-FINANCE-CRIME SUITE

by Cellent Finance Solutions AG

SMARAGD

Internationality

SMARAGD is �eployed in more than 40 countries

The SMARAGD product suite has established itself

internationally as an IT system to combat financial crime

in financial institutions. Our customers

benefit from our knowledge and the experience that we

have gained through numerous consultings, during the

implementation of money laundering solutions and the

combating of terrorism financing.

International scenario and indicator model to combat

money laundering

The core of combating fraud in financial institutions

is a comprehensive model with more than 200 scenarios,

which are used for money-laundering detection. The

knowledge of specific factors regarding individual countries

has also been integrated.

International rule code for combating the terrorism

financing

For the monitoring of financial transactions, TCM offers

a comprehensive rule code for the detailed monitoring

of SEPA, EBA and SWIFT-message types. All types of

financial business transactions - including the checking

of documentary credit transactions, treasury etc. - are

contained therein.

Internationally oriented financial institutions

SMARAGD is deployed at internationally operating institutions,

including the wordl's largest banks, and their respective

foreign brauckes. It is used in important financial centers

such as London, Luxembourg, Zürich, Frankfurt, Moskau,

Tokyo and Singapore.

What does SMARAGD international

perform?

■ Corporate enabled applications with a depiction

of all kinds of corporate structures

■ Multilanguage capability

■ Multi-organisation capability

■ International scenario/indicator model

and rule code

■ SWIFT certified

■ Employed internationally in more

than 40 countries

■ Worldwide hot line

■ International consulting


ANTI-FINANCE-CRIME SUITE

by Cellent Finance Solutions AG

knowledge in

combating financial crime

SuiteExpert

Cellent ■ Finance Leasing Solutions companies

AG is a leading provider in the

field of IT-based money laundering, terrorist financing

combating as well as embargo and financial sanctions

monitoring for the financial industry. The SMARAGD

product family is employed at 750 financial institutions, in

more than 40 countries. In Germany, seven of the ten

largest banks use SMARAGD solutions to fight financial

crime.

Cellent Finance Solutions offers a high degree of

professional and technological know-how. Our knowledge

advantage is the result of a close cooperation with the

financial community as well as with the leading technology

providerand software manufacturers.

The Cellent Finance Solutions AG with headquarters

in Stuttgart is a 100 % subsidiary of the Landesbank

Baden-Württemberg (LBBW).

Application fields of SMARAGD:

■ Retail banks

■ Direct banks/online banks

■ Data centres

■ Federal State Central Banks

■ National banks

■ International financial institutions

■ Securities-services provider

■ Insurance companies

■ Online gambling

SMARAGDthe leading solution in

the fight against fraud

SMARAGD is scalable and used by globally operating

major institutions as well as in small and middle sized

banks.

15


ANTI-FINANCE-CRIME SUITE

by Cellent Finance Solutions AG

Cellent FS Imprint

Cellent Finance Solutions AG

Calwer Str. 33

D-70173 Stuttgart / Germany

+49 (0)711 222 992 900

+49 (0)711 222 992 899

Visit our Website:

www.cellent-fs.de

Further Information:

info@cellent-fs.de

ANTI-FINANCE-CRIME SUITE

by Cellent Finance Solutions AG

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