Trends and challenges – a series of interviews with experts in the field of fraud prevention and anti-money laundering measures.

Interview with Radomir Dukov, Head of Regulatory Compliance from Raiffeisen Bulgaria

Radomir is an expert with over 14 years of experience in the banking system, 13 of which are in Raiffeisenbank (Bulgaria) EAD, where he has passed through all levels and held positions in various fields – Small and medium enterprises (SME) loan specialist, SME Supervisor, Risk Manager, Risk Manager Credit Fraud, Deputy Head of Operational Risk and Fraud Risk Management Department, Head of Operational Risk and Fraud Risk Management Department. He has been the Head of the Regulatory Compliance Department for two and a half years. Manages a team of experts focused on money laundering, fraud management, financial sanctions, internal control environment management, FATCA/CRS reporting, investment intermediary control, conflict of interest, ABC (Anti Bribery and Corruption), third party response, is also responsible for compliance activities in the subsidiaries of Raiffeisenbank (Bulgaria) EAD. Radomir is a fraud prevention expert at the Association of Certified Fraud Prevention Specialists (ACFE). He holds a bachelor’s degree in Finance and master’s degrees in Banking Management and Political Management.

Last year was marked by an unusual event that affected public life in all possible ways. Of course, it changed the flow of cash flows – cash payments decreased and electronic payments increased, businesses such as restaurants and tourism almost ceased to function. Globally, lockdowns have restricted the movement of people and products and reduced the ability to generate “dirty money” such as drugs and trafficking in migrants, but at the expense of fraud to help those affected by the crisis. This, of course, led to a change in money laundering methods and a change in the channels for their movement.

What are the new trends in money laundering, according to your observations?

Trends are changing and upgrading. There is an increasing investment in cryptocurrencies or other types of new financial instruments. The path of funds is no longer branched mainly through the banking system, but non-bank financial institutions are also used. Due to tight requirements for identifying beneficial owners, offshore companies are less commonly used. They are looking for destinations that are treated with low or medium risk, which aims to change their treatment and the amount of information that is collected. In Bulgaria, unlike in Western Europe, cash transactions are still preferred. There is also a strengthening of regulatory supervision in the direction of unified, unified control – until recently, regulators monitored compliance with regulatory requirements separately, and the latest trends are to make combined inspections.
In addition, the ECB’s supervision is being strengthened, with the European Supervisory Authority no longer delegating only the supervision of local regulators, but taking a more active part.

How does digital onboarding and the digitalization of banking processes, in general, affect money laundering activities?

In the last year and a half, digitalization in the banking system has accelerated many times over the last 10 years. We had to become fast-growing and adapting fintech companies. You understand that for a banking institution, with such size and processes, and subject to so many regulations, it was not easy. We continue on this path. We have developed new processes for onboarding customers digitally, which brings with it the corresponding risks. A financial institution needs to understand that digital onboarding and digitalization in general are not just about creating customer-oriented pages, a simplified process, and so on. The process at the back also needs to be digitized. The process of preventing money laundering is one of the main ones. For me the important moments are two – cultural and systemic. The created digital and adaptive organization must be well aware of the requirements, fines and coordinate all new products and processes with Compliance. We are the people who must evaluate them and create a process that will give security to the bank. Without us, digitalization, digital onboarding, etc. is impossible. Leading people in this digital transformation must have a particle of Compliance thinking. This is achieved through training, support from top management and a clear vision of where Compliance should be positioned and what its role is. Regarding system security, you cannot have digital channels, customer automation, easy onboarding and processing the excel process from behind. An organization needs to be aware that the whole process needs to be secured, not just the sales part. The risk and fines are significant, and a fine will seriously reflect on the business model, and the effect can be detrimental. Digitalization and Compliance are friends, not enemies. However, everything has to be worked out to the last detail and it is important to be flexible and adaptable. This also applies to anti-money laundering activities

Are there new sources of “dirty” money?

The sources are funds from criminal activities, misappropriation of funds and tax fraud. From this point of view, it is more correct to say that there is a modification of the sources. New fraudulent schemes are also visible. Abuse of the Covid-19 pandemic. Illegal fundraising related to charitable initiatives, exploitation of people’s fears and misappropriation of their funds; cybercrime scams. We can list many more, but they do not change, but are upgraded and developed. In my opinion, we need to look one step further, not to look at money laundering, fraud prevention, information security and, if you will, the credit process. On top of everything described is the “Meet Your Customer” process. My impression is that things are quite intertwined and therefore the connection is lost at times. The integration between the processes and the overall coverage of the picture must be sought. Processes need to talk to each other, which shall become increasingly urgent in the current situation. We will face a new reality that not everyone is yet aware of.

Are the patterns of movement of “dirty” money changing?

The most constant thing in the world is change. This also applies to schemes for moving “dirty” money. You see how the banking system is changing. We have many other players in the market that compete with banking institutions – fintech companies that offer financial services, crypto currency platforms, stock trading platforms, precious metals, etc. The financial market is very dynamic. One thing they have in common: all funds eventually go through the banking system. Regulations are strict, but regulators cannot check them all. For this reason, the banking system is the main focus, although I notice a movement towards fintech companies, digital banks, etc. They will be the main focus of regulators in the near future. It is becoming easier to find a financial institution that operates in many markets, where the question is who controls it and how. That is why the role of Compliance is important. We should not be guided by profitability, but by protecting the banking system. Unfortunately, we are in a constant marathon. The leading role is played by fraudsters and money launderers, and we are constantly behind them. This also applies to money laundering schemes.

Do you think that the current situation will affect the increase of cases of internal fraud?

Yes, and I can give an elementary example. While you are in the office and watching the people around you, you have the opportunity to notice certain signals of problems or abuse – social status, behavior, etc. In the current situation, where everyone works from home, you communicate with one voice. You can’t see the big picture. I do not want to say anything bad about the home office, I am a fan of it, but it has to be balanced. Another important point is the economic situation and the income of the population, my experience so far shows that the main reason for internal fraud is the financial situation. Covid-19 reflects on the economic condition of the people, therefore it is necessary to create a stable internal control environment. This would reduce, but not completely prevent, internal fraud.

Does the change in the market situation lead to a revision of the fields and values in the Risk Matrix for money laundering risk assessment?

Yes, we have an obligation to evaluate each new product, service, channel, etc. The overall picture and how it changes the client’s risky behaviour must be taken into account. Which should reflect on the risk profile, required documents, review period, etc. Things are quite connected, which not everyone understands.

Do you think that the use of artificial intelligence functionality would improve and make this process faster?

This is the future. The use of new technologies in the fight against financial fraud will be at the core. Proper systemic solutions will allow financial institutions to be much more efficient. Investments in new technologies (Artificial Intelligence, Robotics, Advanced Analytics) will grow more and more. As I mentioned, you cannot want to be a digital bank/financial institution, but have manual processes for fraud management and money laundering. This will allow us for much more accurate and quality customer profiling. This is the future and we need to keep up with technology. There is one very important component that technology cannot do without, and that is data. Information is the most valuable resource and it must be managed properly. The data and their quality will be fundamental for the processes in the future. We will no longer want customers to be physically present in our offices. We will try to analyze the behavior, the origin of the funds, etc. based on the available information. That’s why it’s important to have the right data. In Bulgaria we have good access to external bases, but the purposes for which they can be used need to be expanded. The combination of external and internal databases will give us a very competitive advantage and the opportunity to automate our processes and review of customer behavior. So, data and technology, this is the future. Whatever improvement and technology we introduce will need to be judged in the end. The human factor will retain its importance. The “steering wheel controller” will become increasingly important. The investment in people shall not be forgotten.

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