Home › Insight › Fraud Prevention and Anti-Money Laundering at 1st State Bank

Fraud Prevention and Anti-Money Laundering at 1st State Bank

by Jason Dzamba - October 20, 2023

In a recent conversation with Cindy Holliday, the BSA officer at 1st State Bank, an AVP, and a certified anti-money laundering and fraud professional (CFP), we gained insights into the rapidly changing banking landscape.

This article delves into the discussion and examines how AI tech and automation transform the banking sector’s fight against financial fraud.

Cindy’s conversation starts from 00:20:00 in the below audio recording.

Rising Check Fraud in Banking

Cindy highlighted that her role as a BSA officer has dramatically changed over the past five years. The significant shift is primarily attributed to the surge in fraudulent activities in the banking sector, with a particular emphasis on the rise of check fraud.

She also mentioned the influence of cryptocurrency and person-to-person (P2P) transactions, posing new challenges to the banking industry.

Cat-and-Mouse Game with Fraudsters

A pressing question arose during the conversation: why do fraudsters seem to be continually one step ahead of banks? The answer provided by Cindy shed light on the enduring appeal of check fraud.

This traditional method remains effective, partly due to the timing of check processing, providing a window for fraudsters to siphon off funds before other banks can identify and halt the fraudulent activity.

In contrast, other methods, such as wire transfers and ACH transactions, are becoming more secure due to improved policies and procedures.

Tools and Frameworks for Combatting Fraud

Cindy discussed using Positive Pay, a tool that helps address check fraud. However, a significant limitation of this tool is its focus on the front of the check. It often fails to detect fraudulent endorsements on the back of checks, which have become a common tactic among fraudsters.

Such endorsements include altered, fictitious, or forged signatures.

Catch Cindy starting at 21:38

The Scale of the Issue

The scale of the problem Cindy is dealing with became apparent when she revealed that her bank had seven checks returned in a week due to fraudulent endorsements. This widespread issue affects financial institutions nationwide, indicating a need for better prevention strategies.

AI as a Solution

Cindy highlighted the adoption of AI and machine learning as a means to tackle these issues. Their BSA AML software employs AI and machine learning to generate meaningful alerts that assist investigators in identifying financial crimes such as fraud and money laundering.

Addressing False Positives

While adopting AI for fraud detection has been a significant improvement, there remains a concern regarding false positives. AI systems generate alerts based on patterns, which can sometimes be false alarms.

However, Cindy mentioned that the technology has significantly improved over the past few years, leading to a reduction in false positives.

Incorporating AI into the Workflow

Cindy explained that AI has streamlined their processes. They now e-file Currency Transaction Reports (CTRs) and Suspicious Activity Reports (SARs) through their BSA AML software.

This saves time and improves accuracy by reducing manual data entry.

The Future of Banking Compliance and Fraud Prevention

Fraudsters are continually adapting. Banks can better adapt to emerging fraud tactics with AI and automation and protect their customers’ assets. It’s a testament to how embracing technology and change can lead to more effective compliance and fraud detection.

There will be struggles with change management and understanding how the tools will change or replace current workflows, but the long-term benefits are there.

Need help with AI & Automation solutions? Contact our team.

About Jason Dzamba

Director of Media Relations, Productivity Strategist, and Host of Inside the Bot Podcast, Jason uses a process-driven approach to help leaders optimize their actions and achieve their most important business objectives. His creative outlet is painting abstract art and producing music. He lives in Orlando, Florida, with his three kids.