Financial services sector strengthens criminal defences

Australian financial services companies are supporting a Wall Street initiative to develop a customer database to help the industry in screening out suspected criminal activity.

A company is being formed -- Regulatory DataCorp International - to run the initiative and will be launched next month in Australia.

It will compile information from public resources including international, federal and local law enforcement records and then sell access to a database to financial services firms. The initiative is the creation of The Goldman Sachs Group in New York with the support of Merrill Lynch & Co, Citigroup and UBS PaineWebber and a number of other companies in the financial services sector.

A Goldman Sachs' Australia spokesman said the database will be used as a resource for its local legal affairs group to more closely monitor activities such as money laundering.

He said Regulatory DataCorp will run checks on offshore or shelf companies, ensuring merchant banks and brokerages can put a name to a company.

"If you're a banker or broker you are doing literally hundreds of thousands of trades a day, you need to be able to do this sort of check; I don't think it will involve individual background checks on people," the spokesman said.

The Australian Securities and Investments Commission (ASIC) said there was "no legislation in Australia to stop businesses" from accessing this sort of information offshore. A spokesperson for ASIC added: "Organisations and people who decide to invest in companies or shares overseas do this at their own risk."

A spokesperson for the Office of the Federal Privacy Commissioner said the question of Australian financial institutions accessing the new industry database fell outside the Privacy Amendment (Private Sector) Act, as the legislation governs how organisations should deal with personal information, not company information.

Meanwhile, Gartner analyst Richard DeLotto praised the initiative: "If there's a bad guy working in town, he's going to go from bank to bank, so it increases the likelihood of catching a money launderer or terrorist."

Sydney-based IT consultancy Interactive Knowledge Online chief executive Aseem Prakash said investment firms are tightening up on high-risk activity post-September 11.

"They may have dealt with high-risk customers before, but now they are asking: does allowing a certain type of person or transaction through our system mean we are cultivating or exposing ourselves to terrorism?"

He said the initiative is long overdue and its success will depend on industry support rather than technology.

An Australian Stock Exchange surveillance executive said the initiative will improve monitoring of suspicious activity.

"These companies are putting together legitimate resources to see if the systems banks have for checking customers are working well; [but also] it's not to say there wouldn't be unusual transactions done by a broker," he said.

While not unique, the database will be among only a handful in the world performing industry-wide customer searches, according to Brian Smith, a partner at law firm Mayer, Brown, Rowe & Maw in Washington, US, which specialises in regulatory issues in the financial services marketplace.

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More about Australian Securities ExchangeAustralian Securities & Investment CommissionCitigroupDatacorpGartnerGoldmanPaineWebberSachs GroupUBS PaineWebberWall Street

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