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A mechanism created by Dutch lenders for jointly monitoring transactions will initially focus on corporate clients and deploy artificial intelligence and other new technologies to pinpoint illicit finance, sources involved in the project told ACAMS moneylaundering.com.

On July 10, the five largest banks in the Netherlands—ING, Rabobank, ABN Amro, Triodos Bank and De Volksbank—formally established Transaction Monitoring Netherlands, or TMNL, a first-of-its-kind mechanism tasked with identifying unusual wires and payments between their institutions.

The banks and global consultancy Deloitte will now begin designing the transaction-monitoring utility with a remit for screening all transfers involving corporates with Dutch accounts as part of the first phase, which is expected to take between 18 months and two years to complete. TMNL is expected to generate its first transactional alerts by June 2021.

“It’s about building a platform that generates, in a structured way, multi-bank alerts,” Jeroen Rijpkema, TMNL program manager at the Dutch Banking Association, which coordinates the project, told moneylaundering.com. “The moment you can conduct analysis on that entire mountain of data, you’ll be much better at discovering criminal money and networks.”

TMNL, which will have its own office, IT system and staff and require an investment of tens of millions of euros from the banks, was first conceived in 2018 during meetings between bankers, regulators, law enforcement and government officials for improving Dutch efforts against financial crime.

The institutions began a feasibility study for the project in December of that year, and nine months later began testing the concept by collecting transactional data on a system hosted by one of the five participating financial institutions.

Analysis of one year’s worth of data from the five banks helped identify previously unknown criminal schemes, including conspiracies to smuggle cocaine into the Netherlands through companies that import fruit and vegetables from Latin America, said Rijpkema.

“Initially, TMNL was seen as too much outside the box, as improbable, but it has gained traction over the past two years,” Mark Hanhart, ABN Amro’s global compliance head for anti-money laundering and sanctions, told moneylaundering.com. “I believe the initiative will prove to be a game changer.”

TMNL will use a common set of rules and scenarios to segregate suspicious transactions and unusual patterns of finance involving corporate accounts in the Netherlands, such as large cash deposits and withdrawals, and frequent wires to countries prone to illicit finance.

If TMNL flags an unusual transaction or series of transfers indicative of money laundering or other crimes, all lenders involved in the payment chain will receive an alert relating to their customer or customers alone.

The banks will receive and review any alerts from TMNL privately and independently of one another, decide on their own whether to file a report to the Dutch financial intelligence unit, and, to stay onside of EU data privacy rules and avoid tipping off suspects, refrain from sharing the results of their investigations to the utility.

TMNL will undergo regular, independent audits to ensure the utility remains compliant with all relevant legislation and does not “stray beyond that purpose,” Hanhart said.

The project represents an additional investment in compliance by the five institutions rather than a replacement for their existing transaction-monitoring systems, which they will continue to deploy in parallel.

Rules vs. models

Banks in recent years have increasingly turned towards artificial intelligence, machine learning and other recent developments to monitor transactions, but most still rely on rules-based systems that 95 percent of the time generate “false positives”—alerts that upon review do not indicate suspicious activity.

TMNL’s designers envision that aided by AI and other current technology, TMNL will generate more sophisticated screening models based on known techniques for moving suspicious funds and also be capable of identifying previously unknown networks and patterns.

“If you implemented it tomorrow it would be 80 percent rules-based, but TMNL is forward-looking, so I expect that in a year and a half we’ll have the rules-based share going down and the model-driven share going up,” said Hanhart. “The advantage [of TMNL] is that not every bank has to develop those models itself, we can do it together.”

The project will help banks draw links between corporates that move illicit funds between their institutions to avoid detection, and, to an extent allowed by data privacy rules and expectations of client confidentiality, allow them to conduct joint investigations similar to last year’s central bank-led probe into the Dutch financial sector’s exposure to the Russian Laundromat.

Compliance officers from the five participating institutions will have the ability to discuss new money-laundering techniques discovered through TMNL, share the names of legal entities suspected of involvement in a larger, criminal scheme, and jointly build a single model for screening transactions rather than five separate and potentially disparate models.

As part of the pilot project, the five banks shared a single batch of data on one year’s worth of transactions for joint analysis. In future, data could be more frequently shared, Hanhart said, adding: “It’s a roadmap…of course we want to it to be as real-time as possible.”

While purely a private sector initiative, TMNL has received support from FIU-Nederland, the Dutch Fiscal Information and Investigation Service, the Dutch central bank and the Ministries of Finance and Justice and Security.

In December, the Dutch government launched a consultation on a bill that would authorize financial institutions to exchange details on all transactions with each other, which, if approved, would give TMNL a more solid legal footing in relation to data protection and privacy.

The bill would require regulated firms to share data on high-risk clients with each other, and also lift a ban that prevents them from outsourcing their transaction-monitoring processes.

These reforms would allow the project to expand to screen payments from other types of clients, including private individuals, and would allow TMNL take over banks’ transaction-screening duties in part or in whole, said Rijpkema, the TMNL program manager at the Dutch Banking Association.

“There is widespread support for the project from the public sector and this is very encouraging,” Rijpkema said. “I think that everyone realizes that we need to take this step together to increase the effectiveness of the entire chain.”

Contact Koos Couvée at kcouvee@acams.org