Software tool searches for money-laundering

Searchspace Ltd. Monday said the opening of its Toronto office will allow it to better serve the Canadian marketplace with its decision-automating software, including its Anti-Money Laundering solution.

Konrad Feldman,

CEO of New York-based Searchspace Corp., a subsidiary of the British parent company, said legislation like Canada’s Anti-Terrorism Act, the anti-money laundering Bill C-22 in Canada and the Patriot Act in the United States increases the need for this type of software. The Patriot Act, for example, includes a greater responsibilities for financial institutions in the event of money-laundering and terrorist financing.

“”Clearly in North America, there’s a push in the U.S. with the Patriot Act and in Canada,”” Feldman said. “”I think you’ve seen this type of legislation around the world after the Sept. 11 events of last year.””

Feldman said the company figures it can better penetrate the Canadian market with its decision-automating products, including the anti-money laundering software, fraud detection software and operational risk software, from inside the country. Financial services products, he said, differ from the U.S. to Canada and Europe. Searchspace’s British and United States-based customers include Lloyd’s of London, the London Stock Exchange and Wells Fargo.

“”Having a local presence helps us with that regular contact with the market and helps us to provide that better level of service,”” Feldman said. “”We recognize there’s a good market opportunity in Canada. As in the United States, Searchspace will sell its software directly as well as through IBM Global Services, which Feldman said offers a depth of expertise and existing relations with major financial services companies.

While financial services companies remain the prime market for Searchspace and competitors like Mantas Inc. and America Software, a 2001 Gartner report predicts their applications will find a home in other markets. By 2005, the report says, money laundering detection and reporting software will include Internet-based access and customer relationship management capabilities.

Searchspace’s software already uses artificial intelligence, statistical analysis and data management techniques to learn about the transaction environment and its usual patterns and to monitor transactions and isolate “”unusual or risky”” occurrences therein.

A component of the software called a Sentinel looks out not only for transactions that by their nature stand out but also for those that simply veer from the adaptive customer-specific analytical models.

“”One of the golden rules in detecting crimes is never rely on one method,”” Feldman said. “”The mechanism we use is to apply a range of complimentary technologies that are adaptive.””

University of Toronto computer science professor Graeme Hirst said it would be difficult, if not futile, for someone to try to crack a well-designed A.I.-based system.

“”A good system will be looking for just about anything that’s fraudulent,”” he said, meaning that any activity that could be profitable would be detected.

Hirst said a system’s effectiveness will depend on how well it is designed and what it is programmed to do — how valuable a transaction has to be for it to be detected.

“”Anybody who knows exactly what it’s looking for could fly in under its radar,”” he said. Then again, “”if the transfers are below a certain value, perhaps it’s not worth it.””

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