Bank Outsources to Catch Launderers

Catching money launderers might sound like an exciting covert operation, but it is an onerous, labor-intensive task.

Catching money launderers might sound like an exciting covert operation, but it is an onerous, labor-intensive task. In the United States, banks and other financial institutions must report illegal cash transfers to authorities, and this task requires them to have automated systems to detect suspicious activity and to have a sizable staff to pursue leads.

Even the best money-laundering detection systems produce many false positives, wasting a lot of valuable staff time on wild-goose chases.

One major U.S. bank recently decided there was a better way. Rather than grappling with these time-intensive processes in-house, it decided to turn them over to a third party, Kanbay International Inc., which was already handling many of the banks other back-office IT functions from a staffing center in India.

Kanbay, an offshore outsourcer specializing in financial services, developed a computer algorithm for identifying money laundering. The algorithm dramatically decreases the number of false leads. Not only does the bank save money on labor costs (salaries in India can be as low as one-quarter of those in the United States), but its also able to reduce the number of hours applied to this activity.

As with many financial institutions that have been increasingly outsourcing back-office activities, the bank that used Kanbay to build a better money-launderer trap was willing to speak on the record—but without being identified. The reason: the passions that outsourcing invokes with the public, especially among American IT workers. Because of that, company executives think long and hard before outsourcing IT work offshore to be sure business benefits outweigh any public relations tarnish.

The work that U.S. companies are sending overseas is increasingly high-skilled and highly specialized. Commercial and investment banks, as well as insurance and credit card companies, are fueling a surge in demand for overseas labor, and analysts say they do not expect a slowdown any time soon.

"Very quietly, a handful of Indian companies have developed expertise in financial services," said Virginia Garcia, an analyst with TowerGroup, in Needham, Mass., which tracks outsourcing trends across several industries. "It began very much as an issue of cost pressures on the budget. However, today the emphasis is not on cost as much as it had been."

Kanbay is based in Rosemont, Ill., but has 80 percent of its staff in India. The company said its total revenues jumped 70 percent between 2003 and 2004, with the growth coming from both new and old clients.

Jean Cholka, the head of global client management at Kanbay, said that the company conducts extensive in-house training to get employees up to speed on the high-tech needs of financial institutions but that it sometimes takes training from its client companies as well, so it can better customize its services.

While the benefits of outsourcing basic back-office jobs to a cheaper location overseas can seem obvious, outsourcing in financial services pays double dividends. An industry that has always depended on computers, advanced software and skilled IT labor to store sensitive customer data and handle transactions securely, financial services has long recognized technology as its backbone.


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"Technology is very strongly integrated with financial services," said Sumedh Mehta, vice president of financial services at Patni Computer Systems Inc. Based in Cambridge, Mass., the company also has most of its staff in India.

TowerGroups Garcia said that disparaging media reports notwithstanding, there is no such thing as 100 percent offshore outsourcing, since any company that uses overseas labor requires in-house staff to support the operation. She suggested that in an environment where any fairly large business is already doing business globally, the term "outsourcing," which implies a stark separation of duties, is a misnomer.

"Tell American Express [Co.] that it is guilty of offshore outsourcing," Garcia wrote in a research report last year. "The company has been sending all kinds of IT and processes to India. Company representatives could tell you that American Express has been doing business in India since the 1920s, is a global company and therefore sources globally." Noting that the same could be said of most other leading U.S. financial institutions, from Citibank to Morgan Stanley, Garcia suggested that the term "global sourcing" is more appropriate.

Andrea Orr is a freelance writer in San Francisco. She can be reached at


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