WorldCity Business Magazine

The hunt for dirty money

by Mary Dempsey

Few eyebrows will lift with the news that multinational Experian, a banking software company, is poised to release new anti-money-laundering technology. After all, the fight against dirty money is as fierce as ever. What may be surprising, however, is the origin of the software: a little office in Miami.

Americas Software Corp. opened its doors in 1985 as a homegrown software developer. A year ago, in a Cinderella story, the fast-growing Miamicompany was purchased by global giant Experian, which posts $2.5 billion in sales annually.

“We went through an incredible acquisition,” says Ronald Cadario, formerly a minority owner in Americas Software and now vice president of Experian’s anti-money-laundering unit in Miami. “Every single employee that was with the company at the time of the acquisition is still in place. This is a very young, fast-growing, dynamic company. You’re going to be hearing a lot about us in the near future.”

You may be hearing about the Miami team sooner than you think. Frank Caruana, director of product management in Experian’s U.S. headquarters in Costa Mesa, Calif., says the company will soon unveil new antimoney-laundering compliance products. He declines to give details until a formal announcement is made, but he acknowledges that “most of the products were initiated in the group in Miami.”

At the time of the Experian acquisition, Americas Software was a profitable company with 30 employees and an impressive 420 customers in 30 countries. Now part of Experian’s fraud unit, the Miami office continues to develop compliance software for banks, insurance companies and brokerdealers around the world. It also oversees sales efforts in Latin America.

Defying the Odds

When tech entrepreneur John Daly founded Americas Software two decades ago, he had a radical notion: PCs were the way of the future. “I started working on applications for PCs and I came up with some banking software in 1986 and 1987, but I couldn’t even give it away,” he recalls. “No one would believe that banks could run with PCs.”

His first successes came outside the United States, with offshore banks in Panama and the Bahamas. Over time, the scope of his applications expanded to include scanning systems and software to clear international transactions. Eventually, South American banks came on board and the company began to thrive.

Daly hired three employees to help with software development and turned his attention to bank secrecy and compliance with money-laundering regulations. He laughs when he remembers how secretive banks were about even discussing anti-money-laundering software, fearful that outsiders would think they needed it. “Today everyone wants to throw out a banner and let you to know they have these systems,” Daly says.

The breakthrough came in 1997, when Daly was able to persuade Citibank’s private banking arm to buy Americas Software technology. The banking conglomerate also installed the system in Confia, the insolvent Mexican bank that Citibank had acquired a year earlier. U.S. officials had accused Confia of money-laundering.

Ahead of the Curve

“Daly had a great vision as to what was required. He’s been around banks for a long time and he knew what tools were available. He came out with a remarkable product,” says Augustin Abalo, vice president and CIO in Miami for Spain’s Banco Santander, the world’s ninth largest bank when measured by market capitalization. Globally, Santander has more than 100,000 employees and a market value of nearly $78 billion.

“Santander was one of Americas Software’s first clients,” says Abalo. “Now almost everybody in Miami uses the software.”

The United States implemented the Bank Secrecy Act in 1970, requiring financial institutions to report cash transactions exceeding $10,000. But it was another 16 years before the first Money-Laundering Control Act was put in place. By the 1990s, U.S. regulators had started to look at the ties between money-laundering and international drug trafficking and the focus turned to banks in countries where drug-running was a problem. Latin American banks in Miami topped the list.

“It was much easier for the bad guys to do these transactions in New York, in big banks with huge volumes of transactions. Still, Miami banks were under tremendous scrutiny,” says Abalo, who recently ended a year-long term as president of the Florida International Bankers Association, or FIBA. One of those Miami banks was Bolivia’s Banco Santa Cruz. Cadario had moved through the ranks at Santa Cruz to become its compliance officer, and he was searching for technology that would flag unusual or suspicious transactions the exact system that Daly was developing.

“On Brickell, regulators focused on Bolivian banks, Peruvian banks, Colombian banks banks coming from countries with drugs. There were never any problems at Banco Santa Cruz but the management of the bank wanted to make clear to everyone that its house was in order,” explains Cadario. “Americas Software was the only place we could find what we needed. We became a showcase for Americas Software.”

In 1997 during an acquisition sweep across Latin America, Spain’s Santander acquired Santa Cruz. Cadario joined Americas Software.

One Part of the Solution

With time, banks increasingly turned to technology companies to keep them in compliance with ever-tightening federal regulations. Passage of the Patriot Act fueled even greater demand. Research by international financial services consulting firm TowerGroup concludes that mid-tier banks were shelling out about $250,000 to $500,000 for anti money-laundering technology. For big banks, the bills were in the millions of dollars.

With laundering estimated to affect as much as 5% of the world’s GDP, or up to $1.5 trillion annually, the anti-money laundering industry flourished. The main software vendors included Mantas, headquartered in Fairfax, Va., and New York’s Searchspace. But throngs of other companies, many of them startups, started to crowd the field.

“There is an army of software companies that will happily sell a financial institution a system to combat money laundering,” says Saskia Rietbroek-Garces, executive director of the Miami-based Association of Certified Anti Money-Laundering Specialists. “In 2002, we estimated that the [total] amount spent by U.S. financial services on this kind of technology was $120 million. That was a 100 percent increase over how much was spent before 9/11. And now there’s a zero-tolerance policy so the expenditures are growing even more.”

Industry analysts and bankers agree that technology is not a stand-alone answer to the problem of dirty money. Banks must also know who their customers are and regulators and consultants must be able to follow complicated transaction trails. Nevertheless, technology is the single-most powerful tool available to financial institutions.

“On a daily basis, hundreds of thousands of transactions may be flowing through a bank. You can’t check all those transactions manually. It would be like looking for a needle in a stack of needles,” says Rietbroek-Garces. “Technology is a vital part of any successful money-laundering program.”

At one point, money-laundering was almost exclusively linked to drug-trafficking. Over time, it became associated with kidnapping and then terrorism. Rietbroek- Garces says regulators watch banks in South Florida for yet another reason. “They’re looking for corrupt money from Latin American former heads of state who try to open bank accounts here,” she explains.

Riggs Bank, headquartered in McLean, Va., was fined by federal regulators after it came to light that former Chilean dictator Augusto Pinochet hid millions of dollars in its accounts, including in its now-closed branch in Miami. In June, the office of Chile’s attorney general asked a U.S. District Court to force four Miami banks to turn over records in an ongoing investigation of Pinochet holdings. Breffni McGuire, senior analyst in the global payments practice at TowerGroup, says an acquisitions wave started about two years ago with big technology companies buying up small, innovative software developers in a bid to broaden their product lines while demand was high.

Last year, when Experian showed interest in acquiring Americas Software, Daly says he was both flattered and wary. On the street, Experian is best known as one of the credit record companies, along with Equifax and TransUnion. But the massive multinational offers a wide range of financial products and services.

Americas Software’s high-profile client list appealed to Experian, as did the quality of the software. Daly recognized that “it required a company with much greater resources than an entrepreneur can offer to take Americas Software to the next level.” So little Americas Software became part of behemoth Experian.

Cleaning Up

Cadario projects annual growth in the “30 percent to 40 percent range,” adding that his unit expects to benefit most from sales to mid-sized financial institutions and small community banks. Geographically, Europe and Latin America should see the biggest growth. “In Latin America, we will be dealing with big players,” he says.

Already Panama has become a hot market for Experian. In 2000, Panama became one of 15 countries blacklisted by the Financial Action Task Force, or FATF, for failing to cooperate with anti-money-laundering efforts. A year later, after tightening regulations, it made its way back into the good graces of the international agency. “Panama got off the black list and it wants to stay off,” Cadario says.

Chile, too, has been putting greater emphasis on compliance. Although Chile long has had anti-money-laundering regulations in place, enforcement in the past was not always stringent.

Experian’s Miami office is well-positioned to pursue Latin American banks, both in the region and closer to home on Brickell Avenue. Still, the company isn’t alone in the market. “In Latin America, you see a company pop nearly every week. There are a lot of small companies competing with us there. But we’re banking on the fact that financial institutions will be cautious about companies that have no proven track record,” says Cadario. “That’s where Experian’s strong reputation will help.”