October 18, 2010, 6:25 PM ET

http://blogs.wsj.com/corruption-currents/2010/10/18/so-happy-together-aml-and-fraud-prevention/

In March, the ABA Banking Journal offered an excellent analysis of challenges financial institutions face in merging their anti-money laundering and fraud-prevention efforts.

Authors John Byrne, executive vice-president of the Association of Certified Anti-Money Laundering Specialists, and Chris Swecker, a consultant with Swecker Enterprises, described how fraud and AML developed in near isolation.

The Patriot Act and Enron-style corporate prosecutions, for instance, spurred them in different directions, with AML growing into a multi-billion dollar industry focused on customer due diligence, and banks pouring resources into fraud detection software and investigative resources.

There are cultural differences, too, the authors pointed out. AML staffers typically come from a banking industry background while anti-fraud investigators tend to come from law enforcement.

James Freis Jr., director of the Financial Crimes Enforcement Network, has been pushing banks to marry the two disciplines. In remarks Monday at an anti-money laundering conference hosted by the American Bankers Association and the American Bar Association, Freis said he’s seen plenty of happy couples, particularly in smaller banks, but he took a thinly veiled jab at big banks, many of which are struggling to integrate foreign software and technology after mergers.

"For some of the smallest banks, coordination is obvious as the same individual may wear multiple hats. But some other financial institutions would stand to benefit further in protecting themselves and the broader financial system, while also potentially reducing costs, by further exploring the synergies between AML and anti-fraud, and I hope this conference promotes that good."

He went on,

"Financial institutions are seeing benefits in leveraging their fraud resources with their anti-money laundering efforts and starting to take advantage of the significant efficiencies available through this leverage. Moreover, a corollary to leveraging anti-fraud and AML resources is that nothing should prevent a bank from multitasking regulatory tools. That is, using them for both compliance and either cost-reduction or increased profitability."

Byrne and Swecker offer an interesting parallel. Much as the balkanization of law enforcement and intelligence hindered the federal government in the Sept. 11 attacks,  revenue goals and competition created an environment in the private sector “where no business leader could afford to wait for technology solutions.”

But they’re coming around now.