Financial institutions find themselves under mounting pressuresfrom regulators to step up their anti-money laundering (AML)game, but a new report from Boston-based AiteGroup – authored in association with security company Early Warning – raises serious questions about theeffectiveness of the programs.

The report is titled: “Anti-Money Laundering: A US$2 BillionSearch for the Needle in the Haystack.”

“The crux of the issue is that banks are doing these things tokeep the regulator happy,” Julie Conroy, research director for retail banking at Aite, said inan interview.

She added, “Keeping regulators happy is not necessarily what ismost effective in the quest to stop money laundering and terroristfinancing.”

“We are seeing disconnects among the examiners,” said Conroy.“The local examiners are saying different things than the nationalregulators.”

Often, she added, “The AML regulators are fighting last year'sbattle” – that is, the techniques deployed by criminals areevolving at a brisker pace than the regulatory guidance.

In an encouraging word for credit unions, Conroy said, “I wouldnot say the big financial institutions are the best at thisnecessarily. There are a few smaller FIs that are very good

Some credit unions are a little better at collaborating acrosssilos than are bigger banks.

“There is a strong need for more dynamic and real-timedata-sharing capabilities both within and among financialinstitutions. Banks should use improvements in technology toeliminate the clunky and often bureaucratic processes thatcharacterize the sharing of data, and become more dynamic andproactive in their AML detection capabilities. Some early movers inthe U.S. market are doing this,” Conroy added in a preparedstatement.

A copy of the report is available here.