Tackling Money Laundering with Artificial Intelligence

The Compliance Department’s of seemingly every financial institution across the globe are now faced with far greater regulatory responsibility in 2017 than they have in years past. As a result, a greater emphasis has been placed on ways to increase the speed and efficiency of the compliance-related processes that banks are subjected to on a daily basis. Financial institutions (FI’s) have made extreme efforts to reduce the amount of manpower and other physical resources required to complete compliance-related processes, as well as to achieve greater productivity and profits overall. This has meant a reliance on artificial intelligence (AI) and the development of new, cutting-edge technologies to help ease some of the burdens that have come with the global movement towards greater financial security. In many cases, these new technologies have had a significant impact on the way banks and other institutions go about tackling their anti-money laundering (AML) obligations.

In his article “Artificial Intelligence Is Already Deep Inside Your Wallet – Here’s How”, cited in BSA News Now on January 13th, 2017, Payments Journal writer Desmond Chan discusses several ways in which financial services companies today are utilizing artificial intelligence at a greater rate than ever. Chan writes that by using highly-developed AI platforms, banks now have the capability to link customer records and other data across multiple accounts (i.e. bank, credit, loans, and even social media). With this, “predictive applications can suggest in real-time the “next best” offer to keep the person happy based on their spending, risk tolerance, investment history, and debt” (Chan, 2017). Additionally, financial institutions using these technologies can now also gauge and predict customer satisfaction & interest, or potential dissatisfaction, allowing the company to appease their client before they become unhappy, or develop ways to keep the positive experience from fading.

Chan later discusses other areas where AI is positively impacting the financial services industry, such as in credit risk scoring and fraud detection, but says the biggest impact has undoubtedly been on the fight against money laundering. With the average amount of money laundered annually ranging over US$2 Trillion, the need for potent and constantly evolving AML technologies is necessary to stay one step ahead of opportunistic financial criminals. Chan discusses current screening processes, specifically rules-based filtering, and how this means of monitoring customer activity leaves FI’s susceptible to financial crime through loopholes that are created by the use of inflexible “rules.” In addition, this process has a reputation for creating a large amount of false positives, especially when considering how frequently global Sanctions Lists are updated. These false positive hits require investigation by experienced staff in order to be cleared, costing banks valuable time and manpower. Chan then explains that there is an emerging, more effective alternative to these error-prone procedures: use of AI platforms. Chan writes, “AI platforms can now find patterns that regular thresholds do not detect, and continuously learn and adapt with new data” (Chan, 2017). This reduces the amount of false-positives created and allows for investigators to better use their time, while also reducing operational costs for the company. Chan sums up this process perfectly by stating, “Suspicious activity reports are finally living up to their name of truly documenting suspicious behavior as opposed to random red flags in a rules-based system” (Chan, 2017).

The emergence of AI technologies have already altered today’s compliance landscape, and as new technology continues to develop there will be a gradual reduction in the amount of human judgment needed to analyze the financial data of bank customers. These developments have many in the financial services sector excited for the future, and with the ability to reduce costs and inefficiencies while managing unprecedented amounts of data, financial criminals will meet their most formidable foe yet in the global fight against money-laundering.

KYP – Know Your [Business] Partner

An article written by law firm Castrén & Snellman titled “My Business Partner’s Business – Not My Business?”, cited in BSA News Now on January 12th, 2017, discusses an uncommon topic in the finance industry that can have serious consequences on those it involves. The article centers on knowing your business partner, and how this oft-overlooked concept is vital to the success and longevity of companies today. Castrén & Snellman imply that many businessmen and the organizations they represent today have placed importance on making a profit above everything else, and by doing so can find themselves in hot water for failing to do their homework on who they are dealing with.

In some cases at the international level, there is no legislation requiring due diligence on business partners and planned activities, allowing companies to bypass this lengthy process in their attempts to make the largest profit possible. Writer Anne Vanhala urges companies to perform their due diligence on potential business partners, even if it is not necessary by law, for the sake of their reputation, as well as for the peace of mind this knowledge can provide to an organization’s management. In their research, Castrén & Snellman found multiple cases where financial institutions had become linked “to financing for jihadists and the mafia” by not conducting checks into their potential business partners (Vanhala, 2017). Vanhala also describes another pitfall of failing to perform these checks– dealing with “vanishing companies.” These entities have been known to collect money from the public and then vanish, in many cases with company directors not able to be traced. By performing these checks, companies can protect their assets and their reputation, and can also aid in the battle against money laundering and terrorism financing by identifying and reporting suspicious and potentially illegal activity. Ultimately, performing thorough investigations into the individuals and/or groups an organization is doing business with will only help that organization in the long run, as it will likely help to avoid the headaches that can potentially emerge down the road.

Citations

Chan, Desmond. “Artificial Intelligence Is Already Deep Inside Your Wallet – Here’s

How.” Payments Journal. Mercator Advisory Group, 11 Jan. 2017. Web.

Vanhala, Anne. “My Business Partner’s Business – Not My Business?” Lexology.

Castrén & Snellman, 10 Jan. 2017. Web.