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Gain Insights into Current Trends and Challenges Impacting the Financial Services Industry

Transnational Crimes Cost Financial Institutions US$1.6 Trillion to US$2.2 Trillion Annually

Guest Author

Blog By: Matthew Long, ​Director Financial Crime and Compliance Solutions

Financial crime has existed for at least as long as money has been around. We’ve come a long way from tax fraud being committed by hiding extra grain underground, but criminals still follow the same principle of anonymity and hiding.

A recent article by Global Financial Integrity reported that the combined annual value of 11 different transnational criminal markets was between US$1.6 trillion to US$2.2 trillion in 2017. A massive amount by any measure. The report looked at several groups, including the FARC, the Islamic State and the Lord’s Resistance Army, who all reportedly used criminal markets to increase personal wealth and consolidate/increase power, supported by the use of anonymous companies (i.e. companies that have obscured their ownership in order to allow beneficiaries to operate more “freely”), to help hide their identities, obscure their illicit activities, frustrate active law enforcement investigations and launder their ill-gotten gainsThe ICIJ and OCCRP have also found this to be be true in their ongoing investigations into global corruption and organized crime.​

In addition to using anonymous (shell) companies, criminals also operate in hard-to-detect areas such trade finance and correspondent banking; and take advantage of banks’ inadequate ‘know your customer’ systems and processes, all areas that are open to risk in global banking.

So how can financial institutions and those providing dependent professional services best improve their defenses and stop the criminals in their tracks?

In addition to using anonymous (shell) companies, criminals also operate in hard-to-detect areas such trade finance and correspondent banking; and take advantage of banks’ inadequate ‘know your customer’ systems and processes, all areas that are open to risk in global banking.

So how can financial institutions and those providing dependent professional services best improve their defenses and stop the criminals in their tracks?

  1. Count the grains, connect the dots and find those seeking to hide faster and more deeply with AI and machine learning  

It may seem obvious, but as criminals increasingly lean on technology and as the tech the financial services providers themselves use gets faster and more complicated, traditional armies of analysts and investigators can no longer keep pace. Transactions can happen in less than a second – and no one, no matter how dedicated, can track them that quickly.

Luckily, AI and machine learning solutions are getting to a point where they can run comprehensive analyses and complete varying degrees of automated decision-making across vast volumes of data – making the sometimes hidden connections between people and entities, and deciding on a risk value before a transaction is completed with more speed and efficiency than even the most experienced pair of human eyes. Graph technology is also on the rise within anti-financial crime solutions, as it allows for the exploration of relationships between entities of interest such as organizations, people and transactions, as well as allowing for easier entity resolution, single customer views and the  visualization of patterns and relationships, which is key in helping investigators and analysts understand what the data truly means.

The likes of graph technology, machine learning and AI are becoming vital in allowing businesses to focus their human resources more efficiently on the highest risk areas.

  1. Use regulation as a jumping-off point

Regulation is everywhere in financial services, but the fact of the matter is that regulations do not always align globally or reflect the latest sophisticated criminal threat that firms are facing. Therefore, financial services firms need to use regulations as a starting point, rather than as the end point, to ensure that their processes and rules are as up-to-date with criminal activity as possible.

  1. Collaborate for victory

With the way the modern financial system operates today, no financial institution can win the fight against the criminals on its own: it will take the financial services community coming together to build strength and resilience in numbers.

While the legal and organizational mechanisms that will make information easier are still under debate, a culture of collaboration is rapidly emerging, supported and facilitated by the regulators and investors who recognize the wisdom and importance of such an approach.

Ultimately, the interconnectedness of the global financial system means that financial crime is only going to get more complicated, far-reaching and sophisticated, fueled by the ever-increasing connectivity and made more challenging by the sheer volumes of data. However, with the right tools, the right processes and the right collaborative attitude, financial services firms can take on the criminals from a position of strength.

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