Fighting financial crime with AI – How cognitive solutions are changing the way institutions manage AML compliance, fraud and conduct surveillance: new IBM whitepaper

By Brian Monroe
bmonroe@acfcs.org
February 3, 2020

In this whitepaper from industry titan and fincrime thought leader IBM, analysts offer insight on several key trends relevant to compliance professionals pondering tinkering with technology to improve results.

The whitepaper details in broad strokes and in specific use cases how artificial intelligence can improve countering a wide array of frauds, uncover connections to illicit financial flows and better track shifting global regulations and threat vectors related to current compliance flashpoint areas such as anti-money laundering, sanctions and corruption.  

The piece is also cognizant that institutions must be an erstwhile ally of law enforcement while at the same time meeting and even exceeding the expectations of ever more nitpicky regulators – a group in recent years that has not been shy in levying record-breaking, billion-dollar-plus penalties for program failures.

The Whitepaper Highlights:

  • Fraud and compliance challenges are reaching a critical point
  • Regulators and financial institutions are changing their views of artificial intelligence (AI)
  • Top financial crime AI use cases
  • IBM point of view: Financial institutions are gaining value from cognitive
  • Checklist for the AI journey
  • Next steps: Why act on AI now?

Here is a snippet from the whitepaper:

Challenges from financial crime incidents and penalties grow

If the frequency of high-profile financial crime incidents and amount of losses and regulatory penalties are any indication, financial institutions across the globe are dealing with systemic threats when it comes to financial crime.

From fraud and money laundering to know your customer (KYC) and insider trading, these offenses can have a significant impact not only on organizations, but also on individuals and economies. They can fuel criminal enterprises and activities, including human trafficking, terrorism and drug trade.

Contrary to popular belief that governments are in a period of deregulation, penalties from the Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury – the country’s chief sanctions arm – alone have risen dramatically.

In the first five months of 2019 alone, penalties have been higher than the last four years combined, with approximately USD 1,228 million versus 812 million.

In 2017, it was predicted that fines for misconduct were expected to exceed USD 400 billion by year 2020. However, with major recent incidents, such as the Troika Laundromat money laundering scandal, that estimate may increase.

Economic sanctions have been used as political weapons since ancient times. Today, the United States, the European Union (EU) and other developed economies increasingly use sanctions to support their policies.

Yet sanctions can fuel demand for black markets, which increases the risk of costly penalties for financial institutions that are targeted by criminals moving illicit funds.

Lists of sanctioned individuals are extensive and growing rapidly. The current US list alone runs over 1,200 pages. These increases mean that firms need to continually strengthen and update their KYC due-diligence processes and controls.

To read the full IBM whitepaper, click here.