Financial Crime Wave – More banks, regulators eyeing AI to boost AML, Airbnb laundering, and more
Wednesday, November 29, 2017
Posted by: Brian Monroe
By Brian Monroe
November 29, 2017
In this week’s Financial Crime Wave, a look at how banks and regulators are using artificial intelligence and machine learning to strengthen compliance programs while lowering costs, Russian criminal groups are looking to Airbnb to monetize stolen credit card data, launder money, the U.S. congress tackles how to improve the nation’s defenses against illicit actors and terrorists, and more.
More banks, regulators looking to AI, machine learning to strengthen AML compliance, increase efficiencies, lower costs
Annual worldwide AI revenue is projected to grow from $644 million in 2016 to $37 billion by 2025, with top use cases including algorithmic trading strategy performance improvement; static image recognition, classification, and tagging; efficient, scalable processing of patient data; predictive maintenance; content distribution on social media; managing big data and parsing out more precise suspicious activities in the areas of financial crime and compliance; and more.
The financial services industry is no stranger to machine learning – a number of large institutions continue to successfully implement the technology across such areas as risk analytics and regulation, customer segmentation, cross-selling and upselling, sales and marketing campaign management, creditworthiness evaluation. Among institutions that are applying machine learning are BBVA, JPMorgan Chase, HSBC, OCBC, and many more. McKinsey reports that in Europe, more than a dozen banks have replaced older statistical-modeling approaches with machine-learning techniques, including in the areas of anti-money laundering compliance, customer risk scoring and KYC processes, (via LTP).
AI, advanced data analytics can help in fight against fraud, increasingly creative criminals
Fraud-related offenses continue to pose a significant threat to our economy, as criminals seek to trick companies and citizens out of their hard-earned income, a growing challenge that can be better tackled when employing more advanced artificial intelligence and advanced data analytics, say experts. According to the FTC, there were more than 3.1 million consumer fraud complaints received in 2016. Organizations of all sizes, including financial institutions and corporations, must surmount various challenges and risks as a natural course of business, with fraud being one of the biggest. According to a 2016 fraud study by the ACFE, the average organization loses an estimated five percent of its annual revenue to fraud, potentially in the trillions of dollars globally.
However, as criminals become more advanced and adjust their techniques, identifying fraud can become increasingly difficult. Technology can help tremendously, but legacy data surveillance solutions are unable deliver the insights needed to effectively uncover suspicious activities and, ultimately, identify new types of fraudulent activity. Advancements in data analytics and artificial intelligence (AI) provide organizations with the ability to efficiently address multiple and complex fraud cases. When it comes to uncovering fraud, AI is particularly useful in identifying complex patterns and anomalies hidden in the data. By employing a set of AI agents to query a firm’s core accounting/finance system, travel and expense reporting system, trade finance data, third-party vendor lists, and internal e-mail systems, AI and machine learning solutions can detect and report activities that are anomalous to typical patterns indicating the possibility of fraudulent activity whether occurring internally or externally, (via Quantaverse).
House Committee holds hearing on how best to tackle human trafficking, terrorism
The House Financial Services Committee held a Joint Hearing Wednesday at 2 p.m. entitled “Legislative Proposals to Counter Terrorism and Illicit Finance.” The hearing covered several legislative initiatives to better stop human trafficking and terrorists and their financiers. Some of the speakers included:
· Daniel H. Bley, Executive Vice President and Chief Risk Officer, Webster Bank, on behalf of the Mid-Size Bank Coalition of America
· William J. Fox, Managing Director, Global Head of Financial Crimes Compliance, Bank of America, on behalf of The Clearing House
· Stefanie Ostfeld, Deputy Head of US Office, Global Witness
· Chip Poncy, President and Co-Founder, Financial Integrity Network, (via the U.S. Congress).
Congress, fincrime compliance experts meet to update, modernize U.S. AML laws to better counter criminals, terror groups
The United States hasn’t made substantial changes to the country’s anti-money laundering laws since the 9/11 attacks. Criminals and corrupt powerbrokers launder $300 billion in illicit funds through the U.S. each year. All of the combined efforts of banks, law enforcement and regulators only account for a fraction of decimal point in actual confiscated criminal assets.
Those are just some of the stark realities members of Congress, current and former government investigators and financial crime compliance experts came together to tackle Tuesday during a U.S. Senate Judiciary Committee hearing about a legislative proposal to update and modernize the country’s AML laws. The hearing included top officials from the U.S. Department of Justice, the U.S. Treasury’s Terrorist Financing and Financial Crimes Unit along with private sector thought leaders in the areas of anti-kleptocracy, illicit trade finance and virtual currencies, (via the U.S. Congress).
Saudi corruption purge continues
After arrest in broad corruption crackdown, Saudi prince freed after paying $1 billion to settle charges of embezzlement, influence peddling, (via Reuters).
In fight against grand kleptocracy, big data analytics critical
Fighting bribery and corruption: How advanced analytics can help auditors, (via Information Age).
Finra hits trading arm of largest U.S. bank for scrimping on background checks
The Financial Industry Regulatory Authority (Finra) this week fined J.P. Morgan Securities, LLC $1.25 million for failing to conduct adequate background checks on approximately 8,600, or 95 percent, of its non-registered associated persons from January 2009 through May 2017, (via Finra).
U.S. Treasury levies guidance, not fine, against maritime firm violating Iran sanctions rules
OFAC issues finding of violation against maritime company for breaching Iran sanctions rules tied to creating MOU, contingent contract, with blacklisted Iranian tanker company, (via OFAC).
New Indian bank banking on strong KYC to bring in customers
New Paytm Payments Bank in India pledges $500 million to know-your-customer provisions, aims to capture unbanked population, (via Inc 42).
Compliance officers in Atlanta use AML training to launder $40 million in illicit drug proceeds to Mexico
New federal convictions show that one drug cartel in the Metro Atlanta laundered more than $40 million over three years through wire transfers from small local remitter businesses to destinations in Mexico, with anti-money laundering officers using their knowledge to evade reporting requirements and coach criminals. Some of the defendants were so helpful to the money launderers that they gave advice on where to sell drugs and launder the proceeds, according to prosecutors.
“One defendant, who served as a store manager and BSA/AML compliance officer, even gave an undercover officer tips on where to sell drugs in Atlanta,” according to court documents. Another defendant, who also served as a store manager and BSA/AML compliance officer, offered to provide a cooperating source help on obtaining fake identifications so that drug proceeds could be transmitted to Mexico undetected,” (via The Saporta Report).
Russian criminal groups using Airbnb, hosts to launder money from stolen credit cards
Russian crime forums have been using Airbnb, the home-sharing service, to shuffle around cash under the table, sometimes with the help of legitimate Airbnb hosts, in a bit to launder the ill-gotten gains from credit card from and other data breach and identity theft scams. Scammers are leveraging Airbnb to launder dirty cash from stolen credit cards, according to posts on underground forums. The news shows how fraudsters will seize any opportunity they can, especially when there is an opening for pushing cash through online services, which sometimes require relatively little effort, a computer, and just a bit of creativity.
The Daily Beast found a number of recent posts on several Russian-language crime forums, in which users were looking for people to collaborate with to abuse Airbnb’s service. These operations rely on an individual or group using legitimate or stolen Airbnb accounts to request bookings and make payments to their collaborating Airbnb host. The host then sends back a percentage of the profits, despite no one staying in the property. In essence, it’s a way to extract value out of stolen credit cards, (via the Daily Beast).
French authorities charge Russian billionaire, senator with money laundering
Suleiman Kerimov, a Russian billionaire and senator and part of an influential family holding sway over Russia’s gold trade, was charged with laundering money gained through tax fraud in Nice and prohibited from leaving the French region after being detained by authorities for two days. Kerimov, whose family controls Russia’s biggest gold producer, Polyus PJSC, was required to surrender his passport and post 5 million euros ($5.9 million) in bail, Nice prosecutor Jean-Michel Pretre said by phone Thursday.
The Kremlin vowed to defend Kerimov, and a top parliamentarian warned the move may be the start of a “witchhunt” in the West against Russia’s elite. The case is a blow to one of Russia’s wealthiest men, a billionaire who’d spent years cultivating his reputation and financial ties in the West. In Russia, he’s also a prominent politician with close ties to top officials in the government and state companies, (via Bloomberg).
New data points reveal surge in young people acting as “money mules,” mostly through sham social media posts
The statistics reveal a 75 percent increase in the misuse of bank accounts involving 18 to 24-year-olds during the first nine months of 2017, compared to the same period last year. This is where an account, policy or product is misused by the genuine account holder. The most common example of this is when an individual acts as a “money mule,” meaning they allow their bank account to be used to facilitate the movement of criminal funds. Young people and students are particularly vulnerable as fraudsters know they are often short of cash.
Criminals may approach them with what looks like a genuine job offer, asking them to receive money into their bank account and transfer it onto someone else, keeping some of the cash for themselves. They can approach them through social media and online job postings. There were 8,652 cases of ‘misuse of facility’ cases amongst 18 to 24-year-olds between January and the end of September this year. The 2017 figures also demonstrate a dramatic rise in money mule fraud over the last five years, with cases involving 18-24-year-olds more than doubling since 2013, (via CIFAS).
Miami export company convicted on money laundering charges
Miami import-export firm convicted of money laundering in $100 million scam, (via the Maryland Morningside).
Is Delaware turning over a new leaf on beneficial ownership blockade?
In a rare move to rein in secretive limited liability companies, Delaware's secretary of state has tweaked a policy that would require the state's 1.3 million business entities to be regularly screened against a federal database of terrorists, international drug traffickers and more, (via Delaware Online).
10 tips to help nudge employees to care about cybersecurity, improve data defenses
Cybersecurity threats at a global level are increasing. According to Cybersecurity Ventures, global annual cybercrime costs will grow from $3 trillion in 2015 to $6 trillion annually by 2021. Moreover, it is not just computers that are being targeted. The growth of smartphones and Internet of Things devices is opening new destructive avenues for cybercrime. Hence, it is projected that cybersecurity spending will exceed $1 trillion globally over 2017 to 2021. Here is a snippet of 10 tips:
- Create Cyber Awareness: Incorporate a cybersecurity awareness training for employees in the onboarding process to ensure every employee is aware and acknowledges the threat. Organise computer security training for employees with periodic refresher courses.
- Provide “Live Fire” Training: This is a live simulation of a cyberattack outlining the course of action to be taken by various affected and unaffected parties. Share information on the escalation matrix, when to report what, and who is to play what role depending on the type of attack. This live training helps employees learn better so that they can better tackle such an incident.
- Communicate: Build a continuous communication campaign through various channels- emails, street plays, bay walks, notices, videos etc. Talk about what cybersecurity is, types, impact, etc. to prepare people for an event, (via Business World).
Cyber a key focus for companies in 2018
A look at how and why cybersecurity will be the focal point for many jobs in 2018, (via The Market Mogul).