- David McLaughlin, the CEO of QuantaVerse, talks criminal trends, AI and financial crime and compliance in a time of coronavirus in a special video version of the ACFCS Financial Crimecast.
- In some cases, the COVID-19 pandemic has crimped certain criminal groups engaged in human and drug trafficking.
- Conversely, AML alerts at some institutions tied to fraud, sanctions evasion and corruption have soared.
- McLaughlin also took time to share some tips and tactics for fincrime professionals to improve efficiency and effectiveness without a technology upgrade.
By Brian Monroe
May 22, 2020
Welcome everyone to this special video version of the ACFCS Financial CrimeCast, where we talk to many of the brightest minds in the financial crime and compliance fields to discuss the news, views and trends relevant to professionals today.
My name is Brian Monroe, VP of Content at ACFCS. I will be your host for today’s festivities.
As we are all aware, the COVID-19 pandemic has hit the world hard, with more than 200 countries and territories around the world reporting a total of nearly 3.4 million confirmed cases of the coronavirus.
The pandemic has taken lives and life savings and slowed the global economy as many sectors have shut down or instituted work from home protocols as individuals shelter in place.
Not surprisingly, this has created compliance challenges and opened the door for criminal money laundering, fraud and phishing and other scam fusillades.
For anti-money laundering (AML)and other compliance teams, they have been tasked to do more with less while at home, with some teams scattered or trimmed as some financial institutions lay off workers as transactional throughput falls.
That’s why I am excited to talk to today’s guest, David McLaughlin, about how banks are responding, in some cases through buttressing the loss of human capital through technology, to analyze compliance in a time of coronavirus.
He is the Chief Executive Officer of QuantaVerse, an artificial intelligence-infused compliance technology firm.
McLaughlin has extensive experience in leading mission critical teams to adapt and overcome challenging objectives through his military and corporate careers.
He spent six years as a naval officer, starting in 1986 as an Ensign in the U.S. Navy and attending flight school in Pensacola, FL. A graduate of the highly regarded TOPGUN program, McLaughlin also completed a combat tour in the Persian Gulf, where he was awarded the Distinguished Flying Cross and two Air Medals for bravery in combat.
Prior to founding QuantaVerse, he held senior executive positions with IPR International, NES Financial, and SEI. McLaughlin graduated from West Virginia University and received a master’s degree from Webster University.
In this more than hour-long conversation, he touched on the promise and potential of when AI converges with AML compliance, including helping overcome some of the industry’s most endemic and enduring challenges.
An AML glass half full, or empty?
As a point of context, the combined might of fincrime compliance professionals, regulators, investigators and auditors – the four pillars of the world’s countercrime edifice – only capture a fraction of a percent of the trillions of dollars in illicit finance that flow around the globe.
In the words of a longtime investigative professional before Congress, the U.S. is a “decimal point away from failure.”
One way to look at this is that as a community we have a long way to go because the criminals are mostly winning.
A counterpoint perspective: that also means there are massive areas for improvement – something AI can, and already is, helping to improve in the areas of efficiency, effectiveness and results.
McLaughlin also offered some use cases where AI can help AML teams overcome a key historical scourge to actually creating rich, relevant and timely intelligence for law enforcement: separating the criminal wheat from the swirling transactional chaff.
The current bane of transaction monitoring systems everywhere is the seemingly everpresent avalanche of false positives draining and diverting the finite resources of investigative analysts.
Pandemic alerts: frauds, sanctions surge, trafficking tumbles
McLaughlin also shared information on trends QuantaVerse is seeing across institutions that have changed as a result of COVID-19, including that AML alerts tied to fraud, sanctions and bribery have surged some 30 percent, while alerts of suspected drug and human trafficking have experienced the exact inverse, a drop of 30 percent.
Overall, however, alert volumes in the early months of the pandemic have soared by roughly 50 percent, likely related to individuals and corporates drastically changing purchasing patterns to stock up on essentials, pull out funds for themselves or others and criminals and fraudsters reaping the benefits of more aggressive cyber-enabled attacks.
In AML vs. COVID-19, make regulators, investigators stronger allies
McLaughlin also shares some tips and tactics for fincrime compliance professionals attempting keep their investigations units strong during the pandemic, including:
Human resilience: Make sure to crosstrain your AML, fraud, corruption and cyber teams with broad, holistic training so they can pinch hit for each other and more quickly and efficiently close investigations and manage alerts.
Regulator rapport, report: As AML teams are scattered and working from home, it might be a challenge to accurately risk rate transaction alerts and choose which to turn into cases and SARs.
McLaughlin advises that if a team is struggling, reach out to their examiner contacts. Regulators are able to see criminal trends and compliance gaps during COVID-19 across multiple institutions.
Investigator allies: McLaughlin also offered a powerful tip for AML professionals to help focus on where risk could be rising even as resources may be retreating: Find the number of your local DOJ, FBI and federal investigator contact and give them a call.
Investigators can help fincrime compliance professionals marshal their forces to counter where criminals are attempting to exploit.
AI, alert automation: One of the most immediate ways to strengthen AML team resources even if some team members are not feeling well is infusing AML alert management systems with automation and artificial intelligence, McLaughlin said.
He highlighted that in a bevy of instances, from customer risk ranking to transaction alert analysis, these technologies are designed to do more with less and improve efficiency and effectiveness in all areas of fincrime investigations, including AML, fraud, corruption and cyber.
Q&A, discussion points, timestamps
Here are some of the questions, timestamps and tips from the interview to help you jump around to exactly what you need:
- What criminal trends have you seen change during the COVID-19 pandemic? 2:30
- Managing false positives: 5:00
- What is the difference between transaction monitoring systems that use rules-based, and thresholds-based systems and ones that used AI, automation and machine learning? 6:30
- AI example of finding statistical anomalies with businesses transacting with each other: 9:00
- How the financial crime community is a “decimal point” away from failure and how to change that: 11:00
- The AML and investigative regimes have Patriot Act Section 314(a), for law enforcement to query and share information with banks, 314(b), for banks to share information with each other, but no 314(c), a platform or safe harbor for banks to share compliance best practices with each other: 12:40
- How are banks responding and where are you seeing them shift more resources and, conversely, what areas are they pulling away? 15:00
- How to better ally with regulators and investigators to improve resource allocation: 16:25
- FinCEN’s “free pass” on AML: 17:00
- For banks that are falling behind on alerts and cases, due to layoffs or teams under the weather, what advice do you have to help them work through the backlog? 18:00
- After the Dec. 2018 interagency statement, an invitation to innovation, are you seeing more banks breaking through the “inertia of good enough” to tinker with technology to improve results? 19:00
- With some institutions not able to outsource some of their compliance functions, how are they tinkering with technology to bridge the gap in human capital? 20:00
- How AI can take rote, repeatable AML tasks, and investigational steps, and automate them: 22:20
- Financial crime compliance resilience is a huge challenge right now. How can technology help with banks dealing with fincrime compliance and fraud investigators working from home and overall compliance business continuity? 26:00
- Creative ways to deal with the backlog, pushing the frontline to the frontline and arming customers with knowledge: 28:00
- Do you have any examples or use cases on how AI has helped AML teams better manage resources vs. alerts and improve efficiency and effectiveness? 33:00
- Statement from regulators about on invitation to innovation: 40:00
- How criminals are targeting people unemployed due to COVID-19 for scams and money laundering: 42:30
- How AI can take some of the subjectivity out of AML decision-making and alert dispositioning: 44:00
- Are there any specific prongs of the AML program that can be more immediately improved related to AI? Potentially CDD, EDD, maybe risk ranking? What other areas can AI help in AML and how can that strategy be implemented? 47:40
- Key tips to improve AML in a time of COVID-19: 51:30