Money laundering and other financial crimes pose a significant risk to the stability of the global economy. Involving trillions of dollars, these illegal activities account for anywhere from 2% – 5% of the GDP of the international economy.
They also carry a significant human cost – a lot of the money comes from activities like drug smuggling, human trafficking, and corruption, all of which cause untold suffering to millions of people around the globe.
The Unique Challenges Posed by COVID-19 and an Economic Slump
The growth of the digital economy has made it easier for enterprising criminals to hide illegal cash flows and money laundering activities. Modern white-collar criminals use sophisticated techniques to stay out of the sight of compliance specialists and financial regulatory agencies.
And the arrival of COVID-19 induced economic recession only makes things even harder. It is a well-documented fact that recessions usually trigger a spike in financial crimes like credit fraud, phishing, and money laundering.
At the same time, regulators and compliance departments are hamstrung by lockdowns and quarantines. As work from home becomes the norm, financial institutions, corporations, and regulators may all be forced to look at new ways to augment their anti-money laundering (AML) and compliance capabilities.
How Artificial Intelligence Can Make a Difference in AML
Artificial Intelligence and Machine Learning (AI – ML) may hold the solution for this current predicament. Researchers have made significant strides in the development of smarter AI which could help government agencies, financial institutions, and large corporations combat financial crimes in myriad ways:
Improved KYC and Surveillance
Often, the best way to combat financial crime is to identify potential criminals (or known offenders/high-risk individuals) as early as possible. This is why Know Your Customer formalities exist in all financial service sectors.
With its ability to quickly analyze and match record across many databases, AI can significantly speed up the KYC process. It can also spot red flags which may be missed by a human, often due to the high volumes of repetitive work that is involved in this activity.
Improved Efficiency and Cost Reductions
At present, organizations spend millions on dollars and a huge chunk of their personnel on compliance monitoring and KYC. Increased AI deployments can benefit all AML teams and agencies in several ways.
First, it will improve the efficiency of monitoring, with faster detection and fewer false positives. And as the AI takes over the more repetitive tasks, personnel can be reallocated to higher-level monitoring of credible threats.
Identifying New Forms and Techniques of Fraud
Financial crime is constantly evolving, with newer, more sophisticated techniques and networks. AML and regulatory agencies are often a few steps behind modern cybercriminals and money launderers in this regard.
AI designed to scan financial networks and behaviour patterns could be a game-changer here, by uncovering and identifying newer typologies of fraud. This could even the playing field, giving AML specialists and law enforcement much needed intelligence and insight to catch the criminals faster.