Technological innovations like cryptocurrency have made it easier than ever for criminal networks to conceal money laundering and other financial crimes. How can banks and law enforcement harness these same technologies to regulate financial activity and root out illegality?
That challenge was the focus of the panel on “Artificial Intelligence and Cryptocurrencies – Fighting Corruption and Money Laundering in the Digital Age” at the 19th International Anti-Corruption Conference.
New financial technologies are a “double-edged sword,” said Carola Frank, the moderator of the panel. “New risks are emerging, as well as new ways for criminals to launder and hide the proceeds of crime. But technological innovations can also make the fight against illicit financial flows way more effective and efficient.”
Oleksiy Feschenko from the United Nations Office on Drugs and Crime explained how cryptocurrencies had been used not only in money laundering but also terrorism, ransomware, child pornography, Ponzi schemes, and tax evasion. “All of this now is very nicely executed with the help of cryptocurrencies,” he said.
Cryptocurrency is popular with criminals because it is anonymous, with governments and banks having little regulatory power. “Every country needs to supervise and regulate the sector,” said Verónica Boza Santaolalla, the director of strategic analysis at the Financial Intelligence Unit of Peru. “We need to treat this sector like any other financial institution.”
Investigators also need to learn to fight fire with fire by using technology to aid their investigations. “Artificial intelligence can really help foster innovation in the anti-money-laundering sphere and help prevent financial crime,” said Stefan Raul from Hawk: AI, a Munich-based start-up.
Most banks typically rely on “rules-based methods” to flag suspicious transactions, which are then investigated one-by-one by a compliance officer. This method generates a considerable number of false positives and is easy for criminals to outsmart. “Rule-based methods do not learn from account holders’ behaviour,” Raul explained.
Hawk:AI is using artificial intelligence to detect money laundering and other illegal transactions. “If you want to do with classic rules what AI is able to do, you need thousands of rules, which is not realistic,” he said. “You would have to adjust these rules every other day or week manually. This is something the AI does.”
Raul also said information sharing between the public and private sectors was key to detecting financial crimes and lauded as a model for the successful cooperation between the UK’s financial intelligence unit and the banking sector.
Boza Santaloalla explained how Peru’s Financial Intelligence Unit has both built a centralized information-sharing system and used AI to aid investigations. “The use of AI to support entities in the fight against money laundering and terrorist financing is extremely important,” she said. “By facilitating human resources to concentrate on the most complex tasks, significant impacts can be achieved in the fight against money laundering and terrorist financing.”