Use Location Intelligence to Combat Financial Crime

By Kenneth Goodwin and Paul Lashmet

Summary

Intelligence (artificial or real) is as good as the information it uses.  A higher volume of relevant information provides deeper context to a situation, resulting in heightened intelligence, increased value, and better outcomes.

Location Intelligence is a data asset that helps to contextualize a situation and can augment machine learning and other applications of artificial intelligence.  This post considers how location intelligence can be applied to regulatory compliance initiatives, specifically fraud examination and forensic audit to combat financial crime.

Fraud Examination and Forensic Audit

Fraud examination is the discipline of resolving allegations of fraud from tips, complaints, or accounting clues. It involves obtaining documentary evidence, interviewing witnesses and potential suspects, writing investigative reports, testifying to findings, and assisting in the general detection and prevention of fraud*.

Forensic audit is the process of investigation used to build a case that supports fraud examination.  It is the intersection of financial principles and the law, and therefore, applies the following:

  1. Technical skills of accounting, auditing, finance, quantitative methods, and certain areas of the law and research;
  2. Investigative skills for the collection, analysis and evaluation of evidential matter; and
  3. Critical thinking to interpret and communicate the results of an investigation.

Points 2 and 3 are particularly relevant to this post.  The collection and analysis of evidential matter needs a variety of data assets to support a comprehensive investigation.  Critical thinking, sometimes referred to as lateral thinking or thinking “outside the box,” is a disciplined approach to problem solving and guides our thought process and related actions. Critical thinking is required to contextualize patterns and connections across evidential matter.

Location Intelligence is Context

Think about where you are right now.  You may be at a specific address  If you have location services enabled on your phone, you are also located at specific coordinates relative to the rest of the world.  However, the intelligence of your location is more than that.  

The neighborhood that you are in can be characterized by demographics and consumer preferences.  It can also be described in relation to the proximity of other neighborhoods that may have similar or very different characteristics.  The people around you have mobile devices that are interacting with social media, streaming a live event, or making a purchase.  Video is capturing movement and machine sensors are analyzing usage and scheduling maintenance.  

Location intelligence applies the multiple layers of information that surrounds you.  The better you are able to logically connect these layers of information, the more location intelligence you have. 

Back to Evidential Matter

Location intelligence continues to grow as a critical component of analytics and it is being applied to more and more scenarios across industries through social media, connected devices, distributed systems, the internet of everything,  and overlaying all of that with just about any data set that can be collected.

In Financial Services, location intelligence provides an important and actionable level of information that ties together a customer profile from on-boarding to know-your-customer and financial crime investigations.  Referring back to Fraud Examination and Forensic Audit above, location intelligence can be a critical component of evidential matter.

A Scenario

  • Party A is a bank customer that, by all accounts, is squeaky clean.  
  • Party A executes a financial transaction with Party B from a place Party A has never been to before.  
  • Party B registered their place of business as being in an upscale business park, but a satellite view shows that the actual location is in an abandoned industrial area.  
  • Party B makes many transactions with Party C that very closely correlates to the sum that was originally sent from Party A.  
  • Party C is located in very close proximity to a HIFCA designated zone.  [To get a sense of what proximity risk is, look at High Intensity Drug Trafficking Areas (HIDTA) and High Intensity Financial Crime Area (HIFCA).]
 Should Party A be investigated?  It is a questionable circumstance at least.

Should Party A be investigated?  It is a questionable circumstance at least.

As it relates to forensic audit, location intelligence provides additional layers of information that tightens the interrelationship among auditing, fraud examination and financial forensics in a dynamic way that adapts to political, social, and cultural pressures over time.

Summary

Fraud examination and forensic audit encompasses much more than just the review of financial data; it also involves techniques such as interviews, statement analyses, public records searches, and forensic document examination to identify questionable circumstances.

Location intelligence can help identify transaction anomalies more quickly, verify customer place of business visually and more efficiently, and flag sensitive cross border conditions and proximity risk.  All of these are vital in securing the proper documentation needed in a robust forensic examination.


Original Post:  This is article was first published in TabbFORUM "Rebuilding Risk And Compliance for the Age Of Oversight" Spotlight Series, sponsored by Cognizant.


Notes:

* The organization’s obligation is to report suspicious activity, not to stop it by submitting a SAR (Suspicious Activity Report).  There are two levels to this:  

Level 1 - “The Sniff Test”:  A questionable activity or a correlation of circumstances are identified (“Something seems fishy here”).

Level 2 - Investigation:  A disproportionate amount of time can be spent manually collecting supporting documentation.  A good set of data access tools that links relevant data points, including location intelligence, can optimize this process, making it faster and with better quality.


Image Credits:

  • Header Photo:  © Rozkmina | Dreamstime.com - Policy, Laws And Compliance Photo
  • Diagram:  Paul Lashmet