Client: Cloudera. Published on September 19, 2019 on Medium

Disrupt Pervasive and Evolving Crime Networks

Criminal networks are pervasive in their determination to identify and exploit business vulnerabilities. Their ability to constantly evolve means new approaches are required to disrupt the cycle of financial crime.

This story is the second in a series and describes how the financial services industry has evolved its approach to combating financial/economic crime as outlined in my introductory story: “The Pervasiveness of Financial Crime”. In the third and final story in this series, I will describe how we can execute proactive solutions by moving towards the next generation financial crimes platform.

Our Current Approach Is Not Working

First, the good news about our industry’s resolve to combat financial crime. We are becoming proactive as opposed to reactive. Something had to change because the standard routine has only resulted in big spending, big losses, and very little to show for it with regard to rectifying the problem.

According to a 2018 report conducted by Refinitive, “The True Cost of Financial Crime”, global financial institutions have spent $1.28 trillion over 12 months combating financial crime only to lose $1.45 trillion in combined revenue over the same time period. However, despite tighter regulation and major investment in compliance procedures, on average only 1% of criminal proceeds generated in the EU are confiscated by authorities.[1]

The problem is not a simple one because financial crime is not one monolithic target. For example, the estimated revenue loss stated above is an aggregate of six different types of crime.

What is economic crime? The table provides some context with regard to the variety of crimes that exist but they can’t be targeted in isolation because they all overlap is some way or another. Cybercrime leads to fraud, human trafficking generates funds that can by laundered and invested to support bribery and corruption. This list doesn’t include other predicate crimes such as laundering drug trafficking proceeds as a means to fund terrorism.

With regard to the rapidly-evolving nature of financial crime, new crime typologies will arise as open banking initiatives and Fintech innovations take hold to suffice ever-increasing customer demand for financial control and convenience. Payments, trading, and money management services provided by non-bank third parties on any digital (and wearable) device will open up numerous dimensions of additional risk.

The traditional and often adversarial relationship between regulators, enforcement agencies, and financial institutions is not responding to the dynamic threat horizon introduced above. Legislating tighter regulations and investing in compliance procedures has generally been a reactive exercise, while a proactive approach is required to stay ahead of the game.

The good news is that a collaborative and proactive approach to combating economic crime is underway.

Collaborative and Collective Ownership

This new proactive approach is evident in the public/private partnerships that have formed since 2015[2] to detect, prevent, and disrupt money laundering, terrorist financing, and wider economic crime threats across the globe. That is a shift from a traditional adversarial approach that pits regulators and enforcement agencies against financial institutions to a model of collaborative and collective ownership.

The “collaborative and collective ownership” approach is in stark contrast to recent press releases in which a financial institution “neither admits nor denies” alleged violations but nevertheless pays a billion-dollar fine for issues that go back five to ten years.

In the United Kingdom, the Joint Money Laundering Intelligence Taskforce (JMLIT) is one of many global examples of proactive initiatives. The JMLIT is a public-private taskforce that shares tactical information linked to several crime typologies and provides the infrastructure by which to link intelligence and response.

This effort has succeeded in filling the intelligence gaps that otherwise exist when institutions work in isolation, preparing for audits and reacting to enforcement allegations. Partnership impacts include the identification of thousands of suspicious accounts not previously known to law enforcement, the discovery of new crime typologies and patterns, and enhancements to AML processes all of which are leveraged across member institutions[3].

The broader impact of the UK JMLIT is one of collaboration, mutual understanding, and efficiency.

Collaborative and collective ownership is a two-way street, in which the regulatory and enforcement agencies must support and encourage financial institutions to take a chance on developing innovative ways to combat financial crime, as described below.

Regulators Encourage Innovation

In December 2018, a group of US agencies released the “Joint Statement on Innovative Efforts to Combat Money Laundering and Terrorist Financing”[4]. The key point in that statement is this. If, through an innovation pilot program, gaps in a current compliance program are exposed, supervisory action will not necessarily be taken. This is one instance in which regulators are encouraging institutions to explore all forms of advanced analytics (i.e.: machine learning) in order to create more effective detection systems.

Another example of innovation being fostered to combat economic crime can be seen in the “2019 Global AML and Financial Crime TechSprint” recently organized by the UK’s Financial Conduct Authority. It was a follow-up to one of the key themes that emerged the previous year relating to the importance of data and knowledge sharing among relevant bodies in identifying and impeding complex criminal networks[5] because global problems can’t be tackled at an individual firm level.

The photo nearby shows two headlines toward the bottom of the poster that reinforce the approach of collective and collaborative ownership are (1) “Solving Problem” (what we want to do) and (2) “Enhancing Our Network” (solving the problem requires us to work together).

One Investigation Launches a Chain of Events

Above I speak about “encouragement” but for regulators and enforcement agencies, “encouragement” can turn into “expectation”. With regard to cross industry collaboration, that has already happened. If we are not collaborating, the regulators and enforcement agencies already are. The table below shows the results of a recent economic crime investigation. It also demonstrates that regulatory and enforcement agencies have developed effective global cross jurisdictional enforcement regimes, often thanking each other in press releases that announce alleged infractions.

In the last row, I put emphasis on what the UK’s Financial Conduct Authority focused on. The bank did not review due diligence on a client, ignoring repeated red flags, including a blocked transaction from another bank indicating a connection to a sanctioned entity”.[6] This is an example of an intelligence gap.

Proactive Not Reactive

Collaborative and collective ownership across the industry is the only way to fill intelligence gaps. Physical behaviors, social media clues, and local law enforcement leads are a few of the data points needed to disrupt hidden crimes that permeate the global financial system.

Case in point; human trafficking is a money laundering predicate and a potential source of terrorist financing. It is also one of the most profitable crime typologies, with forced labor estimated at generating USD 150.2 billion per year as reported by the International Labour Organisation[7].

To simply comply with anti-money laundering regulations is a reactive and abstract exercise that doesn’t adequately respond to the pervasiveness and victimization of financial crime. But our industry’s proactive approach to disrupting underlying crime is a clear story of good vs. evil that will engage bank tellers, data scientists, and others throughout the organization to do their part.

Good Intentions Require the Next Generation Financial and Economic Crimes Platform

Traditional financial and economic crimes platforms limit the ability to implement our good intentions. In the next and final story of this series, I will describe what some of the technical limitations are and suggest how we can enhance current financial crime solutions to effectuate our industry’s approach to collaborative and collective ownership, using Cloudera as an example to describe the Next Generation Financial Crimes Platform.

As a preview, here are some of the capabilities that will be described:

Hybrid architecture (on-prem & cloud) with support for multi-cloud environments.
Unification of best of breed vendor solutions for cybersecurity, fraud, anti-money laundering, and surveillance.
Integration with cutting edge FinTech firms that provide unique crime detection and prevention capabilities.
Real-time streaming, embedded analytics, alerts and dynamic transaction scoring.
Holistic enterprise view of all customer and financial crime-related data, systems, models, and processes.
Industrialization of machine learning and artificial intelligence to support dynamic model updating and monitoring.
Common data & analytics platform that supports shared analytics and collaboration across specialized financial crime units.
Open source advances to ensure adoption of the latest technologies and algorithms.

For more information: