Within financial services, transactional data and supplementary information are vital to the success of financial crime investigations. However, cases that lack typical business activities such as employee payroll or availability of freight receipts could be red flags that indicate possible financial crimes such as human trafficking or trade-based money laundering.
Legacy, rules-based TMS engines won’t trigger alerts if normal business activities are not present because, simply, they can’t identify what they can’t see. On the other hand, advanced data science techniques, including artificial intelligence (AI) and machine learning are new technologies at the forefront of information gap analysis which aims to identify why data and information are missing. (see examples below).
While financial crime red flags are familiar to compliance professionals, we often forget that a lack of business activity can sometimes hold untold secrets about what is actually occurring. The following are hypothetical scenarios whereby AI could identify possible financial crimes as stemming from of a lack of business activity:
- A bank’s correspondent customer reports itself to be a small Asian fishing company with two medium-sized vessels. The customer’s account includes payments to vendors, owners, and regulatory agencies. The customer’s account does not include any noticeable salary payments for the past 36 months, while other similar-sized fishing companies’ accounts reflect salary payments to international employees. The lack of payments to employees could be indicative of slavery or forced labor and should be investigated further by the bank and, ultimately, law enforcement.
- Criminals are increasingly taking advantage of global trade to move money around the globe by utilizing complex and sometimes falsified documents that are typically associated with legitimate trade. In this scenario, vendors and shipping companies create false and inflated invoices and bogus bills of lading to conceal illicit funds through a trade-based money laundering scheme. But in the spirit of “it’s a tangled web we weave, when we practice to deceive,” many of these schemes fail to show the required supporting transactions including forwarding bills, warehouse fees, customs clearing taxes, or other government fees. Through cognitive-based AI solutions, technology can understand that the lack of these transactions may indicate significant risks.
Unlike traditional rules-based TMS, today’s powerful AI and machine learning solutions can easily and quickly identify the lack of expected business activity. Predictive analytics, coupled with supervised and non-supervised learning, give compliance teams the ability to detect the absence of normal business activities which could then inform compliance departments of possible financial crime activities taking place.