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AI: A vital ally for financial crime compliance and enforcement

Create clarity in AI in AML implementation by focusing on a unique blend of expertise, data training and mitigation methods to prevent bias seeping in.

Ruben Tan
September 14, 2023

In the dynamic landscape of financial transactions, the battle against money laundering has intensified. With the sheer volume of data pouring in from various sources, anti-money laundering (AML) investigative teams including law enforcement agencies who work closely with the reporting unit on a suspicious financial crime, face an uphill battle in distinguishing the right signal from noise. Amidst the excitement and wonder surrounding AI's capabilities to be a potential ally that transforms the way AML processes are executed, there are some challenges and considerations that must be carefully navigated.

Data overload and the search for clarity

The modern financial world generates an overwhelming amount of data, with the move to digital, a growing mobility of goods and services and an increasing amount of cross border transactions. The value of cross-border payments is estimated to increase from almost $150 trillion in 2017 to over $250 trillion by 2027, a rise of over $100 trillion in just 10 years. For
AML teams, this means sifting through mountains of transactional data to identify suspicious activities. The sheer volume makes manual analysis impractical and prone to human error.  

This is where AI comes in. AI can process data at a scale beyond human capabilities, as the models are tuned to discern patterns of money laundering among the noise.  

Expertise, the human bias and the data conundrum

AI's efficacy hinges on its training data. The machine learning models driving AI are only as good as the data they're trained on. In the context of AML, this means that the training data must be comprehensive and representative of the various money laundering typologies. This data-driven approach is critical to ensure AI can accurately identify money laundering schemes just like a human would, albeit on a far larger scale.

However, there is also another layer of concern – the potential for human bias to seep into the machine learning models. The individuals designing and training AI models might inadvertently introduce bias based on their own perspectives. This necessitates careful consideration and mitigation strategies to ensure that AI remains impartial and does not perpetuate existing biases.

This calls for domain experts who play a crucial role in counteracting bias and enhancing AI’s accuracy. They possess the contextual knowledge required to fine-tune AI models, ensuring that they accurately reflect the complexities of real-world financial transactions.

As such, financial institutions rely on hiring the right people (e.g. a multi-disciplinary data science team) to build the models that they need. The challenge however, lies in finding them – the experts with the know-how to decipher and interpret the output of these models, to evaluate their accuracy for the purpose of tackling financial crime risks.

The crucial element of explainability

An important aspect to the use of AI, regardless of their effectiveness, is the idea of explainability. The results generated by AI must be understandable by an external observer with no knowledge of the AI's inner workings. Many AI vendors tout their solutions' efficacy, but few can offer explainability, which requires an additional layer of engineering. This raises concerns, as regulatory bodies require transparency in AI-powered decision-making to ensure accountability and fairness.

Navigating fuzziness with AI

Another common challenge faced by financial institutions is managing the "fuzziness" in detection algorithms. A fuzzy algorithm returns results based on likely relevance (or probability scores) but not necessarily an exact match. Distinguishing false hits from true hits, encompassing both false positives and false negatives, requires a more nuanced approach. It is worth noting that even though AI itself works on probabilities, it can assist with managing this fuzziness. But before that, AML teams or financial crime investigative teams must ensure that they have the necessary toolset and domain expertise to identify and interpret these hits effectively.

Napier's innovative approach

At Napier, we employ AI as an assistant to empower AML teams to identify suspicious transactions with an explanation, with accuracy, and efficiently. We recognise that AI should augment, not replace, human expertise. The use of AI comes into play once AML teams have built a strong foundation of domain knowledge. This synergistic relationship between AI and human experts ensures that AI operates as a valuable tool for streamlining manual processes and improving risk management.

To reiterate, AI complements the expertise of compliance officers and requires human oversight to comply with legislation.

Bridging the gap: challenges and opportunities

In many regions, the challenge lies in the technical deficiencies of critical legacy infrastructure. The reliance on faulty technology that cannot keep pace with the rise of transactions, remains siloed, and does not give a full view on risk, underscores the need for regulatory interventions. AI, as a cutting-edge technology, presents an opportunity to bridge this gap. Institutions must prioritise technological competency and invest in robust systems that align with regulatory requirements.

In conclusion, AI is more than a mere trend in the realm of anti-money laundering; it's an essential ally. With careful consideration of data, expertise, bias mitigation, and the synergy between AI and human intelligence, financial institutions can harness the transformative power of AI to enhance their AML efforts. Napier's innovative approach exemplifies the potential for AI to elevate AML processes while recognising the indispensable role of human expertise. As the financial landscape continues to evolve, embracing AI as a necessary technology ally is not just a choice; it's a strategic imperative.

Weave AI into your AML systems with this 12-step guide on the optimal path to implementing AI into your financial crime compliance:

This eBook guides you through our experts’ recommended process for AI implementation, addresses some of the most common pitfalls and challenges financial institutions face in this journey, and assesses the current regulatory landscape around the use of AI.


Photo by Robynne Hu on Unsplash

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