Your Money Helps Fight Crime: Using AI to Fight Terrorism, Trafficking And Money Laundering - Forbes

public sector trying to force private companies to aid its efforts at the expense of the business’ preferences. Our very expectations of the effectiveness of increased regulations tend to carry some skepticism, at best. Think of theEPA’s clean air and water regulations, which were viewed as an undue burden on private industry for years before their value (and surmountable impact to short-term business objectives) could be demonstrably proven.

Which is why I was intrigued to learn that heightened regulations of big banks after 9/11 have actually accelerated the pace of technological advancement—including the widespread introduction of artificial intelligence (AI)—changing the internal ethics and motivations of the industry itself.  The relatively recent regulations have elicited proactive responses from banks, which typically now look to help solve the problem in ways that regulatory oversight does not directly mandate or incent.

“Historically, the banking industry treated identifying and reporting money laundering as an arbitrage game,” said David McLaughlin, founder and CEO of QuantaVerse, the first company with AI solutions purpose-built for identifying money laundering and other financial crimes. The financial sector’s primary tactic had once been to assess the cost of “throwing teams of human investigators and a variety of databases at identifying suspicious transactions and hoping not to get fined” for failing to report the 50% of financial crimes this approach is estimated to be missing.

Not so today. There has been a complete paradigm shift among financial institutions, which seems particularly notable.

Banks are for-profit institutions, which need to create returns for their shareholders. Their core business is not in anti-money laundering (AML), and these AML efforts involve real expenses in terms of personnel, tools, and the potential for false-positives to negatively impact clients with legitimate transactions. From a pure bottom-line analysis, many banks had previously assessed the risk of non-compliance (and the corresponding fines) to be less than the cost of developing complex tools and processes to capture suspicious transactions.

“Since 9/11 especially, the fines and the headlines [about banks failing to identify criminal transactions] have become bigger, so the banks themselves have had to change their approach to solving the problem,” McLaughlin said.

Instead of being an unwitting tool used by terrorists and criminals, banks have become a weapon in the fight against financial crime and the tragedies those crimes pay to support.

Shifting Roles and Regulation

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As a rule, the private sector tends to bemoan greater governmental regulation. Most of us hold connotations of bureaucratic processes slowing down the pace of innovation, and several high-publicity cases of the public sector trying to force private companies to aid its efforts at the expense of the business’ preferences. Our very expectations of the effectiveness of increased regulations tend to carry some skepticism, at best. Think of theEPA’s clean air and water regulations, which were viewed as an undue burden on private industry for years before their value (and surmountable impact to short-term business objectives) could be demonstrably proven.

Which is why I was intrigued to learn that heightened regulations of big banks after 9/11 have actually accelerated the pace of technological advancement—including the widespread introduction of artificial intelligence (AI)—changing the internal ethics and motivations of the industry itself.  The relatively recent regulations have elicited proactive responses from banks, which typically now look to help solve the problem in ways that regulatory oversight does not directly mandate or incent.

“Historically, the banking industry treated identifying and reporting money laundering as an arbitrage game,” said David McLaughlin, founder and CEO of QuantaVerse, the first company with AI solutions purpose-built for identifying money laundering and other financial crimes. The financial sector’s primary tactic had once been to assess the cost of “throwing teams of human investigators and a variety of databases at identifying suspicious transactions and hoping not to get fined” for failing to report the 50% of financial crimes this approach is estimated to be missing.

Not so today. There has been a complete paradigm shift among financial institutions, which seems particularly notable.

Banks are for-profit institutions, which need to create returns for their shareholders. Their core business is not in anti-money laundering (AML), and these AML efforts involve real expenses in terms of personnel, tools, and the potential for false-positives to negatively impact clients with legitimate transactions. From a pure bottom-line analysis, many banks had previously assessed the risk of non-compliance (and the corresponding fines) to be less than the cost of developing complex tools and processes to capture suspicious transactions.

“Since 9/11 especially, the fines and the headlines [about banks failing to identify criminal transactions] have become bigger, so the banks themselves have had to change their approach to solving the problem,” McLaughlin said.

Instead of being an unwitting tool used by terrorists and criminals, banks have become a weapon in the fight against financial crime and the tragedies those crimes pay to support.

Shifting Roles and Regulation

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