Applying AI to the war on financial crime

Ik Erik Carter

The cloud is gathering around fintech as sluggish growth, rising interest rates and the crisis in the cost of living put their business model under stress, forcing job cuts and capital valuations.

ComplyAdvantage founder Charlie Delingpole knows his company is not immune to those forces, as fintechs are among the biggest buyers of his financial crime prevention products. In fact, some customers, including the Crypto Celsius Network lenders, are already down.

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But businesses – which use natural language processing and artificial intelligence (AI) to run operational compliance monitoring – are showing greater resilience, largely due to Russia-related sanctions and global crackdowns on financial crimes. To healthy needs.

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“We were the last thing they shut down before their servers,” said Delingpole, a JPMorgan Chase technology banker who experienced a long-standing need for his company’s services from the finance team. That time is tight.

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Delingpole, which changed from CEO to CEO in October, founded ComplyAdvantage eight years ago. At the time, the need for compliance oversight was already on the rise after the 2008 financial crisis, as financial institutions were severely penalized for misconduct and misconduct.

The Kremlin, as seen through the barricades

Sanctions against Moscow and the weakening ruble increase the risk of financial crime by wealthy Russians © Valery Bocman / Getty Images / iStockphoto

Delingpole thinks financial services companies and third-party data providers they rely on, such as LexisNexis and World-Check, have lost the race to keep up with ever-changing laws and more aggressive regulators.

“They have hired thousands of researchers to compile information manually,” he said. “All we did was use machine learning to gather thousands of data sources and then integrate them.”

ComplyAdvantage automates the scanning of hundreds of thousands of files to link people, companies, and illegal activities. “We do not fly to Saudi Arabia to see the corporate registration,” Delingpole explains. “We are only working on advanced AI.”

ComplyAdvantage’s growth to become a $ 50 million revenue company with 500 employees and more than 1,000 customer lists has been driven by many international trends.

Global fines for money laundering violations have increased sharply, fivefold to $ 2.2 billion between 2019 and 2020, a surge that has hit financial services companies around the world. High vigilance for future non-compliance.

The war on terror and drug trafficking has led to widespread crackdowns on global money laundering, led by institutions such as the Intergovernmental Financial Action Task Force and Moneyval, the council of European money laundering institutions.

Recently, Western sanctions on Russia following the Ukrainian invasion have undermined regulatory compliance, culminating in corporate concerns, given the extent of the restrictions imposed by the United States and the United Kingdom. EU and other countries.

“You can divide companies into two groups: companies that grow within a circle in terms of GDP. And a world-class growth company where basic drivers – ComplyAdvantage – fall into the second category, “Jan Hammer, a partner at Index Ventures, holds a 15 percent stake in ComplyAdvantage after leading a $ 30 million fundraiser. Its Series B. Round in 2018.

“We see the runway ahead is completely indispensable,” Hammer said, pointing to fraud. Digital is on the rise, while another reason banks and financial services companies want to step up the fight against crime.

All stakeholders agree that technology plays an important role in keeping bad guys out of financial institutions and trading or payment systems. “Technology is useful in identifying complex money laundering schemes for mining large data sets for terrorist financing activities and is irreplaceable for criminal cases,” said Igor Nebyvaev, executive secretary of Moneyval. And cryptocurrency. “

However, none of that means the financial industry must turn to ComplyAdvantage for technology. Financial institutions can and do create their own solutions, especially large groups that spend billions a year on technology. Also, competitors in the field of AI and machine learning may appear.

Officials are meeting

Institutions such as the Financial Action Task Force are cracking down on money laundering © Andrey Rudakov / Bloomberg

But Hammer insists ComplyAdvantage will close the market because its technology is more advanced than anything else that is or is likely to hit the market in the near future. “Content is about building relationships. . . He talks about ComplyAdvantage’s approach to transaction monitoring. “It’s really complicated math. . .[and]Then, overlaying the technology around those datasets would take years.

Marcus Swanepoel, co-founder and CEO of cryptocurrency platform Luno, says his company initially tried to develop its own system for compliance monitoring. It then tried to work with traditional service providers that relied heavily on manual processing. It finally settled on ComplyAdvantage because “it provides more accurate access and reduces false positives, thus giving our team more time to focus on the real risk-takers.”

Swanepoel says ComplyAdvantage is also easier to use than other services that Luno has tried and is developing faster. “They collaborate with us on product development, which is especially important in new industries like crypto,” he says. “Our team and developers and they are on the Slack Network together, where we can talk in real time about existing and future implementations and product roadmaps.”

When Delingpole was asked about key points in the development of ComplyAdvantage, he spoke more about the technology that had been developed over the past 12 months than about global events such as Russian sanctions.

Woman walks billboards showing foreign exchange rates

One example is a new product using AI to target “hidden risks” in operations. The tool, which is being tested by 50 customers, allows companies to detect “unclear risks” such as money laundering, which a single group may be behind, many seemingly irrelevant accounts that exploit financial institutions.

So far, the scope of the new tool has been limited to politically exposed individuals (PEPs), companies, individuals who have been sanctioned and those named in bad media reports, but Delingpole says it could eventually be broad. More than that. “The exciting work we are doing is on the graph of everyone and the company,” he says. In his view, ComplyAdvantage technology could eventually be extended to the form of links between everyone on the planet, corporate entities and other databases.

ComplyAdvantage also sells its equipment on a white label basis to other specialized companies, such as Thirdfort, which performs identity verification and “source of funding” checks for attorneys and real estate agents. “When they do penalties or PEP inspections, they are hitting our API. [portal]”These white label partners make up about a third of ComplyAdvantage’s revenue,” Delingpole said.

“There are so many different vectors of money laundering and so many types of risk in a business, it makes sense for a company to be a vital source of data,” he argues, showing that checks can be applied in all types of sales transactions. From property to private jets, paintings and luxury cars.

Olly Thornton-Berry, co-founder and managing director of Thirdfort, says the market for anti-money laundering services to legal and real estate professionals is growing rapidly. He notes that this is in line with the increased risk of fraud, increased regulation and adoption of technology. “These trends show no signs of slowing down.”

However, the road ahead for ComplyAdvantage is unobtrusive. “The main risk is the operational risk, the risk that we will not be able to distribute the products we describe to the market and investors,” Delingpole said.

Growth could also be offset by a decline in the number of fintech startups due to the economic downturn affecting financing and the failure of existing fintechs. ComplyAdvantage’s customer base is now turning to small and medium-sized companies.

An additional risk is that ComplyAdvantage will not be large enough and known enough to infiltrate the largest financial institution. “The real barrier to entry is branding,” says Delingpole in explaining why ComplyAdvantage has struggled to attract the largest financial services business. He says his team will also need to build something “many times better than them [the clients’] The current offer ”and shows that it can withstand the size.

That’s a big question, considering the multibillion-dollar technology budget that big Wall Street companies have. Delingpole, however, is confident of silence. “The bad information system we have today is better than the system adopted by many major financial institutions,” he said.

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