This article is part of Kyckr’s new Future of Financial Crime Series which will feature interviews with leading industry professionals and thought leaders to learn more about the trends that will shape the future of financial crime.
The following is an interview we recently had with Doug McCalmont, CAMS, CGSS, Founder of BlocAlt Consulting LLC.
What is the state of financial crime today?
Exposed to borderless technological innovation
Today, financial services are in a period of dramatic change, I would argue a change that dwarfs the introduction of the Internet to financial services in the late 1990’s. Since that time, global commerce, communication channels, and other technological advances have provided developed economies with a much closer relationship with the developing world and vice versa. For regulated financial service firms, this “opening” of emerging markets creates an estimated one-billion-person addition to their current customer base. At the same time, providing individuals in the developing world with access to banking and investing services could grant those geographic regions with financial capital to improve living conditions.
However, the world is much smaller today than it was even 10 years ago, and computer hacking has provided economically disadvantaged regions with a tool to earn proceeds from illicit activities. The 2016 North Korean hack of the Bangladesh Central Bank is a perfect example of two countries (one aggressor and one victim), at one point significantly disconnected from the global economy, now having opportunity and exposure to be involved in an unprovoked economic heist. As we are witnessing today, the reach of bad actors into random geographic regions for illicit economic gain will continue to increase.
How has financial crime evolved over the past 5 years?
Technological sophistication
Since the advent of bitcoin in 2008, financial criminals have exploited a technology that has the potential to dramatically improve the lives of those living in substandard economic regions. Historically, criminals have always been first to adopt technological advances (organised crime’s use of the automobile throughout the 1920’s, child pornographers utilising the internet in the 1990’s, and recently purveyors of ransomware-as-a-service schemes leveraging bitcoin throughout the 2000’s). Borderless, decentralised, inconsistently regulated currencies with global recognition provide bad actors with a very powerful tool to commit cross-border “virtual” heists. Moore’s law postulates that computing power doubles every two years, and regulatory bodies should keep this in mind as they budget for their examination activities in the upcoming years. This law will see to it that criminal elements use that increase in computing power to keep ahead of financial monitoring entities that have historically struggled for funding. As technology continues to develop at a rapid rate, new and innovative ways for criminals to practice their “art” will continue to surface, forcing financial institutions to stay several steps ahead of those technological developments.
What’s the future of financial crime?
Virtual Arms race
We are in the middle of an anti-financial crime arms race. As forensic blockchain transaction monitoring firms such as Chainalysis, Elliptic and CipherTrace began to appear, bad actors started creating options that would “hide” their illicit activities from these “new generation” financial technology firms. Tumblers, mixers, and privacy coins all grew out of a need for cloaking illicit transactions. Over time these forensic blockchain firms were able to improve their systems to be able to reveal criminal activity by employing tools of obfuscation. For regulators to preserve the “integrity” of the financial services industry, they need to be able to stay ahead of developments taking place within the financial technology space. For virtual assets to contribute to the betterment of society, regulation must be consistently applied across all geographic regions. Criminal elements by nature will react to regulation in ways that permit their continued illicit operations; therefore, the future of successfully countering financial crime will depend upon the agility of historically bureaucratic regulatory bodies upping their game from “checkers” to the level of the favorite innovative strategy of “chess” utilised by global criminal elements.
