As part of our Future of Financial Crime Series we interviewed top industry professionals and thought leaders to learn what trends are shaping the financial crime landscape today and what to expect for the coming years.
Here is a recap of the best answers to our question:
What’s The Future of Financial Crime?
Jannies Burlingame, CPA,CRMA, Chief Financial Officer at Aptera Motors
Businesses will likely experience increased instances of attempted cyber-attacks in this age of ransomware, phishing, and data breaches. The dynamic financial crime world can be described as VUCA, a term used to conflate the four distinct types of challenges: volatility, uncertainty, complexity, and ambiguity. Businesses face environments where change is the only constant. Benjamin Franklin’s adage, “An ounce of prevention is worth a pound of cure,” would be the best philosophy to employ when faced with mitigating financial risks.
With the convergence of lines between physical and digital transactions, companies need to leverage smart mechanisms to properly manage the complex landscape. A wise imminent step would be to utilise innovative technological capabilities such as artificial intelligence (AI) and machine learning (ML). Absent advanced resources, there are practical tips for those who chose to engage in preventive measures and safeguard against financial crime. For example, ensure properly authenticated passwords, performing security assessments, ensure proper incident response planning, conduct cybersecurity awareness training, and control access to data.
Adam Elliott, President and Co-founder of ID Insight
I think we will continue to see exponential growth in attempts and organisation. As those attacks are identified, we will again see a return to the much less sophisticated attacks. We have seen this cycle repeat itself many times.
In the world of fraud, the fraudsters always seek out the systems of fewest controls and exploit them. When the EMV chip card was announced to launch, counterfeit card fraud exploded. When EMV was fully rolled out, counterfeit pretty much went away. What this means is that you cannot lower your defenses on fraud controls that were once in vogue as the fraudsters will seek out those old avenues when the new avenues have a roadblock put up.
Also, I am very curious how fraud will manifest itself with regards to biometrics. Biometrics is now a normal part of our daily routine. Financial Institutions are in the middle of a mass migration to facial recognition software and driver’s license identity to open new accounts. How that will occur exactly I am not sure, but what I do know is that it will come under attack and the fraudsters will come up with ways to get through the front door once again.
Matt McGuire, Co-founder and Practice Leader, The AML Shop
Services on the dark web to facilitate the movement of illicit assets through mainstream, and evolving transaction tunnels will accelerate. Financial institutions will respond with countermeasures that rely more heavily on automated decisioning and interdiction of transactions. Open banking adoption will necessitate more sophisticated and persistent information sharing among financial institutions, be challenged by privacy constraints, but supported by emerging anonymised intelligence transfer.
Beneficial ownership information will become more accessible and traceable across jurisdictions (see, for example, Open Corporates). Not only can that lead to greater capacity for financial institutions to uncover and report financial crimes, but the availability of that data will also enable journalists and the general public to conduct and share research and analysis into nefarious corporate practices. The use of nominees and gatekeepers may increase as a strategy to obscure the semi-public listing of registries, however their detection with advanced systems can help identify outliers. Pressure has begun on governments to increase the integrity of information in registries through identification means, however tactically this may be a logistical challenge.
Other countries will begin to meet the United States’ increased reliance on targeted sanctions on individuals to achieve policy objectives. This will lead to more conflicts in laws to reconcile for financial institutions, and the increased involvement of professional intermediaries and complex structures for criminals seeking to circumvent those sanctions.
Ned Kulakowski, Esq., CAMS, Senior Financial Crime Consultant, Fenergo
Underlying financial criminal activity is nothing new and will not disappear in the future. Human trafficking and smuggling, tax evasion, identity theft, sexual exploitation, bribery, corruption, and drug trafficking, to name a few of the specific criminal acts being committed in our world, show no sign of slowing down.
The battle against those who commit these crimes will continue to be a growing challenge as the means to commit these acts will continue to evolve along with the technologies enabling it.
It will be critical for financial institutions to embrace technology and be willing to adapt to the ever-evolving nature of criminal activity not only to remain compliant with their local jurisdictional requirements and their various regulators, but to truly be effective in working with their global law enforcement partners in fighting financial crime.
Moyara Ruehsen, Professor of Financial Crime Intelligence and Director, Financial Crimes Management Program of the Graduate School of Int’l Policy & Management, Middlebury Institute of International Studies
These trends (increased digitisation and increased transnational nature of crimes) are likely to continue. For the past three years, I have been teaching a course on Cyber-Enabled Financial Crime, but soon I think that term, “cyber-enabled” will be moot. Most financial crimes today have a digital component, and soon they all will. Increased digitisation also means that victims on the other side of the world are easily reached by criminals anywhere.
How do we step up our financial crime-fighting game in this new environment? Two things have to happen.
First, investigations will only benefit from more public-private partnerships and inter-agency collaboration. We should also find safe and trustworthy ways to collaborate more with our foreign counterparts. Fortunately, this is already happening. We should do more of that.
Second, the increasing sophistication of criminals means that investigators need to become more sophisticated, too. I’m not only talking about things like advanced data analytics, machine learning and blockchain forensics, which we hear a lot about. An effective investigator should be apprised of these tools, but they also need to have general knowledge about the world. Knowing something about geography or what a country typically exports, is important for recognising whether a trade pattern is unusual. Cross-cultural and language skills help, too, especially when accessing a corporate registry or doing due diligence on a PEP.
The bottom line is that we’re seeing increasing complexity on the part of the criminals, and financial crime-fighting professionals need to advance their own skill sets to keep up with that complexity.
Mark Ghatan, Esq., Director of Investigations, Polaris Corporate Risk Management LLC
There are two branching “futures” in financial crime: the future activity of financial criminals and the future defense of financial institutions, with emerging technology driving both. In the case of the former, criminal enterprises are likely to grow more focused yet decentralised, as tech advances create new opportunities. Cybercrime outfits have also come under scrutiny since the Colonial Pipeline incident, prompting some groups like DarkSide to dismantle, with members breaking off as smaller cells to remain nimble. Though this decentralisation may complicate enforcement actions, financial institutions must invest in emerging technologies like artificial intelligence, while consistently upgrading existing cybersecurity measures to protect against internal and external threats.
All too often, organisations see risks like ransomware and insider threats as too obscure or unlikely, and fail to protect themselves. The upside of these investments through the setup and maintenance costs simply cannot be seen until they’re paying for it later.
Florian Haufe, Founder & CEO of Financial Crime Academy
Technology will certainly continue to bring about change. Likewise, criminals will continue to leverage technology to circumvent anti-financial crime endeavors.
To cope with the past and current challenges, organisations need to adjust their anti-financial crime programs to remain effective and, at the same time, significantly improve the programs’ efficiency.
Technology, again, might be part of the solution here as well. For example, current customer screening or transaction monitoring systems often lead to labour-intensive false positive reviews. Advanced network analysis-based solutions could be key to reduce the false-positive rates.
In addition, organisations need to make sure that the knowledge and skills of their employees don’t fall short. Proper, risk-based, and target-group-oriented employee training that does not omit emerging technological trends is inevitable. More often than not does the error sit in front of the keyboard. Why should it be different for financial crime prevention?
Hyunjung So, Senior Financial Crime Compliance Analyst at Goldman Sachs
As we move into a digital world, criminals will continue to target businesses to execute illicit activities. It will be an ongoing challenge for companies and individuals to identify and manage financial crime risk. At the same time, individuals, banks, and institutions will continuously increase awareness in a risk-based approach.
Lastly, as a future defense, it is important for the firms to continuously perform gap analysis when new regulations or changes are released.
The program must be strategically designed and balance the evolution of financial crime with implementing changes and regulations. Financial crime compliance should be flexible, collaborative, and smarter with the use of technology and data.
Jason Pierce, CPA, CMA, CFM, CVA, MAFF, Senior Vice President, J.S. Held LLC
Financial crime will become more personal through the increasing acceptance of cryptocurrency, in-app purchases, gaming platforms, tokens, NFT’s, etc. In addition, smart devices create opportunities for enterprising thieves. While a smart refrigerator may not have direct ties to someone’s bank account, the data generated by the device is valuable and may be sold to third parties, mined for patterns, or used to gain insight into personal lifestyles. That said, the ability to track currency will increase as people leave more digital footprints and the ability to follow the money improves. This is especially true with blockchain technology. The Biden administration is also looking to fund spending increases through collections which means more taxpayers will be audited. This may mitigate some of the long-term damages from financial crime should this come to pass.
Doug McCalmont, CAMS, CGSS, Founder of BlocAlt Consulting LLC
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 favourite innovative strategy of “chess” utilised by global criminal elements.
Oleg Kurchenko, Founder and CEO of Binaryx
We will definitely see more attacks and crimes in this sector in the upcoming years. At the same time, management of numerous companies around the world is involved, as never before, to prioritise implementing cybersecurity solutions because data is the new oil in our current digital world.
According to GDPR, HIPAA and other privacy policies, data encryption is going to be an integral part of any corporate security system in the future. The biggest trends in corporate cybersecurity, which is going to be developing exponentially, is end-to-end information protection and end-user protection.
Financial institutions will invest in advanced technologies for identity verification. For instance, the video KYC verification solution might surpass other verification methods in the future, as video creation, sending and parsing is currently much more complicated than photos and screenshots. Also, video KYC brings more confidence in a person's real identity.
Roy Zur, CEO of ThriveDX SaaS
When it comes to the future of financial crime and prevention, almost all signs point to technology advancements. Digital identification verifying such as facial and retina recognition is being adopted at more financial institutions to allow them to comply with KYC regulations. On the other side of the coin, literally, the digital currencies which have largely been associated with financial criminals, are being prioritised by regulators. Virtual assets will be analysed for patterns in transactional behavior, allowing machine learning and AI to become more widely used tools in the financial crime prevention arena. As we’re seeing now in 2021, regulations are expanding. This trend isn’t going anywhere and means that businesses will be required to defend themselves. Unsurprisingly, an uptick in hiring for roles around regulation and digital crime prevention will follow. The cybersecurity field, for example, has had 0% unemployment since 2016, making it one of the most in-demand careers in tech. Training and skilling in cybersecurity and crime prevention for current and future employees will continue to be a focal point for large institutions.
As the pandemic has shown, financial crime has continued to grow exponentially and based on what is occurring on an almost daily basis will continue to be a threat and drain on economies for the foreseeable future. Until legislation changes to enable investigations to be less complex and legislation such as unexplained wealth orders are embraced, financial crime will continue to flourish unabated. It is also essential that when it is ascertained that state actors are behind the criminal activity strong sanctions need to be implemented by democratic countries to ensure a strong message is delivered to the leadership.
As for law enforcement, it will be essential that there is a capacity to investigate sophisticated financial crime which will require a need for strong public/private partnerships and the acceptance that financial crime demands experience and skills which need to be embraced and encouraged. This may require a shift to skill-based pay to maintain and encourage advanced skills.
Nathan Grant, Senior Credit Industry Analyst, Credit Card Insider
Financial crime is going to continually evolve with the trends in how people are spending their money. As more people shop online, more and more criminals will continue to look for new avenues such as cryptocurrency and social media accounts. Many of the old methods of financial fraud are still being used every day, with credit card fraud, bank fraud, phone and utility scams, and more rounding out the latest data from the FTC.
Customers need to make the right choices with how they shop, where they shop, and with whom they share their information. When paying in person, check for any suspicious hardware on gas pumps or at checkouts to make sure there aren’t any devices like skimmers to steal card information. Even simple things, like avoiding making transactions over public wifi networks, could be the barrier between a customer's financial details and a criminal looking to exploit them.
Christopher Liew, CFA, Founder of Wealth Awesome
As digitalisation proved its convenience to the globe in terms of cashless payments and transactions, financial criminals utilising these digital channels will by then evolve to become even more aggressive and relentless. Add in the modern-age investments such as cryptocurrency and you’re sure to hear reports of cybercriminals making use of more sophisticated ways to hack online wallets, commit cryptocurrency fraud, and identity theft.
Unless financial institutions don’t take advantage of cloud-based software or any modernisation tools to upgrade their AML procedures, employ tighter restrictions, create more advanced preventive measures, and create a culture of AML compliance among its employees, fighting financial crimes will only be more difficult in the future.
Robert Katzberg, Consulting Counsel at Holland & Knight
A better functioning future should necessarily include:
Updating financial systems throughout the world to make KYC standards high and uniform
Enacting stricter international treaties to better follow and supervise financial activities, and allow greater international transparency
Enacting and enforcing controls over cryptocurrencies (if not an outright ban)
Passing federal statutes similar to New York’s Martin Act to allow a broader sweep of law enforcement capabilities in prosecuting criminal activity in the world of finance.
Alexa Serrano, CAMS, AML specialist, Banking Editor at Finder
In 2020, we saw a call to reexamine anti-money laundering and counter-terrorist financing laws so that they’d be up-to-date for new emerging threats and technological innovations. In January 2021, the Anti-Money Laundering Act (AMLA) came to pass. This Act is intended to help move the focus away from just a US regulation to a more global perspective. But although this Act passed, it may take years for financial institutions to start adapting to it.
Another way we might see financial crime growing is in artificial intelligence (AI). We already see how machine learning and AI could prove to be helpful, but again it can be misused in the hands of criminals.
For instance, we’re seeing an increase in deepfake technology. This technology can impersonate not only someone's face but also their voice. If the future sees an increase in more digital banks and less in-person banking, financial institutions will need to make sure to create better tools to verify their customers.
The future of financial crime will still consist of the traditional financial crimes, but digital crimes will continue to grow. There is no sign that ransomware and the BEC will stop anytime soon. The international community is at a pivotal time for the acceptance of cryptocurrencies. As China bans cryptocurrency use by financial institutions and the United States Department of Treasury’s designation of cryptocurrency as a capital asset for tax purposes, the decisions of these and other worldwide players in the financial markets will have an impact on the opportunities for cybercriminals in the future.
Cryptocurrencies have made crimes like ransomware possible, and they are also enabling new money laundering schemes. For example, the transfer of assets from one type of cryptocurrency to another cryptocurrency in a jurisdiction that has lax AML laws creates tremendous challenges for regulatory and criminal enforcement authorities.
Dax White, Managing Partner at The White Law Group, LLC
The digitisation of fraud will continue to be the future but more specifically financial crime will increasingly occur in the digital coin space.
Always follow the money when investigating financial crime and that is most certainly where the money is right now.
Investors looking to get rich quickly make for an easy mark and the anonymity of digital coins makes it that much easier for fraudsters to get away with schemes.
Also, because the many exchanges these transactions are still occurring on lack regulation it becomes harder to protect investors and to assist them when financial crimes occur.