AMLYZE Co-Founder: global anti-money laundering system failing

Anti-Money Laundering (AML) regulations haven’t kept pace with the rapid advancements in technology and payment systems, leaving companies vulnerable to exploitation by fraudsters. Alexandre Pinot, co-founder of AMLYZE, compares current AML practices to outdated IT security measures from 2001, highlighting the widening gap between evolving threats and stagnant regulatory responses, TheFintechTimes reported.

“Imagine that the companies you work with and rely on are still protecting their IT systems according to the same threats and technologies that existed in 2001. That’s six years before the first iPhone. Eight years before Bitcoin was invented. Eighteen years before the first public deployment of 5G. Twenty-two years before ChatGPT,” says Pino. – You probably wouldn’t feel safe knowing that in that time, you’ve been exposed to a whole host of new risks that have emerged.”

The core AML framework, largely based on the U.S. PATRIOT Act of 2001, hasn’t significantly changed despite the exponential growth in interconnected payment systems, money flows, and the speed of cross-border transactions. This outdated system struggles to effectively address the ever-increasing risks posed by organized crime and terrorism.

Current AML regulations mandate customer identification, risk assessment, transaction monitoring, and reporting suspicious activity. However, the lack of clear definitions for “suspicious” activity creates inconsistencies and subjectivity in reporting practices across institutions and countries.

Technological advancements in AML, such as automated transaction monitoring and data analytics, offer potential solutions. Yet, challenges arise from the contextual, heterogeneous, and subjective nature of global typologies, making it difficult to structure data for machine learning models. Additionally, data protection and privacy concerns hinder the sharing of crucial information about known attackers.

“Identify your customers (KYC) and assess the risk they pose in terms of money laundering and/or terrorist financing. Monitor your customers’ transactions and assess whether they match their KYC profile and initial risk assessment level when they register with the bank,” urges the AMLYZE co-founder. – If they are not and you observe unusual and/or suspicious activity, file a report (via a suspicious activity or transaction report – SAR or STR) with your local financial intelligence unit (FIU) for investigation, and if necessary, refer the matter to the appropriate law enforcement authorities.”

“Anti-money laundering technology has certainly improved significantly since 2001, and having worked in the AML/CFT industry for almost 15 years, I see some positive changes in the market. Automated transaction monitoring, machine learning and big data analytics, for example, are enhancing detection capabilities. But there are roadblocks. First, the typologies used around the world are often context-dependent, heterogeneous and subjective. While they provide valuable information for analysts, transforming them into structured data suitable for machine learning (ML) models is challenging.”

Pinot stresses the need for adaptable AML regulations that can evolve alongside technological advancements and the changing landscape of financial crime. He advocates for clear and objective criteria to define suspicious activity, enabling more effective identification and reporting of illicit financial activities.

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