Issues in Financial Crime, Technology, RegTech, Artificial Intelligence & Machine Learning

By Christine Duhaime | March 23rd, 2017

3rd Annual Vancouver FinTech Conference

The 3rd Annual Financial Technology Conference in Vancouver takes place on May 3, 2017, which we co-sponsor. This year’s Conference focuses on “FinTech, RegTech and Financial Crime” and will cover the nexus between technology solutions to address regulation (RegTech), law, money laundering, terrorist financing, compliance, fraud, identity management, corruption, real estate tech and on-boarding / de-risking.

The idea is to advance the dialogue to deep-dive into the issues at the level where it matters – law, policy and financial transactional monitoring and explore solutions that work, including importantly, artificial intelligence and financial crime.

In the lead up to the conference, we’ll be populating this page with those topics to identify some of the issues worth exploring that the experts at the Conference can address.

Confirmed speakers are at FinTech 2017 are:

  • Fintrac
  • RCMP
  • BCLC
  • D-Wave
  • ACAMS
  • Vancouver Sun
  • Globe & Mail
  • Evolocity
  • ChatBo
  • Elk
  • Baker Marquart
  • Duhaime Law
  • BLG
  • Bryan Cave
  • Polsinelli
  • Middle East Bank

1. Issues in cyber-security

Cybercrime costs the global economy $500 billion annually and ransomware attacks rose to 4,000 per day in 2016, forcing companies to pay $400 million in ransom in Bitcoin in 2016. As the world becomes connected (20 billion devices by 2020) with robots, cars, medical equipment, phones and refrigerators all inter-connected, the threats will grow.

Americans have said plainly that we are “in the fight for our digital lives and are not winning the cyber-security war” from China to Russia, hackers are stealing intellectual property from tech firms on a daily basis, as well as financial data and health care records. In addition, Americans have said that terrorists are crowd sourcing the murder of innocent people.

Cyber criminals are winning for many reasons including that there are more criminals than law enforcement can deal with; the law has not kept up with cyber attacks and nor is there the budget to address it properly; there are serious information challenges between the public and private sectors because the private sector does not report cyber crime; there is no deterrence in the cyber realm to prevent further cyber attacks; and terrorists are using social media and end-to-end encryption on their phones to cover their tracks.

The US is also noting that critical infrastructure is a critical vulnerability with criminals now leaving their digital fingerprints on purpose as a warning.

The battlespace is –> your cellular phone.

2. Money laundering tech

Some recurring issues affecting money laundering is the lack of manpower to investigate cases. Prosecutors have found that when tips come in from the public (informants or whistle blowers) about money laundering or transnational criminal organizations, the information tends to be accurate and point law enforcement immediately to the key players and where the crimes can be detected. Those cases tend to be the ones that are pursued by law enforcement.

What type of money laundering tech is being developed, and does it include mechanisms to allow the public to report money laundering cases?

3. China and money laundering / corruption

China was slow to implement anti-money laundering controls and its regulatory effectiveness is “relatively low because [for ten years], a lot of money laundering activities were not detected and there was much capital flight from China” (Shan Xi Normal University).

From 2008 – 2013, Chinese financial institutions filed 45,000,000 suspicious activity reports annually to their FIU. Yet although it files 187 times more suspicious activity reports than the US, it averages about 7 arrests a year for money laundering.

The relevant law in China for money laundering that addresses the predicate offenses have some limitations compared to other countries. For example, the predicate offenses are drugs, gangsterism, smuggling, corruption, bribery, destruction of financial records and financial fraud, gambling and tax crimes.

The percentage of predicate offenses for money laundering in China:

  • Corruption 42.08%
  • Financial fraud 11.76%
  • Destruction of records 8.6%
  • Drugs 8%
  • Smuggling 8%
  • Tax crimes 5.88%
  • Gambling 4.98%
  • Gangsterim 2.71%

Types of customers involved in money laundering in China:

  • Politically exposed persons 57.58%
  • Private companies and their shareholders 27.7%
  • Cash management companies such as insurance, real estate and securities firms 15.15%

A report from a university on money laundering refers to Canada as a jurisdiction where politically exposed persons launder money and “abscond overseas.” Given that China has lax money laundering compliance itself, what does that mean for Canada, as a key destination?

4. De-risking

The past 15 years has been unprecedented enforcement action in connection with anti-money laundering law such that in 2014, over $15 billion in fines were levied by US regulators, causing de-risking as banks attempted to limit their risks. However, there is concern over the chilling effect this has on cross-border trade because banks are eliminating correspondent banking relationships. The fear of liability and of AML / CTF compliance is killing banks in high risk areas. According to two studies, between 31% to 60% of banks say AML / CTF costs are the reason for de-risking of correspondent banks. Other surveys 40% of banks and corporations said that AML / CTF was a significant impediment to trade finance and over 70% said they declined transactions because of AML / CTF.

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