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Covid and Crime: Upping the Fight against Global Financial Crime in the Time of Corona

Updated: Aug 9, 2020

Crisis and the uncertainty and panic that accompany it often opens doors to criminality, inviting bad actors to prey upon our fears and anxieties. The global pandemic has unfortunately provided such an opportunity, unprecedented in modern times: allowing hackers and scammers to take advantage of distracted governments and law enforcement agencies and of the disruption to increasingly anxious citizens’ routines to carry out financial theft and money-laundering schemes.

Interpol has even issued an official warning over fraud schemes linked to COVID-19, detailing some 30 fraud types ranging from phishing attempts to phony sales calls. To make matters worse, our disrupted routines pose a serious challenge to fraud detection tools utilized by banks that analyze patterns in payment and money movement, making it much harder to detect truly suspicious behavior within a sea of false positives.    

Financial crime was already a major threat to the world’s economy long before the current health crisis.

The UN estimates that $1.7 trillion is laundered globally every year. Despite the vast sums that banks and financial authorities spend on tracking and combating money laundering, only 1% of laundered funds are actually identified and seized.

Financial experts and regulators agree that one of the main reasons why enormous sums of money are being stolen and laundered each year is the lack of information sharing amongst the relevant bodies, leaving each institution with blind spots. And with fraudsters emboldened by the current crisis, the need for global inter-bank cooperation to thwart such widespread financial crime is greater than ever.

However, as great as the need is for inter-bank cooperation, banks in different countries and under different jurisdictions cannot collaborate effectively if they lack the ability to exchange data. Tightening data privacy regulations like the EU’s General Data Protection Regulation (GDPR) and existing financial industry regulations on sharing pre-suspicious or suspicious information have obstructed banks’ efforts to run collaborative operations and leverage collective intelligence. Indeed, consumers, enterprises and governments justifiably fear the consequences of sharing individuals’ account and transaction data, regardless of the legitimacy of banks’ motivations.

The result: In the face of global networks of financial criminals and money launderers, financial institutions are effectively hamstrung, left to wage their fight on their own when information sharing could provide them a true upper hand. 

Fuelled by recent advances in Privacy-Enhancing Technologies (PETs), financial crime experts and data scientists are leading groundbreaking research to devise solutions that can enable vital collaboration in the fight against financial crime, while simultaneously adhering to growing data privacy regulations. Homomorphic Encryption is one of these novel PETs, enabling organizations to collaborate on and analyze data while it remains encrypted and thus protected from third-party access that regulators and citizens alike so fear.

These innovative products designed to help banks and financial authorities share data securely and efficiently are becoming market-ready. So, for example, to prevent fraudulent payments, banks can deploy encrypted queries against each others’ databases, asking questions about suspicious accounts and transactions without ever revealing the contents of these queries as they remain encrypted throughout the investigative process. The outcome of these queries is actionable insights that  will enable banks to weed out false positives and to focus their efforts on highly suspicious actors, increasing the effectiveness of their investigations.

While manual information-sharing processes do currently exist such as the one authorized under section 314(b) of the USA Patriot Act, collaborative solutions based on PETs allow for more efficient, large-scale, automated information exchange, enabling effective, joint investigations based on bilateral or multilateral collaborations. Such solutions also foster the establishment of consortiums between banks and law enforcement such as the UK’s Cyber Defence Consortium (CDA), an early adopter of collaborative investigation methods based on PETs.

Effective, regulation-compliant solutions for fighting widespread international financial crime are available now, and must be deployed in order to fight this unfortunate side effect of the current pandemic. In today’s volatile economic climate, banks have an essential role to play in  stemming the flow of this growing global financial scourge and preventing fraud and financial crime from further destabilizing global markets.

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