As financial institutions struggle to balance their budgets and are asked to do more with less, they must rely on new technology to boost accuracy, effectiveness, and efficiency, while making needed investments in back-end data and front-end technology
With financial firms forced to cut anti-financial-crime budgets, artificial intelligence (AI) must clear regulatory hurdles before they can backstop the function, the Association of Certified Anti-Money Laundering Specialists (ACAMS) said in a new threat report.
Despite AI and machine learning “getting better by the day” and nearing readiness for deployment, ACAMS had heard from many institutions that “maybe [the institutions’] own data is not quite ready,” said Craig Timm, senior director of anti-money laundering (AML) with ACAMS, a trade association for anti-financial-crime professionals.
With AML budgets shrinking, AI and related technology “is the only answer” to adequate risk management, Timm explained. “It’s the way they’re going to get more efficient while maintaining effectiveness,” he said. “It’s the way they’re going to fight back against the criminal use of this technology — there are just steps to get there.” In addition to financial institutions needing to clean up their data, regulators must also create structures and guidance to allow firms to implement AI, he added.
Joby Carpenter, global subject-matter expert on technology and illicit finance at ACAMS, agreed that regulators must also step up. “[Regulators] have not yet got to the point where they’ve said, ‘you can turn off [your] legacy systems and just rely on AI in order to do your due diligence, or your screening, or whatever it may be’,” Carpenter said. “So, that’s a big issue.”
Carpenter explained that “regulators accept that they are in that position — that they haven’t given permission to turn off those legacy systems — and they are trying to get around that with initiatives like sandboxes and tech sprints, in order that AI can then be demonstrated… as being effective and falling into line with regulatory requirements, but it does seem to be a fairly slow process to get to that point.”
Justine Walker, head of sanctions, compliance & risk at ACAMS, agreed, adding: “This is a radical moment in time in terms of technology, both in terms of its benefits to the anti-financial crime function, but also the challenges it brings.” Walker added that she thinks that “in five years’ time we’re going to be discussing this in a very, very different way — in what way? I don’t think any of us quite know, but it is changing by the day.”
Top 10 financial crime threats
The AI challenge was only one element of a broader 2024 Global Anti-Financial Crime Threats Report that ACAMS released. The report also outlined the top 10 financial crime threats that ACAMS saw as “high on the radar” in 2024, based on discussions at events held around the world, plus a global survey conducted between Sept.18 and Oct. 22, 2023.
The top ten threats assessed by ACAMS, beginning with the number-one threat, include:
1. Anti-financial crime team budget cuts
The top threat stems from budget cuts and declining anti-financial crime staff amid an evolving and heightened risk environment, the report said. “If institutions cannot manage this threat, it will negatively impact their ability to manage all the other threats in this report and the overall effectiveness of the anti-financial crime function,” ACAMS wrote.
2. Geopolitical tensions and fragmentation
These “dominating concerns” present “fundamental challenges with conflict, cybersecurity, energy security, and strategic competition, which fuel growing risk dilemmas,” the report stated, adding that navigating this fragmented environment “requires adept handling of emerging scenarios involving conflicts of law and regulations, personnel risks, and evolving market volatility.”
3. Cyber-enabled fraud
Recent technological advancements have prompted a rapid surge in cybercrime, including fraud that’s enabled by digital media platforms and the darknet, the report noted.
Additionally, pig butchering — a type of cryptocurrency scam targeting wealthy individuals online through romantic deception to gain their trust and steal their assets — has led to the loss of billions of dollars since 2021.
4. Sanctions and evasion
While it ranked fourth in the ACAMS threat hierarchy, sanctions and related evasion of sanctions are “paramount in the minds of executive leadership, causing them sleepless nights,” the report stated, adding that those concerns “stem from the use of sanctions for foreign policy objectives and the persistent complexity of maintaining ‘sanctions compliance.'”
Anticipated sanctioning trends in 2024 include two primary drivers. First, stronger alliances will likely lead to the convergence of sanctions and export controls, strategically aimed at restricting Russia’s access to sensitive technology and degrading its war capabilities. Second, there will be a heightened US enforcement campaign against Russia’s sanctions-evasion tactics.
5. Scale and pace of change
The scale and pace of anticipated regulatory change influences the full spectrum of anti-financial crime programs, with emphasis on expected changes affecting AML, sanctions, cybersecurity, crypto-assets, data privacy/data protection, and fraud, the report stated.
6. Abuse of legal entities and arrangements
Amid the backdrop of the global AML-standard setting and renewed demands for global corporate transparency from the global money laundering and terrorist financing watchdog, the Financial Action Task Force, the misuse of legal entities and arrangements also has emerged as a critical threat.
“Anonymous legal entities persist at the epicenter of significant cases involving major corruption, money laundering, tax evasion, and sanctions evasion,” the report noted. “Authorities are anticipated to intensify efforts by enforcing corporate registry structures and imposing more stringent requirements for beneficial ownership due diligence.”
7. Balancing counter-terrorist financing with financial access and humanitarian aid
Maintaining balance between counter-terrorist financing efforts and the facilitation of financial access to humanitarian aid remains a core priority for the international community, humanitarian actors, and compliance functions, according to the report.
8. Lack of risk-based approach
The lack of an effective risk-based approach to regulation and supervision is consistently viewed as a hindrance to the ability of AML regimes to fight financial crime.
9. Weaponized technology
ACAMS also flagged the hostile use of commercial spyware, ransomware, and offensive cyber-capabilities as a growing concern.
10. Internal threats
Concerns about this multifaceted threat were “spearheaded by senior executives and law enforcement figures,” the ACAMS report stated.
Value of threat report insights
AML and sanctions compliance professionals may wish to convey some of the insights gleaned from the ACAMS report to their senior executives — and perhaps ultimately to the board of directors — as evidence of the need for adequate AML compliance resources and to increase awareness about the growing role of new forms of technology that could be of use to organizations’ anti-financial crime functions.
