Applying AI to the war on financial crime

© Erik Carter

Clouds are gathering over parts of fintech companies as declining economic growth, rising interest rates and a cost-of-living crisis strain their business models, forcing job cuts and crushing valuation funding.

ComplyAdvantage founder Charlie Delingpole knows his company is not immune to these forces, as fintechs are among the biggest buyers of financial crime prevention products. In fact, some clients, including crypto lender Celsius Network, have already failed.

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But the business – which uses natural language processing and artificial intelligence (AI) to perform compliance checks on transactions – is more resilient than most, with Russia-related sanctions and a global crackdown on financial crime driving healthy demand.

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“We’re the last thing they shut down before their server,” Delingpole, a former JPMorgan Chase technology banker, says of his company’s continued demand for financial group services, even when times are tight.

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Delingpole, who moved from CEO to executive chair in October, founded ComplyAdvantage eight years ago. Then, the demand for compliance controls was increasing after the financial crisis of 2008, when financial institutions were hit with huge fines for errors and misconduct.

Kremlin square seen through a metal fence

Sanctions against Moscow and the fall of the ruble have increased the risk of financial crimes for wealthy Russians © Valery Bocman/Getty Images/iStockphoto

Delingpole believed that financial services firms and the third-party data providers they relied on, such as LexisNexis and World-Check, were missing a trick in the race to keep up with ever-changing rules and increasingly aggressive regulators.

“Thousands of researchers were working to gather information by hand,” he says. “What we’ve done is use machine learning to collect and then aggregate thousands of data sources.”

ComplyAdvantage automates the scanning of hundreds of thousands of documents to create connections between people, companies and illegal activities. “We’re not going to fly to Saudi Arabia to look at the company registry,” Delingpole explained. “We just do high-volume AI-type work.”

ComplyAdvantage’s growth into a $50 million revenue company with 500 employees and a customer list of over 1,000 has been fueled by several international trends.

Global fines for anti-money laundering offenses are on the rise, rising fivefold to $2.2 billion between 2019 and 2020 – putting financial services companies around the world on high alert for future non-compliance.

The war on terrorism and drug cartels has led to a wider crackdown on global money laundering, led by the intergovernmental Financial Action Task Force and Moneyval, the Council of Europe’s anti-money laundering body.

More recently, Western sanctions on Russia following its invasion of Ukraine have made regulatory compliance a top concern for businesses, given the breadth of restrictions imposed by the US, UK, EU and others.

“You can divide companies into two groups: companies that grow cyclically in relation to gross domestic product; and companies that grow in a secular way, where there is an underlying operator – ComplyAdvantage falls into the second category,” says Jan Hammer, partner at Index Ventures, who owns a 15 percent stake in ComplyAdvantage after leading a $30 million Series B funding round. in 2018

“We see the track ahead as absolutely inexhaustible,” Hammer says, pointing to the rise in digital fraud as another reason banks and financial services firms want to step up their fight against crime.

All involved agree that technology has a vital role to play in keeping bad actors out of financial institutions and trading or payment systems. “The technology is useful for identifying complex money laundering schemes, mining large datasets for terrorist financing activity, and is irreplaceable for criminal cases involving cryptocurrencies,” says Igor Nebyvaev, Executive Secretary of Moneyval.

That doesn’t mean the financial industry should turn to ComplyAdvantage for technology. Financial institutions can and do build their own solutions, especially large groups that spend billions a year on technology. Additionally, competitors in the AI ​​and machine learning sector could emerge.

A panel of officers holding a meeting

Organizations like the Financial Action Task Force are cracking down on money laundering © Andrey Rudakov/Bloomberg

But Hammer insists ComplyAdvantage will corner the market because its technology is more advanced than anything else available, or coming to market in the near future. “The essence is to make a connection. . . who the entities are connected to,” ComplyAdvantage says of its approach to verifying transactions. “Mathematically it is quite complex. . .[and]then, overlaying the technology around these data sets, that takes years.”

Marcus Swanepoel, co-founder and CEO of cryptocurrency platform Luno, says his company initially tried to build its own system for compliance checks. He then tried to work with traditional suppliers, who are more heavily involved in manual processes. In the end, the decision came down to ComplyAdvantage because it “provides more accurate alerts and minimizes false positives, so it gives our team more time to focus on customers who are at real risk.”

According to Swanepoel, ComplyAdvantage is easier to use and faster to upgrade than other services Luno has tested. “They collaborate with us on product development, which is especially important in a new industry like crypto,” he says. “Our teams and developers and theirs are together in Slack channels where we can talk in real time about existing and future implementations and a product roadmap.”

When Delingpole is asked about ComplyAdvantage’s development milestones, he talks about the technology that has developed over the past 12 months rather than global events such as the imposition of Russian sanctions.

a woman walks past an illuminated sign displaying exchange rates

An example is a new product that uses AI to target “hidden risks” in transactions. The tool, which is being tested by 50 customers, allows companies to detect “non-obvious risks” such as money laundering, where a single group could be behind many seemingly unrelated accounts exploiting financial institutions.

So far, the scope of this new tool is limited to politically exposed persons (PEPs), companies, sanctioned individuals and those named in anti-media reports, but Delingpole says it could eventually be much broader. “The really exciting work we’re doing is in the graph below each person and company,” he says. He believes that ComplyAdvantage’s technology can ultimately be scaled to profile the connections between everyone on the planet, corporate entities and other databases.

ComplyAdvantage sells its white-label tools to other, more specialized companies, such as Thirdfort, which performs identity verification and “source of funds” checks for lawyers and real estate agents. “When they do penalty checks or PEP checks, they’re pinging our API [portal]” says Delingpole. These white-label partners generate about a third of ComplyAdvantage’s revenue.

“There are so many different money laundering vectors and so many types of risk in business, it makes sense for a company to have a key data source,” he says, suggesting that checks can be applied to all types of sales transactions. , from property to private jets, paints and high-end cars.

Olly Thornton-Berry, co-founder and managing director of Thirdfort, says the market for selling anti-money laundering services to legal and property professionals is growing rapidly. This, he noted, “comes with the growing risk of fraud, increased regulation and the adoption of technology. These trends show no signs of slowing down.”

However, the road to ComplyAdvantage is not without bumps. “The critical risk is execution risk, the risk that we’re not able to deliver the product that we’ve articulated to the market and to investors,” says Delingpole.

Growth may also be limited by a decline in the number of fintech startups, as the economic slowdown affects funding and failures of existing fintechs. ComplyAdvantage’s customer base is currently skewed toward small and medium-sized businesses.

A further risk is that ComplyAdvantage may not be large enough, and popular enough, to penetrate the largest financial institutions. “The real barrier to entry is branding,” says Delingpole, explaining why ComplyAdvantage has struggled to attract the biggest financial services businesses. He says his team should also build something that was “several times better than his.” [the clients’] current offer” and demonstrate that it can be resilient at scale.

That’s a big ask, given the multibillion-dollar technology budgets of Wall Street’s biggest firms. However, Delingpole is quietly safe. “The vulnerability information system we have today is already superior to the systems adopted by most major financial institutions,” he says.


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