Financial crime is big business for illicit organizations around the world. This includes organized criminal operations, state actors and individuals. All told, several trillions of dollars as proceeds from crime are laundered and used for other criminal activities every year.

In the wake of this mass flow of funds are numerous victims. These include individual consumers, taxpayers, banks and other financial organizations, as well as non-financial businesses.

Fighting financial crime is a tall task, and one we feel a moral responsibility to pursue.

What is financial crime?

Financial crime, sometimes called economic crime, is a type of property crime. The criminal either illegally acquires money for their own financial gain through fraud or corruption or conducts seemingly legitimate transactions to conceal illegally acquired resources from activities like drug trafficking or human exploitation.

The definition might appear straightforward, but in reality defining, investigating and prosecuting financial crimes is complex. This is because the financial sector itself is complex. There are so many channels for ill-gotten funds to flow through, and many incidents of money laundering involve multiple transactions to make it harder to monitor these flows and follow the money. The criminals involved could be domestic or international or some combination thereof. The crimes themselves could happen inside of an organization, or they could originate externally.

Disrupting financial crimes at the scale they occur is nearly impossible without the help of technologies like machine learning.

The scale of financial crime

It’s difficult to put a precise number on the scale of financial crime. We do know that at least two percent of global GDP gets laundered through the financial system.

We also know that financial crimes around the world are on the rise, which is partially due to the COVID-19 pandemic and many of the digital transformations it ushered in.

What we can say for certain is this: Criminal gangs, individuals and malicious state actors have unprecedented means for committing financial crimes. Their operations grow more sophisticated by the day.

And so, fighting these crimes will require an even faster rate of innovation at the tech level and even deeper cooperation across the organizations and law enforcement teams responsible for combating financial crime. Leveraging innovative technology will enable faster threat detection and support more effective information sharing and collaboration.

Types of financial crime

Financial crimes include all methods of monetary fraud, money laundering, the financing of terrorism, bribery, tax evasion and corruption. Each of those crimes involves the acquisition or the concealing of ill-gotten funds, and each in some way provide material benefit to the criminal.

Even still, these are broad strokes to be painting with. Let’s look at examples of financial crimes from each category to get a better idea of what this activity entails.

Fraud

Fraud often is the initial criminal act that generates the illegal funds which criminals look to launder into the financial ecosystem. Within the realm of financial crime, fraud includes things like:

• Payment fraud
• Identity theft
• Card fraud
• Account fraud and account takeovers
• Investment scams

In each of those categories, the criminal would defraud a victim, an individual or business out of money for the criminal’s own financial gain.
Fraud across the board is on the rise. Visa research shows fraud activity is increasingly concentrated in digital and account‑based channels, with scams, social engineering, and credential compromise playing a growing role across payment types. Visa also reports a sharp rise in sophistication and scale, including the use of automation and AI by threat actors to execute large‑volume attacks.1
For the agencies and organizations tasked with fighting financial crime, fighting fraud has become an increasingly complex challenge to help protect consumer and their own organizations.

Money laundering

Money laundering is the process of attempting to make illegally obtained funds appear legitimate by concealing the source and true nature of the money as it is “washed” into and through the banking system . At the most basic level, money laundering underpins all crime, including other financial crimes like bank fraud as well as crimes like drug trafficking and human trafficking.

Laundered money is often used to fund organized crime and terrorist organizations. That’s why money laundering is a critical part of the investigation process alongside these other crimes.

And that’s also why fighting money laundering is so important. When it becomes too difficult to reintroduce stolen money into the financial system, then crime literally does not pay.

Financing terrorism

Terrorist financing includes all of the means and methods a terrorist organization, its supporters and its benefactors use to finance the group’s activities. The money might come from legitimate sources, such as a business or a charity, or it might come from a criminal source, such as arms trafficking or ransom.

Terrorists need money to buy supplies, recruit new members and conduct acts of violence, and so most governments treat the financing of these groups as a crime, even when the source of the funds is otherwise legitimate.

Illegal trafficking

Trafficking can include human trafficking, drug trafficking, arms trafficking or even wildlife trafficking. All of these criminal activities have hugely negative impacts on communities and populations. But while they remain profitable for criminal organizations, these illegal activities continue.

Anti–money laundering programs are essential to cutting off the revenue streams associated with illegal trafficking activities and protecting citizens.

Other examples of financial crimes

Beyond fraud, AML, terrorism financing and illegal trafficking — all key areas for our team — common types of financial crimes can also include things like tax evasion and corruption. Both are broad categories of crimes. Corruption, for example, encompasses crimes like embezzlement, bribery and insider trading.
These kinds of financial crime would also be picked up by an effective, holistic fraud and AML (FRAML) transaction monitoring system, as the illicit funds are deposited or moved through accounts.

Fighting FinCrime

Because financial crime impacts society, the financial system, and the bank accounts of innocent people and businesses, governments and financial institutions alike make fighting financial crime a high priority.
That fight has evolved considerably in recent years, and it will continue to evolve rapidly in the future. This is for a few reasons:

• Collaboration. Inside financial institutions, we are already seeing the activities of fraud teams and anti-money laundering teams converge into a strategy known as FRAML. This is possible when both teams proactively share data across their respective silos. To not only react to threats but to identify risks and work together to prevent issues. The same is true at the industry level, too. The public sector (e.g., law enforcement and regulators) relies on private sector professionals to identify financial criminals and are developing strategies to increase coordination and information sharing.
• Technology. The people who fight those crimes are increasingly turning to technology like machine learning to identify threats or malicious actors early on, anticipate risks and take actions to disrupt and report these activities. Machine learning will be a great enabler to the teams looking to build effectiveness to identify new threats and the unknown unknowns.
• Responsiveness. Because of the deeper collaboration and the advantages that technology can create, financial crime fighters in the private sector can be more proactive. Rather than digging out from inefficient processes or overwhelming banking details, these professionals are empowered to stand side-by-side with law enforcement and regulators so that everyone can focus on taking quicker action and be more effective in the fight against financial crime.

Learn more

To see how Featurespace’s machine learning technology can help your organization fight financial crime, have a look at our solutions.

When you are ready to try one, you can request a demo or contact us directly.