Industry-First Fraud And Anti Money Laundering Exchange Addresses Financial Sector’s $2 Trillion Money Laundering Headache

MoData is driving an industry-first collaboration that enables regulated institutions to securely share FRAML (Fraud and Anti Money Laundering) data with each other using blockchain, confidential computing and artificial intelligence. The solution empowers institutions to manage financial crime risk without compromising customer privacy or experience.

The FRAML exchange allows regulators and regulated institutions—including financial institutions, real estate companies, law firms, the gaming industry, and casinos to collaborate more closely in the fight against financial crime. By sharing real-time data through a trust model, all members of the financial ecosystem can more rapidly detect fraudulent transactions and money laundering, with fewer false positives.

The high cost of fraud and money laundering

According to the United Nations Office on Drugs and Crime (UNODC), funds worth around $2 trillion—or 2% to 5% of global GDP per annum are laundered every year. In e-commerce, fraudulent and money laundering transactions are forecast to exceed $200 billion by 2025. These numbers are set to grow due to digital acceleration during the pandemic and the digital native Generation Z coming of age.

Banks employ anywhere between 70 and 600 staff members (depending on their size) to investigate fraud and AML alerts. Around 80% to 90% of these alerts—investigated an average cost of $24 per alert, are false positives. This results in a headcount cost of between $1 million and US20 million a year as a result of ineffective monitoring.

The costs of getting it wrong from a compliance perspective can be steep. One report indicates that 80 financial institutions were fined over $2.7 billion for compliance issues stemming from practices that ran from deliberate theft to not having good FRAML systems in place.

Why collaboration is key

One of the keys to driving down these costs without allowing FRAML to spiral further out of control is enabling real-time industry collaboration, says Clive Gungudoo, MoData’s Director of Financial Crimes and Risk Management. Up until now, most FRAML solutions focused on helping regulated companies to detect and investigate FRAML alerts that originated within their own enterprises.

However, innovative technologies such as confidential computing and blockchain allow institutions to cooperate in the fight against crime without compromising on security and privacy. Confidential computing allows multiple datasets from several companies to be consolidated to identify fraudsters that avoid detection by structuring their transactions and behaviour across many institutions.

Gungudoo says: “Fraudsters and money launderers often evade detection by, for example, spreading transaction amounts and volumes across multiple institutions and accounts. The more sophisticated criminals might even use adversarial AI to wargame which tactics will not be detected by FRAML processes and algorithms. Their activities may not raise a red flag because they do not appear suspicious to a single institution’s monitoring systems.”

When institutions collaborate and deploy real-time data exchange, they can identify patterns of suspicious activity occurring across multiple companies. The more companies that collaborate, the more data and insights are available to all and the more effective the system becomes in detection and risk management. “By reducing fraud losses and improving fraud investigation efficiency, this provides a better return on investment across the industry,” adds Gungudoo.

Meeting exacting security and privacy requirements

The sensitivity of transaction and account data means the data exchange between companies must meet exacting security and privacy standards. MoData’s solutions ensure compliance by using Intel SGX—a next-generation, hardware-based Trust Technology in conjunction with the R3 Conclave development platform. This trust model ensures that ensure data is only processed and exchanged for agreed appropriate purposes to ensure privacy and security.

MoData CEO, Darren Turnbull, says: “We are proud to be leading an industry collaboration in the fight against financial crimes with a first-to-market data exchange. Built on distributed ledger technology (DLT) and confidential computing, our platform will help companies assess unknown high-risk transactions faster and more accurately, driving dramatic improvements in return on investment for fraud teams.”

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