Bridging the gap: Unravelling the connection between fraud detection and aml

By Wiebe Fokma, Director Advisory (EMEA) at BioCatch & Iain Swaine, Director EMEA, Global Advisory at BioCatch

Fraud operates at lightning speed. Swift, real-time detection is critical to stop it. Every second counts, as missing even a single clue can result in losses. Fraudsters are fast and agile, so acting quickly—and correctly—is not always easy. Fraudsters hope they can steal your customers’ money before you notice, but by integrating Enterprise Fraud Management (EFM) and Anti-Monday Laundering (AML) capabilities across people and processes, you can stop the fraud before it starts.

Anti-money laundering (AML) requires sifting through thousands of alerts, looking for the suspicious case that might be money laundering. If you miss that one, then you’ll pay heavily for it, as your internal team lead will make painfully clear to you, and the regulator will later make painfully clear to your institution. You can only do it wrong. Dull and rigid: Money laundering is something to stay as far away from as possible.

EFM and AML often share a common trait: they are reactive. How can we prevent fraud and money laundering in the first place?

Money laundering is only possible with access to accounts, so blocking access to accounts means preventing money laundering. For fraud cases, cash out is immediate in some instances, but in most cases, a mule account is needed to send the money to receive the money. From traditional identity theft to bank and law enforcement impersonation scams, a mule account is necessary to transfer money to in real-time. Denying criminals access to accounts prevents both fraud and money laundering.

Unleashing comprehensive account protection: Moving beyond malicious account opening

All financial institutions monitor new online account registrations to spot abuse, but fraud and money laundering are still major issues. The explanation is straightforward: fraudsters don’t just register accounts using fake and stolen names. By attracting unsuspecting victims with various scams, like posting fictitious employment ads, they capture around half of them and essentially take over the accounts of legitimate consumers. 

While identifying malicious accounts as they are opened is important, more is required for effective prevention. Criminals don’t act immediately; often, they lie in wait, preparing for the actual use of the accounts they have gotten their hands on, such as checking that they are working as desired to ensure that the money that will soon flow into them, is under their control. In doing so, they exhibit specific human behaviors that can be detected, and very effectively.

How effective is this exactly? The figures are staggering. Analyzing human behavior to detect accounts being prepared for fraud or money laundering is around 90% effective, with a 1:1 false positive rate. Adding another preventive layer of defense by monitoring the human behavior at account opening also increases the detection rate of malicious opened accounts. A large bank focused solely on the prevention of mule accounts saw a decline of 70% in online fraud. If you can prevent criminals from using accounts, you deprive them of their most important tool. Additionally, using human behavior to recognize criminal behavior also results in lower friction for genuine customers.

AML and fraud management capabilities: The surprising state of existence

Certainly, there’s always the potential for vulnerabilities in any strategy. A recent study delved into the possibility of uniting EFM and AML disciplines to enhance the response to fraud, regulatory shifts, and money-laundering activities. In collaboration with Forrester Research, the study involved surveying more than 150 EFM and AML decision-makers from Europe, North America, and Latin America, seeking to understand their challenges and the advantages of streamlining EFM and AML capabilities. The findings yielded some intriguing insights.

First, the research found the challenge of keeping up with the pace of criminals is very real, with 78% of financial institutions responding they struggle to respond to fraud activity early; nearly 70% stated the same for money laundering.

Another startling insight was how much of an impact this is having. Nearly 70% of financial institutions reported that AML investigation time has increased in the last year, adding increased financial risk with every additional day it takes.

The research also revealed that a majority of financial institutions recognized the benefits of connecting EFM and AML capabilities across people, process, and technology, yet only 8% have fully integrated all three areas. This means there is still a long way to go, and in the meantime, fraudsters and money launderers will exploit this weakness.

The good news is that there is technology to speed up the early detection of financial fraud; according to 76% of respondents, behavioral biometrics can improve EFM and AML skills. The bad news is that best practices are still not being supported by the mechanisms that are needed. Functional silos still exist, but fortunately, there are quick-to-apply preventive measures that work.

Money laundering and fraud detection are best accomplished in the same way – by denying criminals access to accounts. And this starts with a multi-layered preventive approach:

• Preventive layer 1: Stop malicious accounts from being opened
• Preventive layer 2: Look for behavior that suggests an account is being prepared for malicious use
• Detective layer 3: Detect fraud and money laundering by focusing on human behavior

The study further demonstrates that the behavioral biometrics approach is attracting executive-level attention. According to 80% of respondents, the leaders at their company have raised the priority of tackling financial crimes by at least a modest amount over the past 12 to 24 months. Therefore, it is not unexpected that more institutions are adopting this preventative strategy and moving to consolidate the divisions in charge of fraud and AML, bridging the gap between to critically important groups tasked with keeping customers safe.