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Trade-based financial crime (TBFC) quietly siphons off trillions from the global economy each year, hidden in the complexities of international trade. Despite its scale, it's a fraud that remains off most people's radar.
Criminals exploit the structure of global trade, making TBFC uniquely challenging to detect
The Global Challenge of TBFC
Eastnets' global survey, “Broken Inside, Broken Outside: The Global Fight Against Trade-Based Financial Crime,” shows the magnitude of this problem. Surveying 150 financial institutions worldwide, it revealed:
- 65% of financial institutions say regulatory complexity stands in the way of addressing TBFC.
- 42% cite siloed data and disconnected workflows as significant challenges in detecting TBFC.
- 87% of institutions believe that AI, machine learning, and generative AI are crucial for effective TBFC detection.
- 91% are prioritising automation over the next 12 months, with regions like Asia-Pacific and Africa leading the charge.
These findings highlight the urgent need for financial institutions to adopt advanced technologies to combat TBFC effectively.
Introducing the TBML Terminator
To effectively combat TBFC, financial institutions need a powerful ally. Imagine an AI-enabled software robot—a TBML Terminator—that monitors trade activities, detects anomalies, and thwarts financial crime with precision.
Advanced Monitoring: The Eyes of the TBML Terminator
- Vessel Tracking and Geolocation Monitoring: By continuously tracking the movement and ownership of ships—especially since most global trade occurs via maritime routes—institutions can receive real-time alerts if a vessel deviates from expected routes or enters high-risk areas. This vigilant tracking helps mitigate risks associated with maritime trade and ensures compliance with international regulations.
- Document Digitisation and Verification: Utilising technologies like Optical Character Recognition (OCR) and Natural Language Processing (NLP), the TBML Terminator converts paper documents into digital formats, extracting and analysing data efficiently. Given the mountains of paperwork in international trade, digitisation is crucial for timely and accurate data analysis.
Automation: The Hands of the TBML Terminator
- Data Consolidation: Automation links various components of trade transactions—letters of credit, invoices, bills of lading—ensuring all relevant data is organised and accessible for analysis. This seamless integration reduces manual errors and enhances the efficiency of compliance processes.
- Sanctions and Watchlist Screening: Automated systems continuously screen entities and transactions against updated sanctions lists, which can change multiple times a day. Automation prevents prohibited individuals or organisations from slipping through, safeguarding financial institutions against regulatory breaches and fines.
Artificial Intelligence: The Brain of the TBFC Terminator
- Anomaly Detection: AI algorithms analyse transaction patterns to identify unusual activities such as overpricing, under-pricing, or discrepancies in quantities.
- Generative AI for Predictive Analysis: By assessing historical data, AI predicts potential risks, allowing institutions to address threats proactively.
- Enhanced Accuracy: AI reduces false positives by more accurately distinguishing between legitimate and suspicious transactions, enabling compliance teams to focus on genuine risks.
Real-World Application
Consider a scenario where a financial institution is processing a transaction for the export of 1,000 MacBook chargers from India, invoiced at $500 per unit, totalling $500,000. This unit price is significantly higher than the average market price of approximately $80.
- Data Extraction and Analysis: The AI system extracts transaction details using OCR and NLP. It then utilises a Large Language Model (LLM) to access real-time market pricing data for MacBook chargers in India.
- Identifying Discrepancies: By comparing the invoiced price to the market price, the AI detects a 525% overpricing:
Such a significant discrepancy raises red flags for potential TBFC activity.
- Alerting Compliance Teams: An alert is generated for further investigation, allowing compliance officers to:
- Request additional documentation or justification for the high price.
- Conduct background checks on the trading parties.
- Report the transaction to relevant authorities if necessary.
This example illustrates how generative AI and LLMs enhance the TBFC Terminator's ability to detect and prevent financial crime by providing intelligent analysis of pricing anomalies in trade transactions.
The Path Forward
Trade-based financial crime is a formidable adversary, but with the right technology financial institutions can turn the tide. By embracing automation, AI, and advanced monitoring, organisations not only protect themselves but also contribute to a more stable global economy.
