The Financial Crimes Enforcement Network (FinCEN), a unit of the US Treasury Department, recently released its “Year in Review for FY 2023” report. The report highlights the collaboration between US financial institutions and US law enforcement agencies like the FBI, the IRS, and the Department of Homeland Security.
Among the notable statistics was that 87.75% of the primary subjects of IRS criminal investigations had suspicious activity requests (SAR) filed against them, and 13.9% of IRS criminal investigations in 2023 originated from a SAR filing. This establishes a clear correlation between financial institutions’ financial crime prevention programs and law enforcement activity.
Do these figures provide a clear indication of the system’s effectiveness, or do they leave room for doubt?
It is hard to tell.
According to the report, approximately 4.6 million SARs were filed in 2023, an average of 12,600 per day.
This is 4.6 million SARs compared to 11,367 FBI case subjects with a SAR filed against them.
0.25% of filed SARs end up becoming part of an FBI case.
That seems extremely low, especially considering that the decision to file a SAR comes after the institution has investigated transactions flagged by its transaction monitoring systems. There are many more alerts than there are filed SARs. It is estimated that 95-99% of transaction monitoring alerts do not result in a SAR filing.
This means that 0.25% is 0.00247% of transaction monitoring alerts contributing to a criminal investigation.
Banks have 30 days from when an alert is generated to decide whether to file a SAR, and the investigation time per alert can range from a few hours for simple cases to a few weeks for complicated cases. The number of complicated cases is growing as criminals evade detection by leveraging advanced technology and digital to structure transactions.
Detecting and preventing money laundering is an important and critical activity, and no one would suggest that banks and other financial services providers discontinue their programs, but the total annual cost of AML compliance programs in the US and Canada is estimated at over $61 billion.
$61 billion in spend for 11,000 cases, that’s about $5 million per case.
There must be a better way.
Advancements in artificial intelligence techniques like machine learning have demonstrated that they can detect patterns and make predictions much faster than traditional techniques. Financial regulators have signaled their willingness to embrace innovation and automation to improve the efficiency and effectiveness of financial crime prevention programs.
So why isn’t there more adoption of these capabilities across the industry?
The answer is that institutions are concerned that leveraging these next-generation capabilities will result in increased false negatives that result in fines and other enforcement actions. Society often holds technology to a higher standard than humans, and they should, but continuing to perform an extremely ineffective activity is not sustainable.
There must be a better way.
