HSBC brings in AI to help spot money laundering

By Martin Arnold

https://www.ft.com/content/b9d7daa6-3983-11e8-8b98-2f31af407cc8

HSBC is bringing in robots to help it spot money laundering, fraud and terrorist funding, as the latest bank to harness artificial intelligence to tackle financial crime more quickly and cheaply than with armies of compliance staff.

Europe’s biggest bank is planning to integrate the AI software of Quantexa, a UK-based start-up, to screen the vast amounts of data it holds on customers and their transactions against publicly available data, in the search for suspicious activity.

Stung by multibillion-dollar fines in the past decade for failing to stop illegal finance flowing through their accounts, many large banks are partnering with AI specialists as part of efforts to clean up their act.

Using AI to sift through vast amounts of data also offers the opportunity to save money — banks spend £5bn a year on combating financial crime in the UK alone, according to the Financial Conduct Authority.

The move comes just months after HSBC froze an account connected to an alleged $500m fraud by the son of Angola’s former president, a development the bank says is a sign its tougher compliance systems are working.

Jennifer Calvery, the bank’s global head of financial crime threat mitigation, said in a recent video on Quantexa’s website that the bank believed in “harnessing technology and data . . . to get to a place in the future where we understand and can see criminal behaviour in as near real time as possible”.

HSBC has invested billions of pounds to improve its compliance controls after a $1.9bn settlement in 2012 to avoid criminal charges for allegedly laundering at least $881m for Mexican drug barons and breaching US sanctions on countries including Iran and Sudan.

As part of its clean-up efforts, the bank sold more than 100 businesses and pulled out of more than 20 countries under Stuart Gulliver, its chief executive from 2011 until this year. John Flint, his successor, is considering pulling out of some of the other 67 countries it still operates in, such as Uruguay, Bermuda and Malta.

Quantexa was founded in 2016. Its software scans structured and unstructured data on transactions from different sources, such as phone numbers, addresses, company directors and news reports, to look for suspicious connections. Vishal Marria, founder and chief executive of Quantexa, said: “It is about understanding the flows of money: we build that picture for every customer in real time.” The company last year raised $3.3m in funding from HSBC and Albion Ventures. HSBC has also partnered with Ayasdi, an AI specialist, to automate parts of its anti-money laundering investigations.

Regulators are monitoring banks’ use of AI to spot financial crime. Rob Gruppetta, head of the FCA’s financial crime department, said in a recent speech: “Any bank hoping for a black box in the corner that will sniff out the launderers will be disappointed, but the technology has the capability to better achieve what we all want: keeping finance clean.”

Other banks have also partnered with technology providers to combat financial crime, including Royal Bank of Scotland, which last week said it had teamed up with Vocalink to scan small business transactions for fake invoices and attempted fraud.

Denmark’s Danske Bank recently joined forces with Teradata’s Think Big Analytics unit to scan tens of thousands of transactions in real time, while Singapore’s OCBC agreed a partnership last year with BlackSwan Technologies and Silent Eight to improve and speed up its detection and investigation of suspicious transactions.