Using technology to fight financial crime

26 April 2021
As technology advances, so too does the advantage that criminals have. The internet, smartphones, VPNs, cryptocurrency — all of these innocent technology applications have been hijacked to some extent by those with nefarious intent.
Cryptocurrency has been identified as a way criminals launder the proceeds of crime.

Cryptocurrency has been identified as a way criminals launder the proceeds of crime. (photo by Pixabay)

Cryptocurrency, for example, has been identified as a way criminals launder the proceeds of crime. They buy or exchange from fiat to crypto and then back again, or use cash to buy crypto from third parties, therefore making the money appear like it’s come from a reputable source. The anonymous nature of crypto has provided some issues for those who want to crack down on money laundering, but increasingly, solutions are being found.
Online gambling has also been targeted by criminals for laundering money. They open accounts with fake details, or multiple different accounts and place a few small bets before withdrawing large sums- thereby cleaning it and making it seem legit. These sites have also been targeted by fraudsters and those looking to benefit from stolen identities.
Furthermore, the increased usage of smartphones allowed criminals to carry out illicit financial crimes with more ease. Connecting to WiFi means they are harder to trace, their portable nature makes it easier to commit more crimes, and viruses for mobiles are deployed to hijack user data.
How technology is fighting back
But technology is working hard to fight back against financial crime. For example, biometric and digital authorization is a great way of stopping criminals in their tracks. Biometrics can also secure transactions on eCommerce sites. A fingerprint or iris scan at the point of sale can ensure the purchaser is who they say they are. Online gambling sites can adopt this technology and use it when processing deposits and withdrawals.
Artificial intelligence is being implemented in the war against fraud in online gambling. It can speed up verifications, process KYC, conduct due diligence and detect suspicious patterns. Machine learning applications and big data may be used on their own, and in conjunction with AI to further mitigate risks.
Blockchain, the technology that underpins cryptocurrency, is now being utilized as a stand-alone system. It has found a variety of use cases in a range of sectors, including fighting financial crime. As every entry on the blockchain is immutable, transactional information can be stored securely and anonymized providing an extra layer of security.
Another great application of blockchain is to verify the information. Customer's data such as ID, personal information, fingerprint, and other biometrics are stored on the blockchain. Then, when the customer needs to identify themselves, this information can be shared securely with a third-party, such as yourself. This significantly decreases the risk of fraud and identity theft, and as a result, financial crime.
A growing number of businesses in every sector are now embracing these technologies to help them fight back against crime. This not only protects them and their clients, but it helps to secure the reputation of their industry.
Maltese legislation
In 2018, the Maltese Government became the first to legislate in favor of blockchain and cryptocurrency. Through the creation of three laws, it built a comprehensive legal framework that aimed to bring the sector in line with AML and financial laws. It laid down stringent measures for operators ensuring activities were legal and protected all stakeholders.
Then came the EU’s 5 AMLD, which was transposed into Maltese law. This was an update on the 4AMLD but took a significant legislative step in the way crypto was treated. It provided a definition, made exchanges bound by the same CFT/AML requirements as financial institutions, and made performing due diligence mandatory. It also empowered authorities to ascertain the identity of those owning virtual currencies.
Malta also has an Ethical Framework for its AI sector. It took a global leader in setting up the Malta Digital Innovation Authority and created the Innovative Technologies and Services Act. This was the world’s first AI certification program and was created to uphold ethical standards in the AI industry, across all verticals.
A combination of these factors and Malta’s booming online gambling industry has meant that it’s become an attractive jurisdiction for many. This includes both operators wanting to integrate technology mentioned in this article, and companies who are creating them.
Last word
While the fight against money laundering and financial crime continues, many are looking at new ways to fight back. There are plenty of options for companies looking to work in high-risk sectors or that want to develop technology-led solutions.
Fast Offshore has worked with exchanges, online gambling sites, and compliance for over 23 years. We also have a solid ongoing experience with emergent technologies like blockchain, crypto, and AI.

Ron Mendelson

Ron Mendelson is the Director of Costa-Rica based business and financial consultancy firm, Fast Offshore. With over two decades of experience in corporate services, iGaming, international business, finance, licensing and legal matters, he advises a number of international clients on their business needs in the Americas, Europe, and beyond.