The Future of AML - Old Ethics x New Technology - p1

Codex Compliance
Jun 30, 2019
10 min read

Updated: Aug 26, 2019

You can’t walk down the street these days without someone stopping you to talk about Artificial Intelligence (AI) or machine learning or deep learning, it’s the direction the world is heading, and has been heading for a while. Or maybe that's just me and I need to walk down different streets! Whichever way you go, industry you are part of, or products you use, AI (used as the catch but broken down below) is in place, developing and plotting to change the world we live in. This approach is embraced by many, as the next, logical and exciting step for computing, and feared by the others, i.e. robots will supersede the human race and we should approach this with extreme caution. There is a lot of discussion, research and argument as to what the future holds for AI and humans, but at this point I will say that I think AI has great potential, is starting to do some interesting things, but agree with the opinion that currently “AI is pretty dumb”. Those are the words of Yoshua Bengio, a Canadian computer scientist who knows a things or three about AI (1).

Data, connections, nodes, algorithms, etc / Image: NASA / Unsplash

“The two most common elements in the universe are Hydrogen and stupidity.” ― Harlan Ellison

In that sense, current AI, is happily joining club stupid, adding to the validity of the above quote and the comfort of many (if you think that's incorrect or harsh, I mean intelligence in relation to us, not the progress that has been made, calm down - see Ray Kurzweil Ted Talk (link below) in addition to the Yoshua Bengio article). I’m not too keen on the term artificial as a synonym for non-organic, it’s not accurate. I have seen Artificial transplanted with Augmented and Inorganic (2), but I like, the A in AI, so I think, Autogenous Intelligence might work, meaning; produced from within, or self-generating. Or how about Autonomic Intelligence, meaning self-governing / unconscious, or is that just asking for trouble. What about Anti-organic Intelligence, well that might be what it calls itself after it becomes sentient... I’ll stop there before I get carried away and start doing acronyms!

From a personal perspective I’m not too bothered about the rise of the machines at the moment but from a professional one, I welcome the rise of machine intelligence and AI (whatever that stands for), as I believe it’s the only way to really stop financial crime. As that is quite a statement and the subject matter is vast, I thought it only right to give you the basics below for AI and Ethics, if you’re in finance you might be new to both ideas - zing!

AI 101- as per Investopedia.

Artificial Intelligence refers to the simulation of human intelligence in machines that are programmed to think like humans and mimic their actions. The term may also be applied to any machine that exhibits traits associated with a human mind such as learning and problem-solving.

The ideal characteristic of artificial intelligence is its ability to rationalise and take actions that have the best chance of achieving a specific goal.

KEY TAKEAWAYS

*Artificial intelligence refers to the simulation of human intelligence in machines.

*The goals of artificial intelligence include learning, reasoning, and perception.

*AI is being used across different industries including finance and healthcare.

*Weak AI tends to be simple and single task oriented, while strong AI carries on tasks that are more complex and human-like.

Algorithms are sets of instructions for solving a problem or accomplishing a task. One common example of an algorithm is a recipe, which consists of specific instructions for preparing a dish/meal. Every computerised device uses algorithms to perform its functions.

Machine learning is the concept that a computer program can learn and adapt to new data without human interference. Machine learning is a field of artificial intelligence (AI) that keeps a computer’s built-in algorithms current regardless of changes in the worldwide economy.

Deep learning is an artificial intelligence function that imitates the workings of the human brain in processing data and creating patterns for use in decision making. Deep learning is a subset of machine learning in artificial intelligence (AI).

ETHICS 101 - from the BBC.

At its simplest, ethics is a system of moral principles. They affect how people make decisions and lead their lives. Ethics is concerned with what is good for individuals and society and is also described as moral philosophy. The term is derived from the Greek word ethos which can mean custom, habit, character or disposition.

Ethics covers the following dilemmas:

* how to live a good life?

* our rights and responsibilities.

* the language of right and wrong

* moral decisions - what is good and bad?

* Reality TV (editors note: not BBC, though they should add it, as it is very obviously not right!)

Does that make sense? Good, now you can be under-informed and over-opinionated like me. So, ethics is an old idea, and AI is a newer idea but they must lay together for the world (AML + in general) to move forward - into the post-post industrial world, or into the 4th industrial revolution, whatever you want to call it. The key is that somewhere along the way, the rights and wrongs of the financial system, of inclusion, access and equality became clouded by ego, and money, the humans lost their way. Things that were right for some, became very wrong to others. Humans cannot be relied on to know the difference between right and wrong in certain environments, under particular motivations. They need some help from computers. Now, the future of humanity will depend on how this relationship develops, how it is balanced, and the evolution of both sides.

This is Pepper, he does client greeting, but one day he might do client on-boarding as well! / Image: Alex Knight / Unsplash

Logic, Ethics and a lack of Humanity.

The combination of Old Ethics and New Technology is the way forward simply because we created / discovered a monster that cannot be contained, the selfish human. Civilisation could be the holistic term for how things don’t work in the best interests of all humankind. There might be a number of perspectives on what exactly what makes up that monster; Greed, Money, Ego, Self-preservation, Capitalism, Democracy, Derivatives, all-powerful Governments, and I’m sure there are many other perceived evils out there. Beliefs, values, traditions, and cultures will vary as will blame. What of moral values in todays civilisation, what is right and what is wrong? I don’t know the answers, I only know that when it comes to the wrongs that I think are out there, the list is long, and it becomes a spider diagram that expands beyond the realms of anything that can be fixed.

Our civilisation has created inequality, injustice, and selfish nature that is driven by the desire for money and power, and human ingenuity and creativity found a way through crime and corruption to infiltrate every part of the global financial system. A system which is powerful but flawed because it lacks basic ethical foundations and has done for a long time. When it began in varying forms around the world, it facilitated trade and created order. In no time its ability to create power, status and wealth was leveraged by a few whose ethical radars became skewed by the great personal rewards. This perpetuated over hundreds of years to create a corrupt, greedy state of affairs, and a new world order. Financial freedom, crime and corruption are intertwined. By the time action was taken the wrongs were endemic, and though great strides have been taken to enact change, my belief is that it has become too complex a problem for humans to solve directly. We are adept at discovering, creating and solving complex issues, but sometimes, as per some of the grand conjectures of mathematics and ridding the financial system of the proceeds of crime, they are created, fought with great resolve but remain unsolved.

That’s a vague dramatisation of how we got where we are today. We now have hundreds of billions of pounds of dirty money flowing through the system from various sources and further billions thrown at the problems from the defensive side, trying to stem the flow and catch the bad guys. Just look at the figures related to money laundering, and the predicate crimes of corruption(inc bribery) and tax evasion, the figures are in the trillions (3), while there is a huge amount of cash in the mix, the money in banks and financial institutions is flowing and there is seemingly nothing we can do about it, despite the efforts of many a diligent and persistent financial crime fighter across the world.

We need a helping hand / Image: Franck V / Unsplash

Technology our Saviour.

Those who take a data and tech driven approach to fighting financial crime and have come into the space in line with new technologies that both improve and threaten the integrity of anti-financial crime sector and most importantly embrace these areas of change. I believe an important facet in the fight against financial crime is the juxtaposition of old ethics and new technology. What is right enabled by what we create to enforce those rights - as humans are quite simply unable to. In traditional finance/banking, ethics took the back seat to profit and that model is largely in play today - new organisations in the finance sector have the chance to rectify this approach and at achieving more than the unfortunate 0.1% - 3.3% (4) success rate in AML endeavours. It is in technology that we must trust to protect and secure the finance sector, as the complexity of the financial system has become too great, alongside the norms we have created - enabling those who profit the most, those who have not and will not change for the greater good.

Joe Gebbia, co-founder of airbnb states something along the lines of that modern companies have give back to the world, not just to shareholders (5). It’s their responsibility to make the world a better place, he says. The tech behemoths of today are equipped beyond reason in todays growing cybertech fest of a world and it’s only going to get worse/better (depending on how you feel about it). In amongst the FAANG, titans of social media, retail and hardware are the so-called challenger banks (CBs from hereon) Monzo, Starling, n26, Revolut et al.

Whilst the big boy old school banks have the budgets, they have less reason to embrace a new model. The owners of the CBs are millennials, young, empowered, passionate and ready to change the world, more so than they have already - if that is don’t become consumed with the need for financial returns above all else. They demonstrate a want to do the right thing, to be ethically upstanding and create their companies in that image. Can this be done in finance, where historically money talks, money makes money, and nothing else matters? Sure the mainstream banks have their corporate social responsibility and they have the budget to make a difference, often making a show of their good deeds. If it wasn’t for the social pressures and expectations in todays corporate responsibility framework of be-good, do-good, sustainable all-inclusive environmentalism - I wonder whether they would bother (they didn't for a long a time). And the same approach I believe lies in the case of financial crime, if they didn’t have do it, they probably wouldn’t (they didn't for a long time) - as is shown the back-looking violations and fines, the enabling of circumvention such as wire-stripping or selling tax evasion as product. For a long time, banks knew they had to, and they didn’t, they only started paying attention when jumbo fines started flying around, at times the unreconcilable reputational and operational damage leading to shutdowns of banks and corporations.

Eat, Sleep, Cheat, Repeat.

Yet, every year we see a new scandal, typologies and behaviour that belies the perceived direction of the fight against financial crime. A scandal ensues, banks rally, laws and protocols are amended, but there is little impact from these largely reactive measures. The value of illicit funds in these schemes gets higher, as do the fines, but the stakes for the banks don’t - they budget for fines, they court failure. Eat, Sleep, Cheat, Repeat. Apologies are issued resignations tendered, and promises are made, while simultaneously it is highly probable that a bank / financial institution somewhere is trying to keep their own scandal from being unearthed - getting cosy with auditors, lobbying government, calculating the right time to tell the regulator, trying to hush a whistleblower or journalist, who knows what’s going on? I bet Pepper could find out...

Maybe I’m being a little unfair to the old boys of money, but I don’t think I am. Look at the City of London, what it is and how it’s run, the Jersey States, US tax havens and the Presidents Club type organisations and events, and you see the kind of old school vibe I’m referring to. There is a way things are done in banking and finance, and despite what happens on the surface, changes seen and affected, the core remains very much the same just because it's too late to change it. The damage to the system has been done by the human condition, and we can't fix it ourselves. While the CBs I mentioned might have the desire to implement and an ethical edge, they may lack the budgets of household global banking brands, hence growth coming before R&D.

Where there is a will, there is a wrong way.

For a while I thought the AML regs, the laws, rules, directives, the legislation were working, that changes and moves made were real and not just for show, and the more I have learnt, seen, and experienced, the more I believe this to be false. There is no doubt that there are those in government and with the required power that are striving to make material changes, but there is also a barrier. That barrier is comfortable normalcy, a very well established norm and the problems that slight deviations from it can cause.

The effort has to be global, the FATF are leading the way, the EU, the various US powerhouse institutions alongside and behind the banks of the world have been fighting this fight for a long time and yet, we see the value of illicit global funds in the trillions and anti-money laundering measures failing. The statistics may not always be reliable but the general consensus is a punch in the gut, and kick when you’re down. I need the world to be a better place, and if humans can’t achieve that then maybe we can create something that can. That’s what we do, we are creators, engineers and problem solvers - financial crime needs a hero, and there is only one I can see (other than the Infiltrator, Robert Mazur, and sidekicks the Dark Money files guys, Graham Barrow & Ray Blake).

I know that I have used photos of actual robots, a semi-humanoid one at that. It's to engage your imagination a bit and get the message across in a relatable way rather than pictures of code. But actually there have been scenarios depicted in the movies/tv where humanoid robots are the face of the AI, it's only logical - so we can anthropomorphise and get comfy while they plot. Who knows, one day you may work alongside a Pepper. Anyway, that was kind of an introductory rant. In the following posts I will go into certain areas of machine learning, the current state of AI, the language of ethics, the challenges, and my ideal scenarios in the next few posts, if I can make time to write that is. Maybe I will write an algorithm to assist me, bit of deep learning never went amiss - Skynet aside.

Al.

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