Russia's war of aggression against Ukraine is also having an impact on the fight against financial crime. The risk of banks and financial service providers breaching ever-expanding and changing compliance regulations is increasing. And already strained resources in the relevant departments are put under additional strain, says Rory Doyle, Head of Financial Crime Policy at Fenergo. The Dublin-based fintech offers regulatory, compliance and anti-money laundering (AML) services to banks and brokers, alongside other services.

„There is a global shortage of anti-money laundering experts. And since Russia's invasion of Ukraine in 2022, the number of sanctioned individuals in the Western financial system has grown exponentially,“ says Doyle in an interview with the Börsen-Zeitung. „This has led to a huge increase in workload.“

According to him, the sanctions lists of the EU and the USA, or other countries such as Canada, have become and are becoming longer and longer. The sanctioned individuals have to be tracked down, and their accounts blocked, transactions have to be investigated, and supervisory authorities and Financial Intelligence Units (FIU) have to be contacted to process suspected money laundering reports. All of this costs time and money.

Know-your-customer (KYC) procedures are also considered to be very labour-intensive, particularly in Germany. Financial institutions are obliged to verify the identity of potential new customers, and also existing customers, at regular intervals. But according to a Fenergo report, the number of bank employees entrusted with KYC tasks fell by 14% worldwide last year, compared to the previous year.

At the same time, however, the average cost of a single KYC audit has increased by 17% to 2,600 dollars. In Germany, the amount is a good tenth higher at 2,855 dollars. In Germany, it takes an average of 106 days to complete a KYC examination. That is longer than the other countries included in the report. In the USA, for example, it takes 82 days. Almost 1,200 decision-makers in Germany, the USA, the UK, Japan, Singapore and Australia were surveyed.

False hits in transaction monitoring, in particular when searching for suspicious payments that could be linked to money laundering or terrorist financing, are also considered to be very time-consuming. „The number of false positives, meaning transactions that are flagged as potentially suspicious by IT verification systems, is in the 90 percent range,“ says Doyle. „This means that nine out of ten suspicious cases are false alarms.“

A lot of time and money could be saved if the number of false positives could be reduced. Because if a screening system raises an alarm, whether justified or false, an AML expert has to look at the process and follow up.

AI can provide a remedy. It can recognize suspicious patterns that indicate money laundering and also reduce costs. According to the Fenergo report, almost every second financial institution already uses this support in the area of analytics. More than 40% of banks use it in case management and behavior detection and 37% in reporting.

However, the other side is also upgrading its technology in order to circumvent the banks' lines of defense. „What we are seeing is that money launderers and sanctions evaders are also using artificial intelligence for their own purposes,“ says Doyle. „According to the risk-based approach practiced in anti-money laundering, the focus is on particularly high-risk situations,“ says Doyle. „So money launderers will try to get around these to avoid detection.“

It is foreseeable that the technological competition between the two sides will continue at full speed. „It's only a matter of time before quantum computing plays a role in combating money laundering,“ predicts Doyle. However, this is not expected to happen within the next five years.

According to him, the Gaza war following Hamas' barbaric terrorist attack on Israel and the generally escalating geopolitical situation has also given a boost to terrorist financing. „We are seeing an increase,“ Doyle notes.

Even if the volumes are significantly lower compared to money laundering and sanction evasion, terrorist financing is much more difficult to detect. „Terrorist financing is difficult to identify,“ says the compliance expert. „This is because the difference to money laundering is that it can also originate from a legitimate source, such as salary or charitable donations.“ Trade finance and the Iran also feed terror in the Middle East.

As far as the state of anti-money laundering in this country is concerned, Doyle is confident. Although the topic has often been neglected in the past, he credits Germany with having responded adequately.

The future Federal Office for Combating Financial Crime (BBF), which is due to start work in 2025, will probably change things for the better, according to Doyle. Among other things, the Financial Intelligence Unit (FIU), which has come under heavy criticism due to masses of unprocessed suspected money laundering reports, will also be integrated into the BBF.

The planned European anti-money laundering authority AMLA, which is to be based in Frankfurt, will also have a positive impact, says Doyle, who will be moving to the Main more frequently in future in order to strengthen his presence in the German, Austrian and Swiss (DACH) region following Fenergo's recent market entry. As Regional Head DACH, Alexander Hase is building up the business in German-speaking countries.

With a market valuation of more than 1 billion dollars, Fenergo has the status of a unicorn. The company, which generated sales of 113 million euros in the financial year ending March 2022, claims to employ around 850 people at 15 locations worldwide.