• Jeremy Mears

North Korea Fallout Increases Need for AI in the Banking Sector

Updated: Jun 6

DOJ Charges North Korean and Chinese entities with facilitating $2.5 billion fraud scheme to advance Pyongyang’s nuclear weapons program.

Despite taking a backseat to more common headlines about COVID-19 and the subsequent global economic downturn, the North Korean scandal involving a massive network of financial operatives will have repercussions that will reverberate for years to come.


The US Justice Department in late May charged more than a few dozen North Korean and Chinese entities with facilitating at least $2.5 billion in payments to advance Pyongyang’s nuclear weapons program by using a clandestine network of hundreds of front companies and banking agents, according to Western press. The federal indictment accused the individuals—some of whom worked for an already US-sanctioned Foreign Trade Bank—of creating branches worldwide, including in China, Kuwait, Libya, Russia and Thailand, to process US dollar transactions in support of illicit activity.


UNDER THE RADAR


When the world is attempting to scrutinize North Korea’s every effort to further its nuclear- and ballistic-missile programs, one might ask “how did such a large network of individuals operate under the radar for so long?” The indictment revealed that the agents used a range of tactics to conceal the nature of the transactions, to include coded conversations, falsifying customers and destinations on contracts and invoices, and creating new fronts when banks became aware of transaction links to North Korea.


The response to this development will be harsh and absolute, much like the fallout associated with the penalties that have plagued banks in recent years for AML (link to our financial risk/KYC/AML/OTM page) and sanctions-related violations. The act of monitoring for money laundering and sanctions-busting is a massive burden for banks and regulators. Financial facilitators are extremely savvy at adapting to new control measures, discovering creative money transfer mechanisms for sidestepping international scrutiny, as evidenced in this indictment. As such, experts agree that innovative technologies (link to Aurora page) will become increasingly essential to combatting this threat.


THE ROLE OF AI


Most banks are already using some form of software to screen account holders and transactions against various watchlists and suspicious behavior profiles, effectively strengthening efforts to combat illicit finance (link to Financial Risk White Paper or Pillar Page). Although not a panacea for detecting all illicit activity, advanced data science (link to Aurora page) can achieve much more. A robust monitoring program that includes artificial intelligence enables banks to reduce false positives, allotting more time for analysts to investigate illegal behavior. By electronically crawling a bank’s transaction data and publicly available information, such platforms can help identify illicit activities and draw associations that almost certainly would have dodged a compliance department’s manual effort. Within a bank’s back office, for example, advanced platforms can greatly enhance link analysis (link to appropriate financial risk page), identifying the hard-to-see patterns in data, uncovering suspicious networks and drawing nuanced connections to illicit behavior, despite the use of broken language or conflicted messaging.


The indictment suggests that the illicit network employed “coded conversations” to circumvent scrutiny and conceal their activity. AI-based solutions, particularly those that include more cutting-edge subfields, can understand context, style, sarcasm, and intent within the data and can make intuitive leaps, much like a person. The system can detect sentiment, syntax, and dialects, and in today’s modern era of communication, can understand the use of special characters, emojis, and slang, to discern the full meaning of a message.


With the help of advanced data science, analysts can better assess the financial hubs that are being exploited and tactics used by launders and other criminals. Emerging cutting-edge technologies can enable financial institutions to screen far more entities and transactions in much greater depth, better defending a bank when investigators inevitably find the needle buried deep in the haystack that previously went undetected. In such an environment, North Korea, and other rogue regimes, undoubtedly would find it more difficult to pay for materials necessary to feed their sensitive programs.