Putting the “Intelligence” back into AI

Artificial Intelligence (AI) has transformed our daily lives to drive better customer experiences, from connected home devices to retail experiences. But what will it take to unlock the power of AI in the commercial due diligence process?

1 in 3 said the ability to harness the information with data analytics would help to accelerate the due diligence process (Merrill).

However, despite AI applications becoming crucial in M&A in the coming years, those working within the sector may feel in the dark about its true benefits and limitations.

Machine learning (ML) is an application of AI technology that has provided sectors with invaluable insight. For example, in fraud prevention and AML processes, ML can increase the accuracy and speed in which fraudulent activity is flagged and processed.

What are the limitations and opportunities?

Training ML platforms and human intervention is a problem often raised, as well as algorithmic bias, overestimating capabilities, and reputational risk. Hence, with all the benefits and wonders of AI, it still needs to be coupled with the human touch to fully appreciate and aid its applications.

So how can AI benefits be unlocked without compromising data reliability or losing the human cognitive function? Well, combining these factors can allow humans (for all our faults) to supplement AI and ML to remove false positives and provide contextual analysis. AI should complement, not supersede the current decision-making processes.

Providing a whole greater than the sum of its parts61% of M&A professionals expect technology to change due diligence by supporting deeper analytical capabilities. An intelligence cycle that combines Open Source Intelligence (OSINT), Natural Language Processing (NLP), and human analytics, is powerful.

However, a full switch to AI may not be favourable. Instead, finding a hybrid process which combines technology with human intelligence can drive deeper insights, and faster, more informed decisions for a competitive edge.

Contact us today to find out how you can leverage AI for more informed risk-based decisions.

Knock knock. Who’s there? Passport programme in the Pacific faces criticism

The citizenship programme in Vanuatu was launched in 2016 and since then, it has raised more than $200 million in government revenue. 1,800 passports were handed out in 2018 alone and the scheme generated a THIRD of government revenues last year. But what has the fallout been?

Concerns have been raised over inadequate due diligence measures and lack of screening of applicants, which could ultimately undermine visa-free access Vanuatu enjoys with the EU. Under Vanuatu’s scheme, successful applicants can become citizens within a matter of months, and there’s no requirement to reside in the country or even to set foot on Vanuatu soil at all.

The job of screening an applicant’s criminal and financial backgrounds is performed by the Government’s Financial Intelligence Unit. In this week’s story published in the FT, Vanuatu’s minister for foreign affairs commented:

We are getting some negative implications as a result of the lack of due diligence on applicants to get citizenships, which is affecting our bilateral relations with other countries”.

The review of the programme comes amid wider worries in the west over Chinese influence in the Pacific.

Spotlight was also previously placed on Vanuatu when six Chinese nationals were arrested and deported back to China at the request of Beijing law enforcement officials. The group was allegedly running an online financial scam targeting people back in China. Of the group, four had successfully applied for Vanuatu citizenship and obtained passports.

Earlier this year, Vanuatu’s founding president Sokomanu commented:

“We achieved our name and now put it on sale and people are coming in and we don’t know [who] we’re inviting”.

The passport granted through the Vanuatu scheme provides visa-free access to 129 countries, including the EU. This more cautious sentiment is not limited to Vanuatu nor will it be the only passport scheme under increasing scrutiny. The Balearics for instance want an end to the ‘Golden Visa’ scheme, citing that some of the money may have a ‘dubious origin’.

With the world’s heads increasingly turned towards passport and visa schemes, we would argue that there is a huge risk of not knowing who the applicants really are or where their money really comes from. Due diligence measures that delve deeper (into the applicants’ source of funds and networks for instance) on a case by case basis are going to help government officials make informed decisions. In the case of Vanuatu, it may all be too little too late.

As the FCA becomes more data driven…are you increasingly at risk?

As we approach the anniversary of the FCA’s first published set of aggregated results, it is a good time to review what that means for risk managers across the UK and Europe.

Based on its annual financial crime survey of over 2,000 firms, firms may find the insights helpful as the data enables a comparison of their own management information against industry-wide trends and averages reported in the survey. Since 31 December 2016, the FCA has required over 2,000 firms subject to the UK Money Laundering Regulations, including all UK banks and building societies, to submit an annual financial crime data return.

The report identified that the respondent firms had a customer base of approximately 549m relationships in total.  Of these 120,000 involved ‘politically exposed persons’ (PEPs), just 0.02% of total customers, with 1.6m other ‘high-risk customers’ (an overall share of 0.29% of total customers).  While these percentages may be a small share of overall relationships their importance should not be underestimated.

It is possible that the FCA could use this industry-wide data to target firms for additional supervision in terms of AML controls. For instance, the FCA could focus on an individual firm with high-risk or PEP customer shares exceeding these industry-wide averages, such as Wealth management firms or, on the other hand, target those falling significantly below what might be expected for a firm of that size (and therefore potentially evidencing inadequate identification of high-risk customers). Adequate identification and management of high-risk customers has remained a key focus in the FCA’s 2017/18 annual report.  Enforcement activity taken in June 2018 against Canara Bank is just one example…

The challenge then is one of multiple layers.  As well as ensuring a culture of compliance there is the need to carefully apply budgets and resources to the high volume of clients and transactions that may become an issue as well as the high risk clients that need closer supervision.

The Money Laundering Reporting Officers within the surveyed firms handled 923,000 internally escalated suspicious cases in the 12-month reporting period. Following investigations, 363,000 suspicious activity reports (almost 40%) were then filed externally by firms with the UK National Crime Agency (the NCA), together with over 2,100 terrorism-related suspicious activity reports.  Only a small percentage (approximately 1%) of SARs filed with the NCA resulted in the NCA taking enforcement action.  This perhaps indicates ‘over reporting’ within the sector but the OECD has criticised the UK for the low level of corruption enforcement activity resulting from the current SARs regime. Given the large volume of SARs filed on a daily basis, and many being of ‘low quality’, investigation authorities face a challenge in detecting where the real risks lie.

In relation to country risk, the top 5 countries most often classified as ‘high risk’ by surveyed firms based on the risk of financial crime were Iran, Panama and Russia, Iraq and Laos.  The FCA emphasised that the industry rankings of country risk based on the survey results do not reflect the FCA’s views given that some firms may not have performed a risk assessment of certain jurisdictions. Despite this caveat, when viewed alongside other publicly available indexes such as Transparency International’s Corruption Perceptions Index, firms may find this useful guidance on the general views taken by their peers on country risk.

Rogue customers are perceived to be the principal perpetrators of crimes such as application fraud, insurance fraud, mortgage fraud and loan repayment fraud. Employees are similarly believed to be behind most expenses fraud and situations where fraud results from a person abusing a position of trust.

As data improves to better identify the risk so do the tools available to manage the risk.  At Neotas we utilise AI, machine learning, natural language processing and skilled analysts to ensure that enhanced due diligence is faster and more insightful than ever before.  Zero false positives, comprehensive use of surface, deep web and social media content, unlimited timelines (not just a 3 year news search!) and a number of other technological advantages ensure that our clients are better informed, and thereby more compliant than ever before.

Contact us today >> info@neotas.com

5 minutes with Ian Howard, Neotas

In the latest instalment of our HR executive interview series, we talk to Neotas Director Ian Howard about his company, industry trends and careers advice…

Tell us about your company, products and services.

Neotas is a technology led company, focused on providing pre employment screening and Senior Management screening services. We use the full power and breadth of Open Source Intelligence, the deep web and Social Media to help organisations better understand opportunities and hidden risks and opportunities related to their workforce.

What have been the biggest challenges the Human Resources industry has faced over the past 12 months?

From our perspective the biggest challenge has been to find the balance between an individual’s right to privacy and GDPR obligations vs the growing amount of public information available for all of us. Where is the balance between protecting privacy and managing risk?

And what have been the biggest opportunities?

Technology is evolving rapidly and makes it easier to identify information. What was impossible 5 years ago, now is not only practical but can also be cost effective. Of course, this technology needs to be used in a legal and ethical manner, so building this into every process is key.

What are the main trends you are expecting to see in the market in 2019?

Ongoing adoption of social media screening and analytics in the screening process for most organisations. This will bring an increased understanding of what is “possible” as well as greater guidance on best practice in this interesting space.

What technology is going to have the biggest impact on the market this year?

Artificial Intelligence and Natural Language Processing are buzzwords that everybody is using but to us it’s a fundamental part of what we do. NLP will have a big impact on the market. It’s a technology that helps us quickly process large amounts of data and provides contextual analysis, thus in turn providing actionable insights for our customers Without burying them with useless alerts for issues that are not business critical.

In 2022 we’ll all be talking about…?

I think we are only now beginning to understand the impact that social media have in our lives and how someone’s online presence, privacy & data protection and individual rights, are all aligned and can co-exist. I believe we will see an increased need to manage our personal digital footprint better in the future. These conversations will persist over time and I’m sure we will still be trying to strike the right balance in 2022

What’s the most surprising thing you’ve learnt about the Human Resources sector?

I’ve been surprised but also pleased about how they engage and how keen they are to understand what we do and how we can help them, but also how keen they are to bring us into their processes. Technology is impacting all aspects of business and HR Tech companies are bringing some really interesting innovation to a sector that historically hasn’t been known for it

You go to the bar at the London/Manchester HR Summit – what’s your tipple of choice?

My favourite cocktail is an Old Fashioned.

What’s the most exciting thing about your job?

The interesting stories we uncover – From finding out about amazing deeds that people have done and have contributed to getting them selected for jobs to uncovering a small percentage of bad apples and stopping them from going into an organisation. We have some great case studies!

And what’s the most challenging?

Driving change can be challenging. Large organisations operate at different speeds to start-ups! But in Neotas we are up for the challenge.

What’s the best piece of advice you’ve ever been given?

There’s a famous quote that’s always stayed with me, “Don’t burn bridges. You’ll be surprised how many times you have to cross the same river.” I have found this very helpful in business and in life.


Originally published in the September edition of HR Briefing here.