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SHOW ME THE DATA PODCAST
SEASON 2: EPISODE 1
DATA AND CRIME LORDS: A DATA-DRIVEN APPROACH IN ADDRESSING FINANCIAL CRIME
CONVERSATION WITH pROFESSOR ANDREAS CHAI AND DR TOM VERHELST – 28 minutes 45 seconds
According to the World Economic Forum (WEF) financial crimes cost the world around two trillion dollars annually and only one percent of that is ever seized.
Due to the size, spread, complexity and lack of visibility into the bulk of this activity, helping to realise as little as an additional percentage of this problem could reap serious benefits for victims and communities. By providing a sandbox style testing environment to analyse anonymised historical financial transaction data, AFCIC will enable Griffith researchers to use novel and trusted econometric and data science pattern detection techniques to identify key signals within the huge time-series datasets linking transactions and accounts between multiple organisations. AFCIC will then use these insights to develop more proactive, wholistic and sustainable detection and prevention strategies and continually update the training materials for the academy and providing a pipeline of qualified people.
While data provides exciting opportunities to inform decisions which then better help the victims of financial crime, Chai and AFCIC understand that combatting financial crime is a job never done, and one that will require continuous innovation as criminals adjust their behaviour and respond to market restrictions and incentives. If you want to help address this complex issue affecting millions around the world and gain experience working with real-world financial data, we encourage you to check out the Academy of Financial Crime Investigation and Compliance (AFCIC) and enrol in one of their industry leading certifications, diplomas, or micro-credentials. AFCIC is an excellent example of how data can be harnessed, and immense value can be unlocked and used to develop evidenced-based solutions to local and global problems.
SHOW notes
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- More about The Academy of Excellence in Financial Crime Investigation and Compliance an contact information can be found here: https://www.griffith.edu.au/academy-financial-crime
EPISODE TRANSCRIPT
Rhetta Chappell (host): Hi, and welcome to Show Me the Data, a podcast where we discuss evidence based decision making and the ways in which our lives interact with and create data. I’m Rhetta. Your host for today and I’m a Data Scientist at Griffith University. Show Me the Data acknowledges the Jagera peoples who are the traditional custodians of the land on which we are recording today. And we pay respect to the elder’s past, present and emerging. Hi, and welcome to our latest episode of Show Me the Data. Today we have the awesome Professor Andreas Chai with us in studio and I’m also joined by my co-host, Dr. Tom Verhelst. Dr. Tom Verhelst is the Director of the Relational Insights Data Lab (RIDL) and the Griffith Data Trust (GDT) and Andreas is the Director of the recently established Academy of Excellence in Financial Crime Investigation and Compliance. Andreas is an economist and he’s focused on measuring poverty, energy poverty, financial hardship, financial crimes, as well as climate change and adaptation. Andreas has been published in many leading economic journals and has completed projects for organisations like APEC, the UN and IP Australia and has also done work with the federal and state governments. Andreas has been a longtime friend and collaborator of RIDL and Tom and I, and we both look forward to sharing this conversation with you. Let’s get started. Hello, and welcome, Andreas and, Tom, thank you both for your time today. Andreas, we’ll start with you. Could you please tell us what the Academy of Excellence in Financial Crime Investigation and Compliance is and what it was set up to do?
Professor Andreas Chai: Sure, thanks, Rhetta. I realised that’s a very long name, actually, originally, we could call it Academy of Financial Crime, but then people thought we would just be teaching people how to do financial crime. That’s why we decided to do financial crime investigation and compliance to make sure that we’re signalling that we’re on the right side of things. But yeah, look, basically, this academy is part of a global efforts to do more, to address the costs and risks of financial crime and safeguard the community. So basically, what has been happening around the world is that there’s been a lot of realisation that the proceeds of crime can be traced in the financial system. So anytime someone’s making money from illegal activities, such as selling drugs, that money ends up in the banking system somewhere. And the United States and Europe have been very advanced in setting up regulations and requirements that banks but also other financial institutions, monitor their customers activity and report any suspicious activity that they see. Australia has been really behind on this. And it’s come to a point where we, the industry has come to us to Griffith and said, look, we need to basically do more to highlight this as something where there needs to be more training around. And they want to grow a pipeline of talent, whereby if people at Griffith University get the right training, if they can go then work for the banks and other institutions in this area.
Rhetta: It’s great. And are there any international examples? You said Australia is a bit behind on this? Are there any international examples?
Andreas: Yeah, absolutely. Yeah, yeah. So absolutely. So around the world, proceeds of criminal activity account for around 2 trillion US dollars, according to the World Economic Forum. And approximately a 1% of that is ever seized, which is mind blowing. Like that’s, like most stuff is just left alone. And in terms of academies that have started, it’s mainly been on the government levels. So the OECD has a particular Academy, which is a really interesting one. It is the OECD Academy for tax and financial crime investigation. And what they do is they provide training for police investigators about how to trace the money. And I was talking to them and they said, actually, the first country that was really good at this was Italy, because of their, you know, tradition. They felt they’ve had these issues in organised crime before. And the Italian public service police became so good at that they started providing these training services to other OECD members. So they’ve they’re training people in Mexico and all over the place. And apparently, Australia is very good at tax evasion. So we have Australians teaching other countries about how to track tax evasion. So for us, though, we’re that’s more on the public service level. And so this is one of the first there’s a few other unis doing this, but we’re one of the first that sort of is doing this at the grad dip grad cert level, and also doing micro credentials for our businesses. And what our unique take on this is that the training that we’re providing is going to be very interdisciplinary. We’re taking sort of basic concepts out of criminology. You know why why offenders commit crimes? What do victims look like? What kind of mix, do you see to sort of understand what’s going on, and connecting that with what the bank obligations are in terms of reporting this activity to the government. And we’re also combining with skills in machine learning and forensic accounting. So it’s very, very interdisciplinary. And we’re hoping to sort of create a new standard in this area. Because up to date, what we’ve seen a lot of the training offerings are mainly rules based, it’s a bit like your OHS training, you know, here’s a bunch of rules, and try and memorise them and then sort of tick the box. But what we’re doing is we’re trying to say, okay, let’s not, you know, let’s do that, but also focus on the actual deep skills that you need. So critical reflection, investigation, data analytics, and connecting that with the sort of social mission, which is, you know, not only are you doing something important, that’s important for the bank, but it’s you’re doing something that’s important for the community, when you kind of crack down and report financial crime.
Rhetta: That’s fascinating.
Dr Tom Verhelst: Yeah, very interesting. When you were just talking, you mentioned that you’re going to train these people in data analytics. So I was before when you were talking, you were saying that Australia is lagging behind. So I imagine if you’re an international crime lord, you want to get your money into the…
Andreas: Very hypothetical Tom, not doing any inferences about what you’re doing. You’re doing in your spare time…
Tom: Yes, especially an international crime lord, and you want to launder your money, basically, you would, you would try and find the country, you would try and find countries where there’s a stable currency, and where there’s not a lot of capability in oversight. Yeah, that’s what you would go for, right? You wouldn’t go for a country with a lousy currency. So if Australia is a good currency, if you’re saying we’re pretty bad at policing this, then this is actually…
Andreas: We’re not bad at policing it. But we’re just in terms of the legislation, we’re behind the legislative agenda where the rest of the world is up to. So if you look at what the reporting requirements are in Australia, so at the moment in the debate banks, superannuation funds, and these major financial institutions have to report but real estate agents, lawyers, art dealers, they don’t have to report anything. And that’s what they call tranche two of the AML/CTF legislation that may get passed. And if that happens, then a lot more reporting entities have to report. So that is pretty much standard in Europe and in the US, but it’s okay. That’s how we’re behind in that regard. So yeah.
Tom: And how mature are we in the exchange of data and information space? Because if you again, if you’re a international crime lord, you wouldn’t bank with one bank, right? If like, if one of those properly would have an international set of bank accounts, and you would move money around,
Andreas: Could move money around. So that’s yeah, that’s part of the sort of way that’s criminals try not escape their monetary flows, they might have multiple people depositing money, having it moved around using shell accounts and shell companies that might be registered in one location as the Seychelles or these sort of cheap tax havens, and have a board of directors somewhere else. So it’s very hard to sort of work out who the beneficial owners are, and the sources of funds sources of wealth. So look, it is hard, but it’s gotta think, remember, what we’re dealing with, we’re dealing with behaviour, where people, you know, want to hide what they’re doing. So that’s always going to be hard. And as soon as you come up with or understand, you know, one particular process that they’ll respond, and change it. It’s a never ending kind of cat and mouse game.
Tom: So what are the what are the big insider information challenges for financial institutions in these investigators?
Andreas: Yeah, so look, it’s interesting, because one of the things that is new in Australia are not new, but relatively new in Australia is the reporting obligations of financial institutions is sort of based around encouraging the financial institutions to actively monitor and assess the risk and report it. Whereas previously, it’s just been sort of a rule based reporting system where if something over say $10,000 gets transferred or deposited, then the report but now they’ve got to actually actively think and, and monitor and just, you know, analyse themselves. And that becomes a challenge because basically, when you think about data sharing, if an institution sort of shares too much of what they’re doing in their standard operating procedures, they could be worried that the regulatory body might say, well, you’re not doing this properly, and you might get slapped, slapped on the wrist. So at the same time, if they don’t share enough, they’re not fulfilling their reporting duties.
Rhetta: On that, then do you think that universities can help by providing a place to create kind of a regulatory sandbox for this? Or what role do you think the university can do to help, I guess, mitigate that as an issue?
Andreas: Yeah. So look, in terms of the cost, it’s a massive cost around financial institutions to do the reporting and the monitoring, and all the rest of it. And there have been some discussions around the world to sort of thinking about how we can come up with a more cost effective way of doing the monitoring, and potentially this sitting outside any one particular financial institution, but at a third party. So we’ve been talking about Netherlands and Japan’s talking about this as well. But Japan Bankers Association has been talking about setting this up where, rather than any one institution doing the monitoring and the reporting, you have this sort of overarching body that does it on behalf of all the institutions. And that way, you can sort of see you know, when obfuscating and hiding their activity, if you have more banks involved, you can see a bigger piece of the picture. And you might be able to find more information. Of course, that’s a huge task, because just getting the arrangements where people share it into one source, integrating that is massive. But there’s a huge potential payoff in the sense that you’ve got one org, one institution doing it rather than all these other entities. So that’s the sort of big idea whether it works or not, is, I guess, to be seen,
Tom: The university could be an interesting role there now. Because to set this up, you’re right, it’s very high. It’s high risk, it’s high boulders, all capital involved, because you have to set up a system that doesn’t reduce the speed of transaction, and you’re not really sure what you’re looking for. So you sort of need something to test and evaluate things. First, correctly, a university or probably university could play a very good role.
Andreas: Yeah, that’s right. So the university could potentially start with, you know, getting a slices of historical data, where there’s, you know, known activity that has happened, and just prove, to develop a bit of a test case to say, you know, this is how it works. This is how patterns work. Yeah,
Tom: Yeah. Especially what you said before, because if you look at one bank, you’re sort of seeing a slice of the information. So you’ll be reporting things that are actually not a problem, and you’ll be missing other things. Because you’re just having a very single eyed view. On the whole. Well, the whole movement of money.
Andreas: Yeah, absolutely. Yeah. Yeah. Yeah.
Tom: So what are the what are the main barriers, you think, from making to making to making things like that happen to access data like that?
Andreas: Well, you know, obviously, there’s, anytime you pull data into one place, it’s a massive risk. So which I’m sure you guys are well familiar with that so convincing, you know, partners that that that’s worth it. But I think there’s a really strong case here, just because you know, that we’re talking about trillions of dollars and the crime as his massive effect on society, think about, you know, substance abuse, think about tax evasion, child trafficking, war crimes, these are all the things that if we had a good system to trace the illegal flow of funds, you can have a massive impact on on these kinds of activities. So the benefits are massive, but the risk is, you know, it needs to be weighed off and done in a way that’s safe and and dependable.
Tom: And you think it would have any benefit in all the financial fraud we’re seeing with people that have lost their, or their credentials have been hacked? And then they get they get scammed?
Andreas: Yeah, absolutely. So anything, where if you track or develop ways in which you get the proceeds of crime confiscated, it actually reduces the incentive for criminals to do this kind of stuff. Because if they get traced, if they do stuff, and that the payoffs not there, then that actually discourages them from committing the crime in the first place.
Rhetta: And with that, with that argument, Is there anywhere around the world where they have been able to have that kind of deterrent effect on cybercrime? Or is nobody quite there yet, or we just don’t really know.
Andreas: Yeah, it’s a really good question right up, because there’s not a lot of data that has shown how these regulations have actually had an effect on the informal sector, you know, illegal activity. And one of the things that we want to do at the academy and research side is go out and measure that. It’s hard to do because obviously, people are you know, it’s, you know, they’re hiding what they’re doing. But interestingly enough, one of the ways that people have looked at it is looking at the demand for actual currency, because a lot of the illegal stuff is done cash in hand or or drug money is hidden in cash. So there’s this massive amount of missing money that’s being stashed on, you know, in the backyard or on the mattress. That’s not in circulation. So that’s been one way that people can actually measure that the others. Other stuff is like crypto currency transactions.
Rhetta: Yeah, I was just gonna raise that. How do they Yeah, have that visibility. But I guess that’s just another piece to that whole puzzle, isn’t it?
Andreas: Yeah, absolutely. Yes. Yes. Yeah. Yeah. So crypto is a very sort of fashionable way to do it now. But I’ve been told by Ernest and colleagues in ICT that it’s actually possible to trace crypto transactions as well. So to some extent, how easy it is to hide your transactions is actually, you know, questionable, because yeah, if it’s on a ledger, and that ledger, on the blockchain, and if you know, who bought and sold it, then it might be possible to trace where the money went.
Tom: It’s also very frequently if the money goes abroad, it’s gone. Right? Especially with scamming. Like, if it’s professional scammers from one of the obvious countries like Russia, the second instead, you have no recourse. But the second it’s transferred into a Russian bank account, then there is no jurisdiction. So you gotta stop it before it reaches?
Andreas: Yeah, but it’s also about, and this is interesting. I mean, the international legislation and cooperation on this, I think there’s a growing appetite after, you know, the Panama Papers and things like that, for countries to collaborate more on this and crack down on stuff, like people not paying their taxes, and that kind of thing. So I’m feeling more hopeful that there will be more opportunities for countries to come up with, you know, ways that they agree on, on finding the criminals in this, but yeah, absolutely. With. So one, one relatively big case in the last couple of years was child sex exploitation, where the money was going in small amounts to the Philippines. And yeah, once that money is there, it’s gone. But the fact that the transactions are there still meant that it was possible to uncover who was sending the money and who was involved in paying for basically pornographic material from underage children.
Rhetta: If the academy gets up, and they were successful, do you have kind of one use case, for example, that you could kind of paint a picture of how it will have impact? So maybe like taking us through, like the money muling or their fraud or the financial crime? Can you kind of, I guess, flesh out an example for us to show? Yeah, what the potential for the Academy is?
Andreas: Yeah, look, we’ve just launched in November. There’s a few interesting examples that we’re just talking about. They’re very preliminary. But one that I think we’ve talked about Tom was about money mules. So there is a case where the banks, sometimes they, they see suspicious activity, but they’re not sure about the extent to which the people are in the country or not. So we’re exploring opportunities to collaborate with the government on sort of getting data around, working out sort of border movements when people are crossing the border, and then hopefully, identifying whether activity was taking place where people were overseas, or
Rhetta: So if I’ve gone overseas, and then there’s a bunch of activity in my Australian account kind of thing.
Andreas: Yeah, that’s right.
Tom: It’s interesting, because the information is there, right? So if you think about it, this sort of the information is, is with the banks, around transactions, and then there’s information within the department of Home Affairs movement. But it sits in silos, and there’s no way to call it. So if you would bring that together and aggregate it up, you could get a really clear picture of how big a problem is. That’s right. So if you wanted to look at a cohort, and to make sure it’s, you know, make sure you respect privacy would make the court big enough. But to sort of quantify the problem for a country like Australia, you would look at a specific set of specific population, like say, 25 to 35 year olds, just look when they were in the size of the country, and then look at the month after they arrived, and look at all the transactions that are highly cash. And then you could kind of figure out what the scale of the problem is. You could figure you could think about how to solve the problem later, but at least you could quantify it. And then you would know if you have to actually do something about it. It’s interesting, because when you said like when we started, the whole financial crime world is $2 trillion. But it’s not like one type of crime. Like it’s financial crime, but they’re all sort of different types of things. Yeah, some it’s tax evasion, some is some is money laundering, some of it is from proceeds of really severe crimes or less severe crime, and like cutting that into pieces. Like that’s the way you should probably, I sort of think you should go at it. Like you have to figure out what the different ways are the people doing this, and then you can solve to try and find solutions.
Andreas: Yeah, yeah, absolutely. It’s a really mixed bag. There’s some of its related to terrorism financing, for example. There’s also like child sex exploitation war crimes, you can also trace because the people make money off, you know, war crimes as well, there’s financial crime investment scams. So it’s a really mixed bag with a bunch of different sort of offenders with different motives, and different, you know, type of victims. So that’s what we sort of try and hopefully, will work to sort of uncover more of these typologies about who’s involved in what’s involved, and how it’s possible to sort of trace and report this,
Tom: I was even thinking about the Nigerian prince type of scenario. Because when we talked before about, if you share data, the Nigerian princes or princesses should make clothes, they sort of find people that are capital rich, right? So they have a certain age group, they’re not alone. And then they’re sort of starts to create this fake relationship, come up with stories, why they need money. If you could tell that individual, you know, this bank account is getting money from five other bank accounts, in the same ratio as you’re giving it without even like, you don’t have to tell the individual. You’re a prince also has five relationships. It’s just the bank account of the prince is receiving transactions from five or six other people of this size. I would that would probably be enough of a wake up call. Yeah. For a few of them.
Andreas: Yeah, absolutely and that that’s an interesting sort of question about how, how do we provide information that helps members of the public not become sort of victims of scams, and maybe a data or dashboard or something around? That could be the way to go? Because the costs are enormous. And it’s very vulnerable members of the community, people who are lonely people, elderly, people living in regional areas…
Rhetta: It’s probably under reported too because there’s probably a lot of like, feeling a bit embarrassed that, that happened, or whatever it is, and especially now, I think I like the language models like chat GPT power of those scams was only going to grow. And I was just thinking from a student perspective, like you had mentioning that you’re doing like microcredentials. And things of sounds like this would be a fascinating thing to get involved with. And the data that you would be interrogating would be fascinating as well, to find these patterns and to look at, look at this. So I guess on that, I’ll bring it to our last question, which we ask everybody. And maybe we’ve already asked this, because it sounds like you must have some amazing data already. But if you could have access to any dataset in the world, and we’re kind of parking, our morals, and our practicality, ethics, and everything cost aside, if you could choose any dataset in the world to play with, what would it be and why
Andreas: So that’s an interesting one. So I recently been reading about Hawalas, so there are these
Rhetta: I don’t even know what that is!
Tom: What’s a hawala?
Andreas: It’s basically money. If you wanted to send money overseas, like 500 years ago, you would could do it in certain places in Asia and around the world in the Middle East. And basically, it’s a it’s a remittance company, but the way they work is they don’t actually send any money overseas. So they, you might have like a bunch of people who are related to each other cousins, or uncles, one sitting in, say, Hong Kong, once sitting in Singapore, you want to send money over the partner in Hong Kong will take your money, they’ll record it, and they’ll call up the guy in Singapore and say, Okay, send this money, give it out. And basically, it’s a very informal system. But it’s been working for hundreds, if not 1000s of years across the trade routes, especially, you know, wherever you have trade, you need to settle imports and exports. And basically, this, this system is a real issue in terms of money laundering, because you can actually trace the money, right? It’s just the money doesn’t,
Rhetta: Never changing hands.
Andreas: Yeah, yeah. So I think data on that would be would be really interesting. And it’s something that is sort of a bit of an enigma, because it these informal sectors will always be there. And there’s this paradox that the better. We kind of regulate and monitor the formal banking sector, it actually provides an greater incentive for people to switch from the formal to the informal. So I would be curious to see if like more regulations in, say the formal formal institutions has actually increased activity in these informal sectors.
Rhetta: Well, that’s fascinating. Very good answer. Thank you. Andreas.
Tom: That’s very interesting, yeah, but those how do you call them?
Andreas: Hawalas.
Rhetta: I was getting excited that there was a new animal that I hadn’t heard of? Like something crossed with a koala?
Andreas: Koala’s cousin!
Tom: Yeah, I mean, it sort of works because it’s at scale, right? So because so if you’re the guy in the bigger country, yeah, Singapore, if you’re the guy in Singapore and I’m the guy in Brisbane. Yeah. People come to me with money to give money to send, but and then people come to you for money to send. So I have 10 million, you have 10 million and it’s basically We’re from the same pot.
Andreas: That’s right. Yeah, that’s it at the end of the year,
Tom: But you still have a transaction.
Rhetta: But only between the two between the two. So you don’t know…
Tom: So people coming to you still have to transfer money to you. So there’s stuff it’s I mean,
Rhetta: Or a big cash bag.
Tom: Yeah. But the big cash bag would be difficult, right? Because if people want, if people want half million dollars in Australia, nobody wants it in cash. You can’t anymore bring a big bag of money to settle part of the transaction. Yeah, like people don’t want that.
Rhetta: No, but I think these are more in like, in less are they did the hawalas do they exist in Australia? Are they more international?
Andreas: The ones I’m aware of most of Southeast Asia or Middle East, but I don’t know maybe they’re out there?
Tom: Because in the end, if you have a lot of proceeds that are not known. You want to wash them, so you can use them? Like there’s no point having if it’s in your mattress? Yeah, it’s great. Yeah, you can’t buy anything with it.
Andreas: That’s right. That’s right. Yeah, though, you want to get it into the system somehow. Yeah. And sending them overseas is a great way to do that.
Tom: It’s interesting. So if you if you would have to, like I could just see if you have, if you have a mechanism where you monitor the transaction within a country, let’s say Australia, and there’s a similar thing in Singapore, if those things talk to each other, you could actually start seeing,
Andreas: Well it’s interesting you bring that up, because I think there’s some crypto companies have actually tried to do sort of our high tech version of a Hawala where, yeah, it’s basically instead of a bank sending money to another country. It’s like these. There’s two Ledger’s and they’ve kind of try and match someone who’s a sender on one side and someone who’s a receiver on the other side, but if it if there’s proceeds of crime involved, you understand is there’s issues
Rhetta: Yeah, but if I was running a hawala, I would just have a front business that I let everyone buy my products from, and then I just do my ledgering across.
Tom: Yeah, giving people too much advice now Rhetta,
Rhetta: This is now the academy for financial crime.
Tom: Rhetta was actually the crime lord.
Andreas: There you go.
Tom: Crime lordess.
Rhetta: The Canadian crime princess. Yeah. All right. Cool.
Tom: Did we miss something? Do you want to add another question?
Andreas: Look, if any, if any. Anyone’s out there interested doing a PhD? Or has some interesting ideas that we should research? Yeah. Or once they get a graduate diploma or graduate cert of financial crime investigation, compliance, please feel free to get in contact with us. And I’ll send you an email.
Tom: Or if you’re in an Owala? Walla? Hawala. And you want to give us some data?
Rhetta: We’d love to see your ledgers,
Tom: We’d love to see your ledgers!
Rhetta: Well, thank you so much, Andreas. And we’ll be sure to put your details in the podcast notes. So if people want to get in touch with you, they can
Andreas: Awesome! Thank you!
Rhetta: To listen to more episodes of show me the data, head to your favourite podcast provider, or visit our website, ridl.com.au and look for the podcast. We hope that by sharing these conversations about data and evidence-based decision making, we can help to inform a more inclusive, ethical and forward thinking future. Making data matter is what we’re all about. And we’d love to hear why data matters to you. To get in touch. You can tweet us @G_RIDL. Send us an email or if you prefer, just send us a letter by carrier pigeon. Thank you for listening. And that’s it till next time, take care and stay safe.
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