European citizens are warned to remain hyper vigilant, as artificial intelligence (AI) signals an ‘open season’ for financial criminals who are accelerating their use of AI and increasingly generative AI, or GenAI (the use of content, images and voice) to weaponise their ability to defraud innocent people out of their hard-earned money.
Financial crime has soared since the pandemic, with criminals’ realisation that the gains to be made in financial crime as opposed to traditional, riskier forms of petty crime were more attractive. A global financial crime report by Nasdaq and Verafin last year found that in 2023 $3.1 trillion in illicit funds flowed through global networks and losses in fraud scams and bank fraud schemes totalled $485.6 billion. No one – business or consumer – is safe.
Some of the key themes in financial crime coming down the track this year:
Weaponising AI: the exploitation of AI to facilitate financial crime is evident in different forms:
- Volume: AI enables financial criminals to automate the production and distribution of millions of emails, texts and prompts via social media every day. All it takes is for a criminal to purchase a database with details scraped from any one of the well known online brands and run programmes against the database, phishing for more data and making the scam more and more convincing. It’s a scale game – criminals only need to convert 0.1% of texts and gain £10 from each interaction to be earning £10k per day, it’s a very profitable low risk business.
- Quality of engagements: AI professionalises the quality of engagements – we have all heard about fake branded videos, phone calls, images and high-quality faked websites and collateral all designed to dupe unsuspecting victims. With GenAI, the product is getting better and harder to spot.
European AI Act: the EU’s AI Act came into force in August 2024, but different provisions are being introduced at different times. In February, prohibitions on certain AI systems come into effect. In May, AI office codes of practice for general purpose AI systems will become law and August is the deadline for ensuring governance rules for AI models are in place. Regulation is vital to establish guardrails and protect consumers
Bad guys do not comply: Whilst the legislation is necessary to ensure business treat customers fairly and build systems and processes with safeguards and transparency financial criminals don’t comply with regulation. This means the financial industry is on the back foot as they struggle to keep up with protecting their customers from fraud, whilst the criminals will use any tool, any system and any process to get people’s money.
Macro fraud: as the sophistication of the methods used by financial criminals increases, so does the size of their targeted fraud. The incidence of pension and investment portfolio fraud has soared in recent years, along with targeting of corporates which can offer rich pickings for criminals. ‘Mega money’ is attractive, because even if you only managed to dupe one person in a year and it took two weeks of work, it could mean a £150k payday.
Bloc-wide AML regulation: Europe will see an uptick of AML regulation in 2025, as we see AMLA ramping up activity this year in a bid to coordinate national responses to money laundering. Head-quartered in Frankfurt, this 50-strong organisation aims to transform the AML and countering the financing of terrorism supervision in the EU.
Car financing reparations: the news of the car financing scheme that duped unsuspecting car purchases out of thousands, when some car finance lenders set up ‘discretionary commission arrangements’ with brokers in the years in the run up to 2021, reached headlines last year. We think this year we will see a standard protocol for a mass compensation scheme – it’s currently with the Supreme Court and it will then go back to the FCA for a final review. The upshot could see car financing changing forever, with transparency and reasonable commissions being order of the day.
With widespread use of technology and AI proliferating and the opportunities for criminals to defraud victims increasing, it has never been more important to keep your eyes open and your wits about you where it comes to finances. And this is true for consumers and for businesses. If you have to query something, or something looks remotely dodgy, the likelihood is that it is a scam. Even if it looks like a legitimate operation, remember to check under the bonnet and sense check everything a number of times. You can never be too careful.
Phil Rolfe is Head of Financial Services at Valcon UK. If you would like to speak to Phil about how your organisation can tighten its financial crime and AML procedures, please get in touch. [email protected] or via LinkedIn
