AML Fraud Detection: Staying Ahead of an Evolving Threat

Published: March 27, 2024 by Julie Lee

Financial institutions have long relied on anti-money laundering (AML) and anti-fraud systems to protect themselves and their customers. These departments and systems have historically operated in siloes, but that’s no longer best practice.

Now, a new framework that integrates fraud and AML, or FRAML, is taking hold as financial institutions see the value of sharing resources to fight fraud and other financial crimes.

You don’t need to keep them separated

For fraudsters, fraud and money laundering go hand-in-hand. By definition, someone opening an account and laundering money is committing a crime. The laundered funds are also often from illegal activity — otherwise, they wouldn’t need to be laundered.

For financial institutions, different departments have historically owned AML and anti-fraud programs. In part, because AML and fraud prevention have different goals:

  • AML is about staying compliant: AML is often owned by an organization’s compliance department, which ensures the proper processes and reporting are in place to comply with relevant regulations.
  • Fraud is about avoiding losses: The fraud department identifies and stops fraudulent activity to help protect the organization from reputational harm and fraud losses.

As fraudsters’ operations become more complex, the traditional separation of the two departments may be doing more harm than good.

Common areas of focus

There has always been some overlap in AML and fraud prevention. After all, an AML program can stop criminals from opening or using accounts that could lead to fraud losses. And fraud departments might stop suspicious activity that’s a criminal placing or layering funds.

While AML and fraud both involve ongoing account monitoring, let’s take a closer look at similarities during the account creation:

  • Verifying identities: Financial institutions’ AML programs must include know your customer (KYC) procedures and a Customer Identification Program (CIP). Being able to verify the identity of a new customer can be important for tracing transactions back to an individual or entity later. Similarly, fraud departments want to be sure there aren’t any red flags when opening a new account, such as a connection between the person or entity and previous fraudulent activity.
  • Preventing synthetic identity fraud: Criminals may try to use synthetic identities to avoid triggering AML or fraud checks. Synthetic identity fraud has been a growing problem, but the latest solutions and tools can help financial institutions stop synthetic identity fraud across the customer lifecycle.
  • Detecting money mules: Some criminals recruit money mules rather than using their own identity or creating a synthetic identity. The mules are paid to use their legitimate bank account to accept and transfer funds on behalf of the criminal. In some cases, the mule is an unwitting victim of a scam and an accomplice in money laundering. 

Although the exact requirements, tools, processes, and reports for AML and fraud differ, there’s certainly one commonality — identify and stop bad actors.

Interactive infographic: Building a multilayered fraud and identity strategy

The win-win of the FRAML approach

Aligning AML and fraud could lead to cost savings and benefits for the organization and its customers in many ways.

  • Save on IT costs: Fraud and AML teams may benefit from similar types of advanced analytics for detecting suspicious activity. In 2023, around 60 percent of businesses were using or trying to use machine learning (ML) in their fraud strategies, but a quarter said cost was impeding implementation.1 If fraud and AML can share IT resources and assets, they might be able to better afford the latest ML and AI solutions.
  • Avoid duplicate work: Cost savings can also happen if you can avoid having separate AML and fraud investigations into the same case. The diverse backgrounds and approaches to investigations may also lead to more efficient and successful outcomes.
  • Get a holistic view of customers: Sharing information about customers and accounts also might help you more accurately assess risk and identify fraud groups.
  • Improve your customer experience: Shared data can also reduce customer outreach for identity or transaction verifications. Creating a single view of each account or customer can also improve customer onboarding and account monitoring, leading to fewer false positives and a better customer experience.

Some financial institutions have implemented collaboration with the creation of a new team, sometimes called the financial crimes unit (FCU). Others may keep the departments separate but develop systems for sharing data and resources.

Watch the webinar: Fraud and identity challenges for Fintechs

How Experian can help

Creating new systems and changing company culture doesn’t happen overnight, but the shift toward collaboration may be one of the big trends in AML and fraud for 2024. As a leader in identity verification and fraud prevention, Experian can offer the tools and strategies that organizations need to update their AML and fraud processes across the entire customer lifecycle. 

CrossCore® is our integrated digital identity and fraud risk platform which enables organizations to connect, access, and orchestrate decisions that leverage multiple data sources and services. CrossCore cloud platform combines risk-based authentication, identity proofing and fraud detection, which enables organizations to streamline processes and quickly respond to an ever-changing environment. In its 2023 Fraud Reduction Intelligence Platforms (FRIP), Kuppinger Cole wrote, “Once again, Experian is a Leader in Fraud Reduction Intelligence Platforms. Any organizations looking for a full-featured FRIP service with global support should consider Experian CrossCore.” 

Learn more about Experian’s AML and fraud solutions

1. Experian (2023). Experian’s 2023 Identity and Fraud Report

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