AI For Third Party Risk Discovery

  • October 02, 2017
  • Dan Adamson and Deborah Gold

Automated, machine learning technologies cost effectively protect against reputational risks while meeting compliance mandates.  

Compliance requirements are changing daily and a violation of these laws could mean hundreds of millions of dollars in penalty costs, reputational damage, lawsuits and even jail time. According to a report from The Boston Consulting Group, the number of individual regulatory changes that banks must track has more than tripled since 2011.

International bribery laws such as the Foreign Corrupt Practices Act of 1977 (FCPA) in the US and the UK Bribery Act, along with increased Know Your Customer (KYC) regulations, the Bank Secrecy Act, the Corruption of Foreign Public Officials Act (CFPOA) and others are putting more reporting pressures on compliance, procurement and legal teams on a global scale. These laws are increasingly relevant to businesses and legal firms in Canada as examples of corrupt, fraudulent practices continuing to show their alarming international reach. Take for example the latest scandal with Swedish telecom firm Telia which recently agreed to pay fines of at least $965 million to US and international authorities to settle Uzbek bribery claims. Cross-border cooperation is necessary in an effort to crackdown on these criminal acts.   

In addition to a growing and more complex regulatory environment, the sheer volume of data available on the open web and global footprint of relationships has made it impossible for human researchers to manually extract information and risk assessment related to clients, transactions, third-parties and counterparties in a fast, up-to-date and highly accurate way.  Not only are manual processes expensive, they pose many limitations and thus have proven error-prone and obsolete, giving fraudsters an easy advantage. Criminal activity could be silently slipping through the cracks of your organization and then surface with no prior warning in a very public way. This is increasing the need for new due diligence approaches where advances in technology can take a higher role.

Hiring more compliance analysts or outsourcing more research to expensive due diligence firms isn’t the solution. The real opportunity for businesses, particularly those in highly regulated industries or international footprints, is to leverage the power of artificial intelligence (AI) to extend human intelligence and create more effective programs. Machines have the ability to assemble a vast amount of information and put it together in context, finding connections, extracting patterns and continually learning from what they are processing.  This means arming humans with a better understanding of possible risks and exposure in real-time related to their supply chain monitoring, vendor relationships, investments, KYC on-boarding procedures, employees, etc.  It also means being able to provide a full audit trail so humans can accurately confirm the findings to make the most informed decisions possible.

AI can also arm organizations with key benefits including:

  • Efficient Third Party Screening: AI can filter false positives, thereby providing compliance teams with the most accurate picture of their subject and letting them focus on the real risks. This means you can cover your entire population of third parties involved in any area of your business.  Many companies have hundreds or thousands, or tens of thousands of vendors, making this a very expensive proposition with traditional approaches, but very achievable with AI.
  • Consistent and auditable international coverage: AI can help organizations replicate the same policies and practices over time to achieve a consistent and auditable outcome.  It provides a broader search map of all available and premium sources so that the search and risk assessment covers an exhaustive list of sources, across various countries.
  • Reduction in compliance reporting costs: Spending less time manually gathering information means more human time and interaction spent on high-value decisions resulting from key “flagged” information realized.

While many futurists are predicting the replacement of humans, I don’t believe that will be true in compliance (at least in the not so distant future). Instead, the best success cases today are those that are modernizing their systems in a way that embraces the potential of both humans and technology, using AI to make their programs both more efficient and cost effective. For more information on how AI is transforming third-party risk, please visit Exiger: How AI is Transforming Third Party Risk Management.  


About the author

Dan Adamson is the President of DDIQ and Global Head of Cognitive Computing at Exiger Analytics, a specialized division that combines cognitive computing with deep domain and systems expertise to deliver the firm's data-driven solutions and services. Exiger is a global regulatory and financial crime, risk and compliance company delivering actionable advice and tech-enabled solutions to prevent compliance breaches, respond to risk, remediate critical issues and monitor ongoing business activities. 

Deborah Gold is a Managing Director based in Exiger’s Toronto office. She has over two decades of consulting experience and is an expert in corporate investigations, employee embezzlement, procurement fraud, contests for corporate control, integrity and investigative due diligence, and litigation support. 


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