Barefoot Innovation Podcast

Today’s pod is one in our new series of special episodes sharing some of my own thoughts on the head-spinning changes swirling around us, and how we all – my AIR colleagues and I and our community (which includes you) – how we can shape them for the good. 

 

Today I have two topics. First, I’m inviting you to four exciting upcoming AIR events. And second, I want to tell you about how we at AIR are thinking about the spreading plague of financial crime. Crime is actually the focus of two of our upcoming events. More broadly, it has become a tremendous priority of our overall work. That is partly because we think we know a big part of the answer on how to actually solve it. It’s also because we’ve realized the same regulatory methods that can help solve financial crime, can also go a long way to modernizing most aspects of financial regulation, through better technology. We see our work with crime as the leading edge of a bigger set of solutions, for both regulators and the industry. I’m going to tell you about what we’re seeing and where we hope we’re all going. 

 

Let’s start with the events. We have four exciting ones coming up.

 

Register for Upcoming AIR Events!

 

Battlefront: Fraud in the Age of AI. On June 23-24, we will host a war-games style exercise in Washington DC in which teams will use AI to create both fraud attacks and fraud defenses. It is going to be a unique experience, and we need a wide variety of skills, from financial companies, law enforcement, and AI experts. Please register to participate on a team, observe in the room, and/or watch online when the results are unveiled.

 

AI Fraud Policy Sprint: On July 8-9 in Lagos, Nigeria, we’ll hold a policy sprint on fraud with the West Africa Monetary Institute (WAMI), following up the TechSprint we held last year on fraud in West Africa. Please register to explore how to modernize the public policy frameworks to turn back the tide of payments fraud.

 

Innovation Elements Cohort: This 4-day event is set for London in the fall, designed as an immersive experience for regulators from around the world, to learn AIR’s methodology for assessing your own innovation readiness and map the way forward. Information is here.

 

Converge: Creating the Future of Financial Regulation. This is AIR inaugural flagship conference, set for Washington DC on September 16. The timing is ideal as we look at the two huge forces that are converging to make 2025 a historic year of change:  1) the transformative technology adoption UNDERWAY, especially on AI and crypto; and 2) the Trump administration’s disruption strategy, which has already permanently changed the regulatory landscape. This means that new regulatory leaders are deploying new approaches to regulating new kinds of activities – all at once. It’s the perfect time to be rethinking old assumptions and hearing from people who are doing things differently.

 

That premise was reinforced last week by the spectacular performance of Circle’s IPO, which is “converging” with likely passage of stablecoin legislation in the U.S. The situation has all the hallmarks of a gamechanging moment – the start of something new. Converge will be the place to come together and look at how the whole system is going to change – for crypto and tradfi, for banks and fintechs, for regulation, for consumers. Please join us – and if your organization would like to be a sponsor, please reach out!

 

AIR’s Work on Financial Crime

 

As I mentioned, two of AIR’s upcoming events are devoted to financial crime, and crime will also be a big theme of the Converge conference. These efforts are part of a larger arc of work. Last year, AIR launched a multi-year, multi-project, mutli-partner set of initiatives on crime, including exploring generative AI as both a driver and a solution. 

 

Why? AIR’s mission is to modernize financial regulation to enable a better, fairer, more resilient financial system. Combatting financial crime is just one of many regulatory goals, so, why the focus on it?

 

One reason is pretty obvious. The problem is rising sharply – again, partly due to the rise of genAI. Suddenly, almost everyone has the ability to make deep fakes, voice clones, and all the rest. Fraud, in particular, is skyrocketing. A friend at an international organization recently told me that he has visited 53 countries in the past 18 months, and every single one of them is, at the national level, viewing fraud as a top priority concern. In the United States, DARPA has elevated money laundering to a top tier national security priority and has set a goal of “eliminating global money laundering.” (One of our keynote speakers at our Converge conference will be David Dewhurst, who is leading this work at DARPA).

 

So AIR is prioritizing crime because it’s such a serious problem…and because we know we can help. The intensive, widespread interest in financial crime is awakening people everywhere to the need for innovation in financial regulation and compliance. People are awakening to the fact that the regulatory model we are using today has no chance of stopping the tidal wave of financial crime. They are realizing that we need, instead, a whole new approach, built on new technology. AIR has focused for six years on how to bring better technology into financial regulation and compliance. So, again, we can help.

 

And the other reason that we know AIR can help is that AIR’s “superpower” lies in breaking down silo walls – connecting people, and solutions, that usually don’t intersect. As it happens, breaking silo walls will be the other key to actually reversing the rise of financial crime.

 

Silo-breaking is critical to regulatory modernization of all kinds – I plan to talk about that in an upcoming special episode. The realm of financial crime, however, is especially in need of a new, integrated approach. Traditionally, both the government and the financial industry have splintered their work on crime issues. There are multiple types of financial crime –  fraud, scams, cybersecurity, money laundering, and corruption – and the financial ecosystem handles them as different issues. We usually address them with different teams of professionals, with different skill specialties, using different processes and tools and vendors, and working under different legal frameworks and regulatory mandates. 

 

This is probably because our crime-fighting models have evolved from an original focus on the underlying crimes, and those are different – a romance scam is very different from, say,  money laundering by a drug cartel. What they all have in common, though, is motivation: the criminals are doing all of them to make money. Making money requires moving money. And moving illicit money requires hiding it. All financial crime-fighting is, at core, about finding the hidden money.

 

This means that all of them – all of them! – raise the same bedrock challenge, which is that the forces of good have trouble seeing them, because those forces don’t have complete and timely enough data. In our complex financial system, these crimes are easy to hide, and therefore hard to find. The government, the law enforcement agencies, the bank or fintech, the payment infrastructure providers, the customer being harmed – all of them are typically seeing fragmentary information, and lagging information after the crime has already occurred. To use the old cliche, people can’t see the forest for the trees.

 

The solution for this is silo-breaking. We need more ability to share data among the crime-fighters. The crime-fighters need to be able to see the larger patterns – on both the activities of people they’re investigating, and also on the typologies of crime. These become visible only if you have enough data. This, of course, raises a dilemma, because the “good guys” have, necessarily, strict limits on sharing data. They have to protect privacy. They have to protect the integrity of investigations. They can’t just pool and pass data around, 

without careful safeguards.  Therefore, to make more data sharing possible, we all, across the silos, need to work on new ways to assure that shared data is protected – in terms of privacy, security, and data integrity. To do that, we need new technologies (especially privacy-enhancing technologies, or PETs). We also need new legal frameworks and different human ecosystems, spanning the silos. 

 

To build this, we need to bring together the people, across the specialties of crime-fighters, and more broadly, across the financial, regulatory, and law enforcement sectors. We need to connect people who are usually working inside defined lanes and don’t usually interact – but who, very often, have solutions for each other.

 

The crime challenges emerging today span every sector of finance – banking, deposits, payments, remittances, credit ranging from cards to mortgages, securities, insurance, every variety of fintech, as well as social media and big tech – all of it. They span tradfi and defi/crypto. They present major challenges for the growth of stablecoins. They are hitting every demographic, and with particular vulnerability for the “silver economy” which is growing so fast as the baby boomers age. They require connections between business units within companies, and between businesses, and between business and government, and between governments, both domestically and internationally, since crime is increasingly worldwide, with criminals preying on victims in other countries. They span financial companies, law enforcement, anti-terrorism, and geopolitics. Again, In the US, DARPA is targeting international scams, sometimes backed directly by nation states, that are so lucrative that they are financing major threats to world order.

 

These crime challenges also span policy issues that, in the past, rarely touched. Only a few years ago, the ecosystem around financial crime was almost completely isolated from the one dealing with consumer financial protection. Consumer protection regulators and advocates have traditionally focused on the products and practices of financial providers, themselves. Now, groups that advocate for consumers are joining forces with those combatting crime, and finding common cause in countering the rise of fraud and scams. 

 

The issue of digital identity is a good example. For years, there have been groups advocating use of digital identity as a financial inclusion topic, because the anti-money laundering rules on know-your-customer often screen people out of access to banking. There have also been groups advocating for digital ID as a security and AML issue. Recently, they have begun to work together.

 

All this makes this the right time to elevate work on financial crime. Doing so can prevent 

pain and suffering for consumers, financial losses for responsible businesses, and the spread of criminal networks and destabilizing state-backed crime. It can also help the regulators, and the industry’s compliance leaders, find pathways to using better technology. Once they have done this for crime, it will become easier to follow those pathways again, for other regulatory challenges. Over time, this work will lead the way to a new paradigm of regulatory and compliance work, centered on data and technology.

 

And, not incidentally, I think this journey is going to help the financial ecosystem  understand the risks that are arising from AI and, importantly, the need to use AI, itself, to counter them.

 

To date, AIR has focused five of our 20+ TechSprints on financial crime, and we have more in the works. As I mentioned, we held one late last year on payments fraud and consumer protection in West Africa. We’ve also done sprints on human trafficking, use of cryptocurrency to purchase child sexual abuse material online, and countering corruption in international aid, most recently with partners in Latin America. The last project also produced a research paper. We have held numerous roundtables and posted podcasts on problem-solving strategies, ranging from digital identity to AI ethics.

 

Note, too, that we have great podcasts coming up on this topic, including a show with two amazing experts – Carole House and Amanda Wick. Watch for those!

And, again, please register for AIR’s upcoming events at RegulationInnovation.org. See you there!