US, UK Encourage Privacy-Enhancing Innovation to Combat Money Laundering

The U.S. and U.K. governments announced on Monday (June 13) a new joint initiative to encourage the development of privacy-enhancing technology (PET) that could be used in the fight against money laundering. 

According to United Nations estimates, up to $2 trillion in cross-border money laundering takes place each year. Greater information sharing and collaborative analytics among financial organizations could transform the detection of this activity, but data sharing is hindered by legal, technical and ethical challenges involved in jointly analyzing sensitive information, the White House said in a press release. 

Both countries require financial institutions to detect and report suspicious activities, usually through filings on Suspicious Activity Reports (SARs). However, the sheer volume of data is so vast that government officials sometimes have trouble analyzing them. Additionally, sharing this data with other institutions is not allowed in many instances, given data privacy rules. 

The U.S. and the U.K. have said that they want to improve technology that will allow machine learning models to be trained on data from multiple sources without the data leaving a safe environment, a method known as federated learning. PET could play an important role in addressing money laundering and other financial crimes. This technology has the potential to facilitate financial information sharing and analytics that preserves individuals’ privacy, allowing suspicious behavior to be identified while protecting sensitive data, or requiring the transfer of data between institutions or across borders, the White House said. 

“The U.K.’s National Data Strategy outlines the promise of PETs in enabling trustworthy data access. PETs have the potential to facilitate new forms of data collaboration to tackle the harms of money laundering, while protecting citizens’ privacy,” said Julia Lopez, U.K. minister for media, data and digital infrastructure at the Department for Digital, Culture, Media and Sport.

For this reason, the U.S. and the U.K. are organizing prize challenges, where participants will develop “state-of-the-art privacy-preserving federating learning solutions” that will help to tackle this problem while respecting privacy regulations. According to the Financial Action Task Force, the uncertainty about the regulatory implications of using these technologies is a significant barrier to its adoption.  

The U.K.’s Financial Conduct Authority (FCA) and the U.S. Financial Crimes Enforcement Network (FinCEN) will also be involved in the prize challenges and will collaborate with participants. The challenge will open to innovators this summer. Winners will be announced in early 2023. 

“FinCEN is pleased to support this important initiative to advance the development of a building block for protecting the U.S. financial system from illicit finance,” said Himamauli Das, acting director of FinCEN. 

Digital Identity 

FinCEN has been very active in fostering private-public collaborations to design solutions for tackling different problems related to financial crimes. One of the most recent examples is a Tech Sprint organized earlier this year, where FinCEN invited experts from the private and public sector to discuss ideas about the effectiveness of identity proofing.

Identity theft in remote customer onboarding is rising. According to data released by FinCEN on Suspicious Activity Reports (SAR), identity theft is one of the top 10 activities, as well as other identification and verification issues related to customer due diligence and anti-money laundering. Through these collaborations, FinCEN can learn about new developments and test ideas in a safe regulatory environment.

Read more: FinCEN Looks to Turn Tech Sprint Proposals Into Regulatory Actions 

The U.K. also announced on Monday that it is moving forward with its plan to create a U.K. digital identity. With this updated “beta” version of the trust framework, the U.K. government is one step closer to create digital identity products in the U.K., allowing citizens to identify themselves as securely as with a passport.