Robot Wars: Is AI the secret weapon in tackling fraud?

A Perfect Storm

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The dark days of the pandemic saw surging levels of fraud.  In the financial services industry, spurred on by investment ‘opportunities’ promoted by social media influencers, market manipulation such as ‘pump and dump’ schemes thrived.  This, coupled with a rise in self-directed trading by retail investors, created a perfect storm of criminal opportunity.  

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Thankfully, the pandemic is now behind us.  But disturbingly, fraud – in all its many guises – not only remains but continues to grow.  In addition to the ongoing public sector investigations into fraudulent Covid payments, suddenly, wherever we turn, we are surrounded by criminal activity including:

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• The proliferation of fake accounts on social media sites,
• UK Companies House inundated with the set-up of fake businesses,
• A rampant rise in push payment fraud
• A distressing increase in romance scams known as ‘pig butchering’, and
• Impersonation scams utilising deep fake videos and voice cloning.

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The feeling that we are increasingly under attack is substantiated by data published by global audit, tax, and advisory firm, BDO.  According to its Fraud Track report, UK fraud leapt alarmingly in 2023.  The volume, £2.3bn, is the second-largest annual fraud total in the last decade and represents a 104% increase on 2022.  Whilst more than half of that relates to two long-running cases – the £585m Entain bribery case, and Bernie Ecclestone’s £650m tax evasion case - BDO points out that fewer than one in seven fraud offences are reported to the police or Action Fraud.  The numbers are therefore unlikely to present a fully accurate picture.  

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Behind the alarming growth are several contributing factors:

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1. Undoubtedly, technology is playing a significant role in turbo-boosting the growth, scale, and capability of fraud schemes.  In May 2023, Barclays Bank reported that over 70% of scams were now occurring on social media, online marketplaces and dating apps.  Meanwhile, in the same report, TSB commented that the main drivers were a spike in impersonation cases, investment scams and online purchase fraud.  It highlighted also that impersonation scams on WhatsApp had tripled in a year, while fake listings on Facebook Marketplace had doubled.
   
   
2. Meanwhile, fraud factories in countries such as Cambodia, Myanmar and Thailand are luring and trapping victims into slavery to work for crime syndicates.  The factories have played a significant role in driving the global epidemic of online fraud activity, ranging from romance scams, crypto fraud, money laundering and illegal gambling.
   
   
3. Overlay these factors with the cost-of-living crisis, and the economic struggles people around the world are facing, and it’s sadly unsurprising that some people are more easily falling for online scams, tempted to defraud their government via a tax evasion scheme, or embezzle funds from their employer.

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Levelling the playing field

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Thankfully, there are some glimmers of hope.  In amongst the reports of losses and harm, some victories are being declared.  Many of these demonstrate that success lies in proactive, sophisticated, and frankly, more aggressive tactics that draw upon the strength of public / private partnerships, alongside the deployment of an arsenal of AI solutions.  Winning the battle means fighting fraudsters at their own game.

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One such example is the interference campaign run by the Singapore Police Force (SPF) and 4 partner banks who, between September and December 2023, proactively disrupted over 5,300 scams and prevented potential financial losses of more than S$69.43 million.  Their technique?  Sending out more than 48,000 SMS notifications to over 15,000 bank customers alerting them to the scams and mitigating the risk of further financial loss.  Underpinning the campaign is Robotic Process Automation (RPA) that has enabled the SPF to automate information sharing, processing, and large-scale distribution of SMS alerts.

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In Australia, since July 2023, ASIC’s website takedown capability has eradicated over 2,500 investment scam and phishing websites.  Part of the government’s Fighting Scams initiative, it supports the work of the National Anti-Scams Centre which coordinates government, law enforcement and the private sector to combat scams.

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Meanwhile, in the UK, the Government has announced that it will run several AI discovery projects in 2024-25 to identify new ways to detect fraud.  The first of these projects will use AI to identify entities registering and bankrupting successive companies to avoid paying debts (ie. ‘phoenixing’).

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Increasingly, AI tools specialising in fraud analysis and investigations, are unlocking criminal activity that is hiding in plain sight.  However, there is greater potential to be explored and exploited.  In its December 2023 report, ‘Impact of Artificial Intelligence on Fraud and Scams’ PwC sets-out three areas where AI is being deployed and has further potential in tackling fraud:

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1. Detection.  Firms are deriving significant benefits from improved detection in areas such as bank transaction monitoring, spam message filtering and the detection of malware.  However, there is greater potential to be realised.  Firms can gain a more holistic view by utilising machine learning (ML) and other AI tools across more sophisticated models combining structured and unstructured data.
   
   
2. Operational efficiency.  Driving operational efficiency enables investigative resources to focus on more complex issues.  A prime example is ML tools that filter-out false positives.  The greater the precision of ML tools, the greater the ability of teams to focus investigations on genuine criminal activity.
   
   
3. AI fighting AI.  In the ultimate robot wars scenario, AI tools are being used to identify synthetic content (eg. fake images, voice clones) thereby helping to distinguish trustworthy versus untrustworthy content.  However, there is greater potential.  Chatbots could be developed and deployed against fraudsters to waste their time, but also to extract intelligence from them – for example, bank accounts details – to help track them down.  

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The PwC report highlights also the important role being played by Stop Scams UK, a cross-sector organisation combining the strengths and insights of financial services firms, technology companies, and telecommunication operators, that is aiming ‘to develop new solutions to help stop fraud and scams at source’.

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Once more unto the breach

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The battle isn’t yet over, but what is clear is that the key to winning is employing tactics that level the playing field. 

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Strength lies in drawing upon the insights, capabilities, and resources of public and private collaborators, alongside the deployment of increasingly sophisticated AI solutions to beat fraudsters at their own game.  

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King Henry’s rallying cry to his troops ‘once more unto the breach’ (Shakespeare’s Henry V) reminds us all that we must exploit the gaps and vulnerabilities we uncover to seize control.

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