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Risk Fraud & Compliance

US Treasury’s 2024 strategy to combat illicit finance cites importance of AI, other innovations

Brett Wolf  Regulatory Intelligence

· 5 minute read

Brett Wolf  Regulatory Intelligence

· 5 minute read

The growth of AI will likely present new illicit finance risks as criminals' use of these technologies becomes more sophisticated, according to the US Treasury’s strategy document

The U.S. Treasury Department has issued its 2024 National Strategy for Combatting Terrorist and Other Illicit Financing, a report highlighting the top threats facing financial services firms. Such threats include large-scale fraud, potent ransomware attacks, an opioid-driven overdose epidemic, foreign and domestic terrorist attacks, corruption, and the illicit exploitation of advanced technology.

The 55-page 2024 strategy report recognizes the importance of public sector support for private sector compliance functions using “new mechanisms,” including automation and technological innovation, to combat illicit finance.

Since 2022, there has been “a significant evolution in the financial technology space, including the launch and adoption of generative AI [artificial intelligence] tools, the growth and increased adoption of stablecoins, the rollout of central bank digital currencies by some jurisdictions and the growth of real-time payment systems,” the report stated. “The use of machine learning and [AI] can assist the US government and the private sector to improve data analytics and better identify illicit finance risks.”

Financial institutions may cite this Treasury statement when discussing efforts to incorporate AI into their anti-money laundering transaction surveillance systems and sanctions screening solutions. Criminals have also sought to exploit new forms of technology, “including by using technology to make fraud schemes, drug sales and ransomware attacks more effective and profitable,” the report explained, adding that “the growth of AI will likely present new illicit finance risks as criminal use of these technologies becomes more sophisticated.”

The report also addressed geopolitical developments that have generated tremendous financial crime risk that banks are working hard to manage. “Hamas’s financing of its brutal terrorist attack on Israel and Russia’s financing of its continued full-scale invasion of Ukraine, including Russian elites’ support for the war, demonstrate how key threats to national security can exploit vulnerabilities in the US and global financial system,” the Treasury Department noted in a written statement announcing the 2024 strategy.

‘Critical moment’ for national, economic security

In this “critical moment for our national and economic security,” the US government must “continue to close the pathways that illicit actors seek to exploit for their schemes,” said Brian E. Nelson, Treasury’s under-secretary for terrorism and financial intelligence.

“We recognize the threat illicit financial activity represents to our national security, economic prosperity, and our democratic values, and [we] are focused on addressing both the challenges of today and emerging concerns,” Nelson said.

The department added that the 2024 strategy is “a blueprint of the US government’s goals, objectives, and priorities to disrupt and prevent illicit financial activities.”

The document also addresses “key risks” from Treasury’s 2024 National Money Laundering, Terrorist Financing and Proliferation Financing Risk Assessments. Additionally, the 2024 strategy details how the United States “will build on recent efforts to modernize the US anti-money laundering/countering the financing of terrorism (AML/CFT) regime, enhance operational effectiveness in combating illicit actors and embrace technological innovation to mitigate risks.”

Priority recommendations and supporting actions

Treasury’s plan identified four priority recommendations to guide U.S. government efforts. They are:

      1. Closing gaps in the US AML/CFT framework by operationalizing the beneficial ownership information registry for law enforcement, national security, and intelligence use; finalizing rules related to the residential real estate and investment adviser sectors; and assessing other sectors that may be vulnerable to illicit finance.
      2. Promoting a more effective and risk-focused US AML/CFT regulatory and supervisory framework for financial institutions to make them more efficient and effective in preventing illicit finance by providing clear compliance guidance, sharing information, and ensuring adequate resourcing for supervisory and enforcement functions.
      3. Enhancing the operational effectiveness of law enforcement, other US government agencies and international partnerships in combating illicit finance so threat actors cannot find safe havens.
      4. Realizing the benefits of responsible technological innovation in the United States by developing new payment technology, supporting the use of new mechanisms for private sector compliance, and utilizing automation and innovation to find novel ways of combating illicit finance.

The strategy also included 15 “supporting actions” to achieve these priorities. While the supporting actions are government-focused, some — such as increased public-private information sharing and steps against de-risking — would clearly affect financial institutions.

Two of the final three supporting actions could directly impact financial institutions and their use of technology. These include: i) supporting US leadership in financial and payments technology; and ii) encouraging private sector use of technology to improve AML/CFT programs and compliance. The final recommended action is to “continue to enhance use of AI, data analytics, and additional technological innovations in government efforts to combat illicit finance.”

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