Why Are Only 1% of Financial Crimes Brought to Justice? RedCompass Labs Asks What Holds Banks Back

US banks believe they are at least eight months behind criminals, with the largest institutions believing the gap is as wide as 23 months, according to new research from RedCompass Labs, the payments modernisation company. 

Despite conceding that that criminals have an eight-month head start, 75 per cent of banks feel confident they can close this gap and 25 per cent feel they could ‘maybe’ catch up and reduce the abundance of financial crimes.

The new RedCompass Labs research highlights how banks are drastically underestimating criminals, with respondents believing that criminals take an average of four months to adapt after a new financial crime is detected. In reality, cybercriminals can exploit newly discovered vulnerabilities within days or even hours.

The research, ‘Financial crime detection: What holds banks back?‘, includes findings from a survey of 300 senior payments professionals at US banks about how financial services are addressing the multi-trillion-dollar financial crime epidemic and why only one per cent of financial crimes are brought to justice.

The survey found that banks’ resources are stretched across multiple types of financial crime, as they grapple to keep up with emerging crimes, some of which are now as big a focus as the traditionally bigger ones.

Banks said the implementation of new technology (39 per cent), streamlining internal processes (39 per cent), and faster vendor support (38 per cent) will help them catch up with the criminal networks.

‘An error of focus. Not an error of ability’

Tom Hewson, CEO at RedCompass Labs, comments: “There’s nothing organised crime wants more than for us to continue doing what we’re doing. According to a Nasdaq report, $3.1trillion in illegal transactions were made in 2023. Yet our best estimates suggest one per cent of these crimes are brought to justice. That feels like an error of focus. Not an error of ability.

Tom Hewson, CEO at RedCompass Labs

“It’s not that the problem is so hard and so complex. It’s also that we hide behind process and data-sharing interpretations. It is underfunding the teams that want to do more.

“Banks, by their own admission, are eight months behind the criminals. They know the criminals are good at using the latest technology, yet they rate themselves marginally better. And still, only one per cent of financial crimes are brought to justice. How can these two things be true? How can it be that banks are very good at using technology to combat financial crime, and yet 99 per cent goes undetected?

“But we can do better. We have the technology, the open-source data, the dark web data, and the ability to understand who is transacting, whether through IP addresses or multiple personas. We have the flags, the AI, and the tools. And we have the recipe to double or triple crime detection, to 10X it.”

Taking action

As is so often referenced in the financial world at the moment, could AI make a big difference? RedCompass Labs also suggests that banks are divided over the emerging technology. More than half (57 per cent) of banks believe that criminal’s use of AI will make it more difficult to detect financial crimes but just under a third (31 per cent) of banks believe that their use of AI will ease the detection of financial crimes.

To help banks close the gap to criminals, RedCompass Labs has launched its RedFlag Accelerator Portal, in a move to empower banks and financial institutions with the actionable intelligence, red flags and guidance they need to understand, identify and address financial crime.

Human trafficking has gone from a $150billion crime to $350billion in six years, and banks need a new way of detecting these crimes. The RedFlag Accelerator Portal provides reference data, red flags and a persona-based approach that enables financial institutions to more accurately identify and intercept illicit transactions, strengthening their defences against criminal networks.

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