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A Cost To Be Minimized Or An Investment In Risk Mitigation?

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June 13, 2022

Writing in the FCPA Blog, Miles Kellerman notes that regulators and private firms increasingly rely on technology to identify financial crimes, but using artificial intelligence, machine learning, and other tools to prevent corruption and related forms of illicit finance is easier said than done. The limitations are highlighted in a report by the United Nations Development Program Kellerman references, but he says that it understates the problems. His blog goes into some detail about three potential pitfalls:: Organizational incentives, data access and error prevention. Organizational incentives are a necessary prerequisite for effective compliance, but companies often view those incentives, and compliance itself, as a cost to minimize instead of an investment in risk mitigation that will reduce the likelihood of expensive penalties. Worse, they let incentives to ignore bad behavior pass, or purposefully design compliance controls to reduce their effectiveness. In respect to data access, the main problem is that each source is managed by an organization, commonly a vendor, that may not verify the quality of the information they collect. Error prevention is related to the design of software systems that result in false positives and negatives.

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