Navigating the Complexity of Money Laundering: Anti–money Laundering Advancements with AI/ML Insights

• Published in: International journal on smart sensing and intelligent systems 2024-04, Vol.17 (1)
• Main Authors: Gandhi, Hitarth, Tandon, Kevin, Gite, Shilpa, Pradhan, Biswajeet, Alamri, Abdullah
• Format: Article
• Language: English
• Subjects: AI/ML; Algorithms; anti-money laundering; Artificial intelligence; Artificial neural networks; Credit cards; Data augmentation; Deep learning; Effectiveness; Ensemble learning; FinCEN dataset; Machine learning; Money laundering; Multilayer perceptrons; Performance prediction; Predictions; Real time; Recall; Regression; USA
• ISSN: 1178-5608; 1178-5608
• DOI: 10.2478/ijssis-2024-0024

This study explores the fusion of artificial intelligence (AI) and machine learning (ML) methods within anti–money laundering (AML) frameworks using data from the US Treasury’s Financial Crimes Enforcement Network (FinCEN). ML and deep learning (DL) algorithms—such as random forest classifier, elastic net regressor, least absolute shrinkage and selection operator (LASSO) regression, gradient boosting regressor, linear regression, multilayer perceptron (MLP) classifier, convolutional neural network (CNN), random forest regressor, and K-nearest neighbor (KNN)—were used to forecast variables such as state, year, and transaction types (credit card and debit card). Hyperparameter tuning through grid search and randomized search was used to optimize model performance. The results demonstrated the efficacy of AI/ML algorithms in predicting temporal, spatial, and industry-specific money-laundering patterns. The random forest classifier achieved 99.99% average accuracy in state prediction, while the gradient boosting regressor and random forest classifier excelled in predicting year and state simultaneously, and credit card transactions, respectively. MLP and CNN showed promise in the context of debit card transactions. The gradient boosting regressor performed competitively with low mean squared error (MSE) (2.9) and the highest -squared ( ) value of 0.24, showcasing its pattern-capturing proficiency. Logistic regression and random forest classifier performed well in predicting credit card transactions, with area under the receiver operating characteristic curve (ROC_AUC) scores of 0.55 and 0.53, respectively. For debit card prediction, MLP achieved a precision of 0.55 and recall of 0.42, while CNN showed a precision of 0.6 and recall of 0.54, highlighting their effectiveness. The study recommends interpretability, hyperparameter optimization, specialized models, ensemble methods, data augmentation, and real-time monitoring for improved adaptability to evolving financial crime patterns. Future improvements could include exploring the integration of blockchain technology in AML.