Knowledge Discovery Processes in Financial Transactions
Knowledge discovery processes assisting in identifying financial transactions likely to be associated with terrorism or preparatory activities have been perceived as holding significant potential to not only frustrate the ability of terrorists to engage in acts of terrorism by freezing terrorist funds but also hold the potential to identify terrorist groups.71 As terrorists require capital to fund terrorism and inevitably leave a financial trail in the preparation and execution of acts of terrorism, it would appear logical to create the necessary framework to identify financial transactions and activities likely to be associated with terrorism or preparatory activities.
Therefore, the ‘United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act 2001’ (US PATRIOT Act) and the subsequent ‘USA Freedom Act 2015’ (USA FA) facilitates knowledge discovery processes in financial transactions and activities by obligating financial institutions not only to ‘monitor and report’ on financial transactions but also ‘financial institutions are required to’ establish a means of discovering patterns in financial activities which may be associated with terrorism or preparatory activities.72 Additionally, other financial services such as cheque cashing centres, post offices and payment centres such as Western Union are also required to register with the US Department of Treasury so as to ensure the broadest range of financial activities can be monitored to assist in managing the threat of terrorism.73
It is significant that the US Department of Treasury has refused to be drawn upon the exact requirements and obligations placed upon the financial institutions but rather has indicated:
that financial institutions report on certain transactions that are determined to have a high degree of usefulness in criminal, tax, regulatory, intelligence and counter-terrorism matters.74
It would appear that ‘certain transactions’ requires the existence of predetermined criteria for identifying transactions which can be considered ‘useful.’ The ‘Financial Crimes Enforcement Network’ (FinCEN) was created by US Department of Treasury to administer information gleaned from financial institutions merit worthy of further investigation by law enforcement officers.
The FinCEN assists, manages and retains information gathered under the US Patriot Act in an attempt to identify individuals engaged in terrorist and general crimes. Furthermore, the FinCEN provides guidance to financial institutions in the information that might lead to the identification of financial activities merit worthy of further investigation.75
The process employed by financial institutions can be considered a knowledge discovery-based approach employing data mining approaches to connect information together so as to identify meaningful patterns and trends worthy of further investigation. Financial institutions must issue ‘Suspicious Activity Reports’ (SAR) to the US Department of Treasury when they detect transactions likely to be associated with criminality or terrorism. In particular, the process of identifying SAR reports depend upon the existence of an infrastructure capable of linking different transactions indicative of terrorism.
In light of the guidance information for financial institutions provided by FinCEN it is possible to discern the knowledge discovery process assisting in identifying financial transactions associated with terrorism or preparatory activities. The guidance framework provided by FinCEN assists in identifying indicators capable of alerting financial institutions of financial activities thought to be associated with criminality or terrorism. For example, FinCEN identify a key characteristic of funds likely to be associated with criminal enterprises or terrorist enterprises are large sums of money with no legitimate explanation of their origin.76
Knowledge discovery processes embracing data mining approaches adopt both pattern-based and subject-based approaches in assisting in identifying information. For example, FinCEN recommends that the first stage in identifying a suspicious activity is to identify the background of the company or individual associated with transaction so as to investigate whether the transaction history of their client can be considered of a legitimate origin.77 Therefore, the first phase in identifying financial activities must begin with a selection of internal databases which will provide the financial institution with a diverse range of information about their client. The second phase will involve pre-processing that information by eliminating those individuals not thought to be associated with either criminality or terrorism.
Financial institutions will inevitably have to conduct an assessment of their client’s account and history to determine whether they can be considered ‘legitimate.’ The third phase will involve transforming the pre-processed information into searchable data which will consist of historical data, raw data and integrated data of their client’s activities. These three types of data will be capable of assisting financial institutions determining whether the financial transaction/ activities can be considered suspicious on grounds of criminality or terrorism. The fourth phase uses the transformed data by identifying financial activities and transactions which are not considered to be of a legitimate origin. The final phase will involve continually re-evaluating the information contained within their internal databases so as to investigate whether financial transactions can be considered legitimate.
It is clear that knowledge discovery processes employed in financial institutions to detect criminality and terrorism largely depend upon pattern-based data mining approaches to identify patterns and trends in client accounts that merit further investigation firstly by the financial institution and secondly by law enforcement officers. The US Department of Treasury indicated that it has received 1,049,149 SARreports up to 2007 with a further additional 15,994,484 currency exchange reports which merited closer examination in the interests of terrorism and criminality.78 According to the US Department of the Treasury, the US Patriot Act provides the mechanism to assist law enforcement officers in identifying the funding of terrorist or terrorist organisation in addition to suspicious financial activity by the co-operation of financial institutions.79