There are two sides to technology when it comes to compliance: fixing problems but also creating new opportunities for fraud and illicit flows of money. This article considers the issues.

Technology can help wealth management organisations handle compliance challenges but it can also add a whole load of new problems. This is arguably unavoidable, and a story as old as human civilization itself. Given the profusion of technology firms and consultants selling their wares at the moment, promising to fix AML challenges, onboarding or suitability, it is worth examining technology in the round. 

In this article, Maurice Burke, partner in the Singapore law firm, Hogan Lovells, considers the issues. The editors are pleased to share these views and invite responses. To reply, email tom.burroughes@wealthbreifing.com and jackie.bennion@clearviewpublishing.com

As technology provides a proliferation of new ways of working, communicating, and paying for goods and services, it brings both challenges and opportunities for anti-bribery and corruption (AB&C) compliance in companies. Increasingly, businesses’ and employees’ dependence on technology and the rise of non-face-to-face transactions is a real concern from a compliance perspective. What are the key issues for compliance heads and how can alternative technologies help tackle the issues?

Compliance leaders are concerned that a proliferation of new payment methods and reliance on mobile messaging apps pose additional compliance challenges


The tech time bomb?
A recent survey of multinational businesses by Hogan Lovells highlighted some noteworthy trends. Firstly, the survey shows that the potential for encrypted messaging and payment services to enable corrupt behaviour is a source of concern. Almost 60 per cent of respondents agree that technologies like chat apps on smartphones are making it harder than ever to monitor bribery and corruption, and a similar proportion (57 per cent) agree that messaging app communications pose compliance concerns, and these anxieties are likely to grow as usage increases. Mobile messaging platforms such as WhatsApp has a very high market penetration rate globally; while WeChat is used by over 80 per cent of Chinese smartphone users, and in China levels of concern are particularly high: more than two-thirds (68 per cent) of Chinese compliance leaders have concerns about communications taking place over messaging apps.

In short, digital communication methods can be both a blessing and a curse in terms of AB&C compliance. Those keen to commit offences may believe that encrypted digital communications can go undetected but capturing traffic from these channels is usually relatively easy. However, this emerging trend does raise potential data privacy issues. Personal phones are often used for work communications and vice versa, meaning that employees are reluctant to hand over their phones for investigations. While some firms tell employees that they should only communicate with each other and with suppliers via company-authorized channels, it is inevitable that people will use other methods, such as their own social media communications platforms. In other words, companies need to put in place clear policies and training programmes governing the use of technology, and build a company culture that emphasizes values with its leaders being the role models.

Other rising technologies such as cryptocurrency payments also bring fresh compliance challenges. These payment methods offer both transparency and a certain level of anonymity: every transaction is permanently recorded and traceable, but most platforms are “pseudonymous”, meaning that users are not easily identifiable. It’s perhaps not surprising, therefore, that 56 per cent of the compliance leaders in Hogan Lovells’ study believe that new payment methods are a compliance concern. Governments and regulators are only just beginning to implement frameworks to control the use of cryptocurrencies, and corporates are realising that they need to work quickly to fully understand the implications of these technologies and draw up policies and guidance to govern their use.

Technology as a compliance tool
It is understandable that compliance leaders have concerns about the dark spaces that new technologies can create where illegal activity can take place undetected. However, tech tools can also help in the battle against bribery and corruption, enabling more comprehensive compliance monitoring and encouraging greater transparency. Some companies have created internal applications for actions like transport bookings and meal purchasing, for example, helping them to monitor employee spending and quickly detect anomalies and possible issues. On the investigation side, data analysis and document review tools are being used to make significant efficiency improvements.

In terms of future tools, blockchain could prove to be particularly powerful. Although over half of compliance leaders believe that new payment currencies like bitcoin are a compliance concern, the blockchain technology that underpins cryptocurrencies can actually help to make corruption more difficult. The "open ledger" database records every transaction, embedding contracts in code that are protected from revision or deletion. This ledger is stored in blocks across a chain of distributed computers, so that there’s no single point of failure. This can ensure data integrity and transparency, creating a visible trail of transactions that cannot be changed or falsified. Blockchain technology can therefore help with guaranteeing identity, registering corporate assets, procuring contracts, and tracking funds. Pilots are underway around the world to experiment with how blockchain can track transactions - especially high-risk government transactions such as public contracts, cash transfers, and aid money - to lower the incidence of fraud.

In Colombia, for example, where corruption is thought to cost the country around US$17 billion a year, a project is underway to use blockchain technology for the selection of school food vendors. Historically, government contracts have been rife with corruption, due in part to the complex and opaque tender process and the involvement of multiple stakeholders. The blockchain solution would create an immutable record of bids, preventing companies from altering tenders after submitting them. Given that our survey respondents ranked Colombia as the second most concerning country in Latin America from an AB&C perspective, harnessing tools like blockchain to overcome corruption issues could pay real dividends.

Blockchain isn’t the only technology that could change the face of AB&C. Artificial intelligence (AI) and “big data” analytics are also capable of revolutionising the way that we detect corruption and foster greater transparency. In an effort to transform the public sector, the World Bank is looking at how AI can sift through huge volumes of data on World Bank-financed procurement, rapidly identifying patterns and flagging signs of corruption. 

It is clear that this tide of new technology is approaching swiftly and globally. Used effectively it could transform the enforcement of AB&C legislation.