Paper 2024/065

Privacy-preserving Anti-Money Laundering using Secure Multi-Party Computation

Abstract

Money laundering is a serious financial crime where criminals aim to conceal the illegal source of their money via a series of transactions. Although banks have an obligation to monitor transactions, it is difficult to track these illicit money flows since they typically span over multiple banks, which cannot share this information due to privacy concerns. We present secure risk propagation, a novel efficient algorithm for money laundering detection across banks without violating privacy concerns. In this algorithm, each account is assigned a risk score, which is then propagated through the transaction network. In this article we present two results. Firstly, using data from a large Dutch bank, we show that it is possible to detect unusual activity using this model, with cash ratio as the risk score. With a recall of 20%, the precision improves from 15% to 40% by propagating the risk scores, reducing the number of false positives significantly. Secondly, we present a privacy-preserving solution for securely performing risk propagation over a joint, inter-bank transaction network. To achieve this, we use Secure Multi-Party Computation (MPC) techniques, which are particularly well-suited for the risk propagation algorithm due to its structural simplicity. We also show that the running time of this secure variant scales linearly in the amount of accounts and transactions. For 200, 000 transactions, two iterations of the secure algorithm between three virtual parties, run within three hours on a consumer-grade server.

Note: Added acknowledements.