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Reinventing Anti-Money Laundering with complexity

2019-03-05

Beyond Madoff: Anti-Money Laundering with Quantitative Complexity Management. By JB Beckett, Author of 'New Fund Order'.

Introduction: Anomaly-based Anti-Money Laundering Software (A-AMLS) with QCM

In finance, Complexity can become inextricably linked to the rise of fraud. Complexity is the reciprocal of transparency. In a simple transparent system it is difficult to disguise fraudulent anomalies. The system remains resilient. However the number of financial products and product complexity is increasing; some are made deliberately complex, others escape their creator's control by refusing to follow a Gaussian distribution here or a linear correlation there.

The presence of highly complex products increases the complexity of financial markets, offering new opportunities for fraudulent and illicit operations. High complexity is a great way to hide incompetence, inefficiency, fraud and makes it difficult to identify responsibilities. Ponzi schemes (a form of fraud and money laundering) like Bernie Madoff were born out of investor desire to apply Complexity to escape market volatility. Likewise the incompetence of the custodians who accept deposits, monitor assets and pay on maturity must be addressed.

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