Sarah Travers
The rapid advancement of generative artificial intelligence (AI) technologies is making it increasingly difficult for businesses to identify and combat fraud, according to a report by the Association of Certified Fraud Examiners (ACFE) and Thomson Reuters.
The study reveals that a majority of businesses are facing obstacles in onboarding new vendors or business customers due to concerns about fraudulent activities, which are further amplified by the use of AI.
Let’s delve into the key findings of the report and understand the implications for businesses.
Sophisticated Fraud Techniques Enabled by AI
The report highlights that synthetic businesses created by fraudsters, along with potential fines or regulatory actions, rank among the top concerns for organizations when bringing on board new vendors or customers.
Fraudsters are exploiting generative AI and machine learning to replace manual fraudulent processes, outpacing businesses’ ability to identify fake entities.
By creating official-looking websites and other digital assets, criminals can easily deceive due diligence checks, making it challenging for businesses to differentiate between genuine and fraudulent businesses.
Implications and Challenges for Businesses
Surveying a wide range of businesses, the report discovered that 61% of respondents found it moderately or extremely challenging to onboard new vendors, while 52% faced similar difficulties when onboarding new customers.
These challenges stem from the complexity of conducting effective due diligence, as traditional methods struggle to keep up with the increasingly sophisticated techniques employed by fraudsters. The use of generative AI allows criminals to automate fraudulent activities and target businesses at an accelerated rate, putting companies at risk of reputational damage, regulatory penalties, and financial losses.
Magnitude of Business Fraud
The report underscores the significant impact of business fraud, estimating that billions of dollars in revenue are lost each year, with approximately 5% of business revenues being affected by fraudulent activities.
Among the common types of fraud, business email compromise stands out. This technique involves fraudsters spoofing legitimate business emails to manipulate financial transactions. For instance, criminals may alter routing numbers to redirect payments to their fraudulent accounts, particularly in industries like real estate.
AI as a Double-Edged Sword
Despite the challenges posed by AI in fraud detection, businesses are also recognizing its potential to enhance internal processes. Over 50% of the surveyed businesses expressed their intention to leverage AI and machine learning to improve their know-your-customer and know-your-vendor due diligence practices.
By automating certain aspects of these processes, businesses hope to streamline operations and bolster their fraud prevention efforts. However, regulatory compliance remains a critical consideration, as businesses must ensure that their use of AI aligns with industry guidelines and regulations.
The Need for Continued Investment
While AI can offer relief to compliance teams burdened by fraud detection responsibilities, the report emphasizes the importance of reinvesting the savings derived from AI implementation into technologies and resources that enhance corporate safeguards.
Criminals constantly adapt to new technologies, and businesses must proactively stay one step ahead. Reinforcing risk and compliance teams, along with investing in advanced technologies, will be vital to effectively combatting evolving fraud tactics.
Challenges and Opportunities for Businesses
The report reveals the challenges businesses face in detecting fraud as criminals exploit AI to create fake companies.
This poses risks such as reputation damage, financial losses, and penalties. Businesses should use AI cautiously, strengthen risk teams, and invest in advanced tech to combat fraud effectively and protect their operations.
