A Time-Frequency Based Suspicious Activity Detection for Anti-Money Laundering

• Main Authors: Utku Gorkem Ketenci, Tolga Kurt, Selim Onal, Cenk Erbil, Sinan Akturkoglu, Hande Serban Ilhan
• Format: Article
• Language: English
• Published: IEEE 2021-01-01
• Series: IEEE Access
• Subjects: Anomaly detection; anti-money laundering; compliance; random forest algorithm; time-frequency analysis; transaction monitoring
• Online Access: https://ieeexplore.ieee.org/document/9399421/

Money laundering is the crucial mechanism utilized by criminals to inject proceeds of crime into the financial system. The primary responsibility of the detection of suspicious activity related to money laundering is with the financial institutions. Most of the current systems in these institutions are rule-based and ineffective (over 90 % false positives). The available data science-based anti-money laundering (AML) models to replace the existing rule-based systems work on customer relationship management (CRM) features and time characteristics of transaction behaviour. Due to thousands of possible account features, customer features, and their combinations, it is challenging to perform feature engineering to achieve reasonable accuracy. Aiming to improve the detection performance of suspicious transaction monitoring systems for AML systems, in this article, we introduce a novel feature set based on time-frequency analysis, that uses 2-D representations of financial transactions. Random forest is utilized as a machine learning method, and simulated annealing is adopted for hyperparameter tuning. The designed algorithm is tested on real banking data, proving the results’ efficacy in practically relevant environments. It is shown that the time-frequency characteristics are discriminatory features for suspicious and non-suspicious entities. Therefore, these features substantially improve the area under curve results (over 1%) of the existing data science-based transaction monitoring systems. Using time-frequency features alone, a false positive rate of 14.9% has been achieved, with an F-score of 59.05%. When combined with transaction and CRM features, the false positive rate is 11.85%, and the F-Score is improved to 74.06%.