Kazuhiko Adachi, chairman of Intelligent Wave, talks to Dan Barnes about global financial crime, regulatory pressures and how technology can tackle these challenges.

Software provider Intelligent Wave, established in 1984, produces systems that banks use to detect fraud by identifying unusual behaviour. “Understanding behaviour is the key,” says Kazuhiko Adachi, the company’s founder and chairman.

“When we started off we were speaking to banks in Japan that had found anti-fraud systems from other geographies to be ineffective. The behaviour among the criminals that they saw was quite different from that identified by some software. So we developed our original system in 1989, NET+1, to pick out the behaviours that were specific to criminals in Japan,” says Mr Adachi. “Other software had often been configured to look for behaviours developed overseas and that often missed indigenous criminals’ methods.”

Criminal strategy record

Using an artificial intelligence based pattern recognition, the system was able to build up a record of behaviours that were indicative of criminal activity, he says. “The system allows us to capture a specific method of committing a crime and then store it so that criminal strategies can be recognised very quickly.”

To improve this process and tackle fraud in real time, Intelligent Wave then developed ACE and more recently ACEPlus. Both are systems that utilise a scoring system to monitor transactions and minimise the potential for fraudulent card use whether through theft or forgery.

The company also recognised the rationale of expanding its product range to tackle other behaviours that are intentionally or accidentally damaging to a bank. “Almost 80% of fraud is carried out within an organisation. Some of that will be employees, some will be people placed into a bank with the express purpose of committing fraud,” Mr Adachi explains. “We can easily detect a drug dealer operating on a street but it is much more of a challenge to find a manager who knows how to manipulate a system.”

To combat such situations, the company built CWAT, a product that monitors networks, the PCs that linked to the network (whether fixed or remote) and the transfer of data moving in and out of the network, with the aim of limiting theft. Its strength, according to Mr Adachi, is the range of behaviours that it can detect, which is vital for global banks.

“Within CWAT, we hold more than 20,000 criminal cases. Regardless of the geographical history of fraudster tactics, the system can detect them,” he says.

Mr Adachi stresses that the methods employed by criminals move between geographies. “If you only look at historical crime, you will always find the criminals one step ahead. They learn from each other, they learn from other countries. It is important to operate at the same scale and across the same borders or you are hampering your own efforts.”

Pressure to act

The nature of banks and the large amount of money they are accustomed to handling, means they can consider fraud a minor problem, but Mr Adachi says that inaction is a risky business. “The danger that banks face is that they are complacent about the level of money lost through fraud – for each bank it is often a small proportion of their profits.”

Because this money is used by the criminal and underground political communities, the issue has become political, increasing banks’ motivation to act, he says. “Governments and regulators are clamping down on the use of the financial services system by criminals and terrorists. That in turn has forced banks to invest in improved systems and we have experienced growth on the back of that.”

Interest from government agencies is growing, he says, citing that the Federal Bureau of Investigations invited his company to New York to present its software to US companies. “Crime in the US is getting increasingly sophisticated and the law enforcement bodies are keen to ensure that the people they protect are aware of all possible countermeasures,” he says.

Weight of responsibility

“What banks cannot ignore are laws such as Sarbanes Oxley; if the chief officers are found to be non-compliant they can be sent to prison,” he says, referring to the regulation that requires companies listed in the US to have strong, auditable record keeping, ensuring that decision-making is transparent and that senior staff take responsibility for their actions. Mr Adachi says this has provoked interest in his software. “When the regulation came in, we had a large number of US companies contacting us about the potential for compliance using our systems,” he says.

By logging and reporting unusual behaviours, Mr Adachi’s customers are increasingly preventing problems from developing. “The banks using our systems are picking up on small and, at first glance, innocuous behaviours before they get worse, as an acorn grows to become an oak tree. Early detection and prevention gives you control, and that gives you security.”

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter