As artificial intelligence (AI) compliance and fraud detection algorithms gain traction in the corporate world, it’s important to recognize their dual impact. AI is a classic double-edged technology: in the right hands, it can detect fraud and bolster compliance; in the wrong hands, it can stifle potential whistleblowers and weaken accountability. Employees should be aware of the many ways it’s already being used.
The Strengths and Risks of AI Compliance Systems
AI is highly effective in analyzing vast amounts of data to identify fraudulent transactions and patterns that human oversight may miss. Its potential includes real-time detection, pattern recognition, and efficiency:
- Real-Time Detection: AI can analyze huge datasets, from financial transactions to communication logs, to detect anomalies indicating fraudulent activity.
- Pattern Recognition: It can reveal patterns, flagging potential conflicts of interest and unusual transactions.
- Efficiency: AI automates data collection and analysis, accelerating fraud detection.
Yuktesh Kashyap, Sigmoid’s Associate Vice President of Data Science, emphasizes AI’s capacity to streamline compliance while reducing costs. He says that with AI, financial institutions can give real-time updates for simpler compliance management.
Despite these advantages, Stephen M. Kohn, a leading whistleblower attorney, worries about organizations using AI to dodge responsibility. He argues that companies could claim their “sophisticated algorithms” represent due diligence, shielding them from sanctions even when the software misses obvious misconduct. Legal scholar Sonia Katyal also warns that AI’s automated decision-making lacks the transparency and challengeability required by due process standards.
The Double-Edged Sword of Whistleblower Surveillance
Darrell West from the Brookings Institute’s Center for Technology Innovation cautions that AI compliance algorithms could be weaponized against potential whistleblowers. Office jobs conducted online, with employees reliant on company networks and devices, leave little room for privacy. This creates opportunities for AI surveillance to monitor employees’ digital activity through cameras, emails, keystroke logs, and more.
Companies could use AI to monitor potentially problematic employees, flagging keywords and patterns that signal whistleblowing. These advanced tools, West argues, provide employers with systematic tools to detect internal problems and make it harder for whistleblowers to collect and report information on fraud and compliance without being discovered.
The only option left for employees is to operate offline using personal devices or burner phones, but this isn’t ideal. Downloading sensitive information on company networks will likely be detected by internal software. Ultimately, compliance officers end up wielding enormous influence over how a whistleblower is treated.
The Crucial Role of Whistleblower Programs
Whistleblower programs, crucial to enforcing corporate accountability, are at risk of being undermined by AI surveillance. The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have whistleblower programs that rely on original, voluntary tips. Those whose information leads to enforcement actions receive 10-30% of the recovered funds. This incentivizes employees to report fraud.
However, if AI algorithms are used to monitor employees and suppress potential whistleblowers, these programs would lose their impact. Organizations will likely retaliate against those suspected of whistleblowing, creating a chilling effect that prevents employees from coming forward.
Whistleblower programs need robust protections to ensure fraud detection is both identified and acted upon. Experts believe that AI compliance systems require independent oversight for transparency, ensuring their adherence to due process and ethical standards.
Ultimately, organizations must strike a balance between leveraging AI’s potential and upholding accountability mechanisms like whistleblower programs. Without such vigilance, the same technology that can reveal fraud risks becoming a tool to bury it.
