Importance Of Data Analytics In Financial Investigation: The Pandora Papers Learnings

This article was originally published on Forbes.

As Maria Konnikova wrote in The Confidence Game, “Fraud really thrives in moments of great social change and transition. We’re in the midst of a technological revolution. That gives con artists huge opportunities. People lose their frame of reference for what can and can’t be real.”

Anyone not living under a rock is aware of the global financial frauds named the Pandora Papers being unearthed by the International Consortium of Investigative Journalists (ICIJ). The Pandora Papers give insight into the intricate web of international networks of shell companies, special accounts and secrecy jurisdictions that act as tax havens for the world’s wealthiest humans. This data includes offshore financial secrets of around 130 billionaires, as well as 330 politicians, celebrities, international criminals, royal family members and leaders of religious groups worldwide.

More than 600 journalists from 117 countries collaborated to investigate the Pandora Papers, spanning over two years. Unfortunately, the time and effort involved in investigating such scams often put the investigators in the back seat. Fraudsters using modern technology tend to come out ahead of the investigators, leaving them to play catch-up.

The Gigantic Data

The Pandora Papers data consists of more than 11.9 million confidential records received from 14 different offshore services firms. The 2.94 terabytes of data comprised PDFs, images, emails, spreadsheets, audio and video files, even ink-on-paper. It includes company incorporation records, real estate contracts, due-diligence questionnaires, copies of passports, bank statements, tax declarations, etc. This overwhelming amount of scattered data had to be assembled, sorted, scrutinized and verified by ICIJ to reach the depth of the matter.

Challenges Faced In Data Preparation And Analysis

According to ICIJ, only 4% of the data was systematized in tables when they received it. Processing of data in different formats required different methodology. ICIJ used Python for data extraction from PDFs. For spreadsheets, they deleted the duplicates to create a master spreadsheet. For ink-on-paper documents, ICIJ employed various manual processes. ICIJ also used some machine learning tools to structure the data. After structuring the data, ICIJ used graphic platforms to generate visualizations and make them searchable. They had to go through this laborious process to analyze and verify the data to reach their conclusions. ICIJ also found certain information to be missing from the documents. 

Learnings From The Pandora Papers Investigation

Data integration and analysis in the Pandora Papers took almost two years because the investigators had to be creative and apply multiple tools for data integration. ICIJ also verified the identity of named persons in the data after structuring it using keyword searches in public records. The investigation also resulted in false positives, which ICIJ discarded.

The data required thorough fact-checking and thus underwent two rounds of scrutiny. ICIJ also followed the flow of funds to discover the actual beneficiaries. For example, the name of Russian President Vladimir Putin doesn’t come up in the Pandora Papers, but that of his confidants are present, linking them to Putin.  

Massive financial frauds require new-age technology for investigation. The layers created by the agents, lawyers and accountants resulting in tax evasion and money laundering need quick and precise peeling off that data automation tools can achieve.

Choosing The Best Investigation Tool

Financial fraud investigation tools available today are like a one-stop-shop for data capture, integration, eliminating false positives and populating financial models. Seven key features to look for while considering an automated solution are:

1. Financial Data Accuracy: Accurate analysis of financial data is of utmost importance during any financial fraud investigation as it can reduce the risk of false positives.

2. Automated Data Visualization: Data visualization eases the process of identifying patterns, trends and outliers in large data sets, resulting in effective analysis.

3. Information Processing Speed: An excellent financial investigation software will speed up the process of data input, analysis and output, converting it into readable data and saving hours spent going through data manually.

4. Audit Trail: The ability to trace transactions back to their source efficiently and accurately is important.

5. Integration: It is also important to be able to integrate with other tools like Power BI.

6. Financial Institution Support: Make sure you have the ability to interface with the majority of financial institutions to read a variety of formats.

7. Language Support: Support for multiple languages can be helpful for scams at global levels.

Overcoming Challenges In Data Automation Process Implementation

One of the significant challenges in implementing data automation tools in the organization is human resistance and wariness toward new technology. To overcome this challenge, organizations need to train their personnel. They should recognize their employees’ leadership potential and skills and identify those who can quickly evaluate the potential impact of the automation opportunity. It helps to connect those people most relevant to the process and data with the use case early on. By adopting a Center of Excellence (CoE) style dialogue between different teams across the organization, the efficacy of automation can take hold. The whole workforce will become familiar with the benefits of intelligent automation and how it can help the business, promoting a culture of knowledge sharing around what it can achieve.

Final Thoughts

Investigation agencies need to up their game with modern tools to stay ahead of the criminals. The Centers of Excellence initiative accelerates IT modernization at federal agencies as part of the U.S. General Services Administration’s Technology Transformation Services. We just learned that ICIJ gathered 2.9 terabytes of data regarding the shadow financial systems harboring the scams of the world’s wealthiest people. Such large amounts of data can be processed and analyzed in comparatively lesser time with the help of advanced technology.

Besides technological advancements, accountants play a major role in preventing such frauds. Accountants are the gatekeepers of the financial systems who must ensure that their services are not misused to facilitate money laundering, corruption and tax evasion. The courts constantly deprecate the practice of claiming willful blindness, and the accountant or attorney must report financial fraud rather than feigning ignorance of their client’s money laundering business.

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