Roughly 3.5% of the world’s GDP is laundered every year, according to the United Nations. That equates to about $1.4 trillion annually in dirty, illegitimate funds derived from illicit activities such as drug trafficking, sex trafficking, and terrorist activities that are sloshing around our global financial system.
It’s an issue all sorts of financial institutions—from banks to e-commerce companies to fin-tech startups—are dealing with daily, with mixed success. Indeed, in 1970, Congress passed The Bank Secrecy Act (BSA), which essentially charged our financial institutions as the front-line defenders against financial crime. In 1990, the U.S. Treasury Department established the Financial Crimes Enforcement Network (FinCEN), to whom all regulated financial institutions report suspicious activity to today. In 2001, Congress expanded anti-money laundering (AML) reporting requirements as part of the Patriot Act.
As a result, financial institutions are now fighting a war in this area on two fronts: an ever-increasing onslaught of financial crime, as well as a tidal wave of mounting regulatory oversight, which can obviously be difficult to navigate.
The technology—specifically software—to help financial institutions fight this war is still, in many ways, antiquated. Early AML software launched in the late 1990s helped banks with basic crime-fighting issues such as verifying a customer’s identity during onboarding; monitoring customers for ongoing suspicious activity; and investigating and reporting instances of suspected illegal financial activity to relevant authorities.
However, these first-generation, financial crime-management systems were highly manual, lacking the automation necessary to effectively manage a bank’s BSA/AML workflow. Typically half a bank’s compliance department is comprised of BSA/AML personnel responsible for investigating and reporting suspicious activity. Today, these teams are being buried under the explosion of online data now available on consumers and transactions amid an increasingly dynamic financial environment.
It’s become clear that financial crime fighters need more-modern technology to catch the bad guys—namely, more-sophisticated platforms with open APIs, purpose-built to ingest data from many sources with automated workflows. This next generation of financial-crime tooling must address all of the innovation in today’s financial ecosystem, including the rise of neo-banks, peer-to-peer payment networks, decentralized blockchains, digital marketplaces and other internet-first methods of commerce, payments, and banking.
We believe the technology from Hummingbird will enable all of these innovations. Hummingbird, founded by fin-tech and regulatory veterans, acts as an orchestration layer on top of a bank’s existing AML stack, aggregating the data from point solutions and acting as the core workflow engine through which BSA/AML analysts investigate and report financial crime.
Today, we are thrilled to announce Battery Ventures is leading a $30 million Series B investment in Hummingbird. The company likes to say it “gives superpowers to financial crime fighters” and we feel this is true. With the help of Hummingbird, financial institutions and fin-techs regularly see investigation and reporting times cut by 70-90%, according to company research. Hummingbird also helps banks avoid fees from regulators on late or insufficient suspicious-activity reports.
Hummingbird is quickly becoming a centralized hub for compliance departments as customers use the software across their broader compliance organizations, not just for AML-specific workflows. Major companies such as Stripe, Brex, and Evolve Bank have all adopted Hummingbird. The company is growing rapidly and looking to hire.
Battery is proud to be partnering with a team and technology that is focused on fighting financial crime by helping financial institutions investigate and report suspicious behavior to law enforcement—and bringing this technology into the modern age.
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