The Rise of AI and Deepfakes: How KYC Can Help Prevent Falling Victim

Artificial intelligence has revolutionised many industries, offering significant advantages in efficiency, automation, and innovation. However, alongside these benefits, AI has also introduced new threats, particularly in the realm of fraud.

Deepfake technology, which uses AI to manipulate audio and video convincingly, has become an increasingly popular tool for fraudsters. As these threats evolve, organisations must take proactive steps to protect themselves. One of the most effective ways to combat AI-powered fraud is through robust Know Your Client (KYC) measures.

The Growing Threat of AI-Powered Fraud

The rise of AI over the last few years may provide huge benefits for various sectors, but it also brings a number of challenges for organisations, particularly regarding fraud. AI has allowed fraudsters to enhance their efforts by making their attempts appear legitimate through methods such as AI-generated audio and deepfake videos. This has required organisations and regulatory bodies to adapt to this new avenue of attack to mitigate the risks posed by this technology.

What Are Deepfakes?

Deepfakes use AI to superimpose one person’s face and/or voice onto another individual’s face and/or voice, generating media that can be very difficult to distinguish from reality. While this technology has legitimate uses, such as in entertainment production, it also has a dark side that can be used for deceptive purposes. Typically, the technology is applied without the subject’s consent to deceive people, either for financial gain or to defame a public figure and undermine public confidence in the media.

The Role of AI in Phishing Attacks

Attackers have also been using AI to generate more personalised and believable phishing messages, making it harder for individuals to distinguish between real messages and scams. These modern phishing techniques utilise social media profiles to build a significant dataset, enabling highly customised, emotionally charged messages aimed at tricking unsuspecting victims by exploiting their emotions.

A Real-World Example of Deepfake Fraud

In 2024, a finance worker at a multinational firm was duped into paying $25 million after being tricked by fraudsters who deepfaked themselves as the company’s chief financial officer in a video conference call, also utilising AI technology to imitate their voices. The worker was initially suspicious of a scam following an email supposedly from his company’s CFO requesting a secret transaction. However, after the deepfake video call, the worker’s doubts were put to rest as the other attendees looked and sounded exactly like colleagues he recognised.

This is just one of several incidents in recent years where fraudsters have successfully tricked organisations into transferring money. These scams can easily go undetected, as the above case was only discovered after the employee in question checked with the organisation’s head office. Authorities worldwide are becoming increasingly concerned about the sophistication of deepfake technology and its potential for criminal use.

Strengthening Fraud Prevention with KYC

How can this advanced method of fraud be prevented? One key area is the implementation of stringent Know Your Client (KYC) measures. KYC is a process that many organisations must follow to verify that their clients are who they claim to be, helping to prevent fraud. This typically involves collecting personal information such as name, date of birth, and identification documents to verify identity. These measures have helped prevent crimes ranging from identity theft to money laundering and terrorism financing.

Regulatory Measures to Combat AI Fraud

In response to the rise of AI-driven fraud, many regulatory and legislative bodies are implementing new measures to combat this evolving threat. The EU has introduced the AI Act, which sets out rigorous standards for AI, mandating transparency and accountability. The UK introduced legislation earlier this year that made the creation of deepfake content within British borders a criminal offense, punishable by up to two years in prison.

Conclusion

The rapid advancement of AI has created both opportunities and challenges for organisations worldwide. While deepfake technology and AI-driven fraud pose significant risks, measures such as KYC protocols and regulatory frameworks can help mitigate these threats. Businesses must remain vigilant, stay informed about emerging risks, and adopt the necessary security practices to safeguard against the misuse of AI. By combining technological innovation with regulatory compliance, organisations can navigate the evolving landscape of AI fraud with confidence.

How AJC Can Help

We can help you navigate complex regulations, providing both you and your customers with confidence that their money and personal information are safe. We assist in conducting thorough analyses, meticulously designing tailored strategies, and facilitating the seamless implementation of controls. Our goal is to ensure that organisations not only understand the regulatory landscape but also have the appropriate measures in place to comply effectively. With extensive experience and expertise in compliance and KYC, we provide strategic and advisory services to organisations.

Please contact us on 020 7101 4861 email us info@ajollyconsulting.co.uk if you think we can help.

Image accreditation: Andres Siimon (October 2023) fromUnsplash.com. Last accessed on 19th March. Available here.