HYDRA AML is a game changing digital money marking and tracking technology that allows to create a new generation of anti-money laundering tools. This new system is to bridge the gap and further strengthen the cooperation between law enforcement agencies and financial institutions. HYDRA leads to create an Anti Money Laundering process where following the digital money from the source to the “end-users”, and detecting and identifying various parts of the money in real time become possible.

The HYDRA AML solution shifts the primary notion of anti-money-laundering systems from transaction monitoring to money tracing, and the primary agent of tracking from financial organizations to law enforcement agencies with the primary goal of increasing real time true alerts.

The innovative concept can be described as follows. Money in the account can be broken into separate parts based on the desired usage (VAT, social contributions, subcontractors’ fee, by geographical origin, etc.) The HYDRA client marks the different parts of digital money and keeps it readable and expandable through dozens of transactions managed by the system. The marker is a coded, highly compressed string of characters that contains all important details of the money parts through transactions and can be used to reconstruct the entire history of transactions from their origin. Markers are attached directly to the digital money. HYDRA’s novelty lays in the invention of these ‘markers’ and the ‘cash DNA’ a pending patented method that makes different packages of money identifiable and traceable through transactions and systems.

Briefing of the concept

The HYDRA concept of “follow the money” for marking and tracking financial transactions:

• A sum of money is broken down into units
• Each units are marked with a Smart marker containing the background information of the money
• CashDNA mutates in the case of every transaction concerning the sum.
• All CashDNA are sent to a Central Unit
• The Central Unit seeks automatically for patterns of illicit transaction chains in the whole transactional database
• Recognition of suspicious patterns by the HYDRA Analyser creates real time true alerts for LEAs.

The advantages of the new HYDRA technology:

HYDRA advantages:

• Improves capabiities of current AML softwares
  extands the usability and efficiency of current AML tools in case of using Hydras smart markers
• Provides better data
  provides a larger set of much better quality data for authorities showing the structure and origin of digital money
• Works thorugh firewall
  transactional chains can be analysed even if the data is behind a firewall or stored in various IT systems of clients, organisations, countries and continents; and the recipient partner can be filled with the substantive information without unnecessarily revealing the identity of the source
• Easy to implememt
  the forwarded CashDNA is highly data economic, it summarises whole money-histories in one single code stored on the money itself
• Provides instant information
  gives transaction history results without analysing the full transactional data mass
• Anonym detection
  detection through different bank accounts can be accomplished without violating client privacy
• Automated, real-time detection
  provides an excellent level of pattern recognition performance close to that of humans but working in a continuous mode and operating in real time. Hydra is able to learn new transaction patterns and continuously improve its performance

The Patent

The methods behind HYDRA have been subject to a patent application by HAML (pp nr. W1500080) with the title: “A procedure for high-information qualitative marking and tracking of bulks consisting of mass units or their transactions”. The process is suitable to provide deep-level quality analysis and proof of origin for bulk masses of units that are considered to have equal substance (even account money), and of their movement and transactions.

The process may include the inspection of individual unit movements as well. The process creates codes from the data and characteristics of transactions, or with respect to the qualitative features or the backgrounds of masses, that have few characters, are easy to analyse, and provide a great amount of information, and which makes several tracking processes considerably simpler (such as detecting money transfers related to illegal economic activities, or marking the origin and background of complex articles).

The Concept of Hydra

The concept of Hydra AML has started with the ground breaking idea of a senior financial professional, Andras Gedai. Andras is an established financial expert with more than 17 years’ banking experience and a former military education. He is the Head of the Cash and Card payment division at CIB Bank, the Hungarian affiliate of INTESA SANPAOLO and represents the Bank within the Hungarian Bank Association.

During his daily work Andras was dealing with smart painting marking technique of cash to prevent loss in case of robbery, and also with AML tools which are tracking digital money movement and transactions. Being aware of the routine processes of both sides he developed a new methodology, a brand new conception about how to be able to follow the digital money for AML purposes. The new methodology involved ideas on how to break up the seemingly solid money-mass on bank accounts to meaningful elements, create markers to typify and identify the elements and to follow these markers through countless transactions as it were physically marked cash. (For more on Hydra technology please see Annex.)

The fully developed idea met with the curiosity of an international project development expert, Laszlo Kurti. Laszlo is a reputable social entrepreneur who has an impressive track-record of successfully supporting socially important technology projects like promoting open-source software application in public and governmental institutions and who has been working at a family owned IT security SME, KÜRT Co. as Head of the International Business Development.

In order to help Hydra’s concept to become a reality Andras and Laszlo decided to invite two experienced specialists, Benedek Sztanko, a technology expert and Peter Szakal, a startup marketing specialist. The team worked hard to develop a new market conform concept and finally they set up a UK based Start-up Company. Hydra AML Ltd. is designed to manage the technical development of this unique and innovative financial investigative tool and implement supporting projects. The team of the company was selected accordingly.

The impact of HYDRA technology

The main impact is to solve financial crimes rapidly with a cost-effective, intelligent AML methodology even able to alert about suspicious cases in the transaction mass.

• Improved software capabilities
  HYDRA provides a new methodology that allows the development of powerful AML software applications. The application of smart markers on a digital entity alters the procedure of transaction analyses which allows to accelerate the AML product development to create new generation tools.


• Impact on Artificial Intelligence and Business intelligence
  The main focus of AI is on automatic machine learning to seek for patterns in large amounts of data. The combination of HYDRA technology and the artificial intelligence or machine learning leads to a higher level of automation and prediction which will transform the entire crime detection logic, the related product lines and increase the aspects of risk assessment capability.


• Regulation – Improved competences for policymakers
  
  Helps decision makers to better understand and analyse the process of areas (Anti money laundering, Know Your Customer) where regulators could harness the combination of innovative technologies (e.g. Big Data, Artificial Intelligence, Business Intelligence) to improve regulatory oversight and scrutiny.


• Better identification and understanding of criminal activities
  Patterns management helps to identify and prevent criminal activities. The use of HYDRA methodology will help to minimise risks to financial services.


• Reduce costs of investigation
  Crimes solved more rapidly, to reduce societal distress, investigative costs and the impact on victims and their relatives. As regulation deepens in complexity and scope, the cost of compliance continues to rise. According to new figures from WealthInsight9, global spending on AML compliance is set to grow to more than $8 billion by 2017 (a compounded annual growth rate of almost 9%). But many balk at increasing compliance spend – notwithstanding the cost of enforcement actions and large-scale penalties resulting from compliance failures.”


• Prevention of more terrorist endeavours - Social security
  Charitable and other neutral organizations are often used as a front to mobilize funds or serve as a conduit for the money. It is clear that if acts of terrorism are to be eliminated, the flow of money on which they ride must be stemmed at the source. This is one area in which stringent financial procedures and controls could be helpful.


• Growing confidence in financial services
  The integrity of the banking and financial services marketplace depends heavily on the perception that it functions within a framework of high legal, professional and ethical standards. A reputation for integrity is the one of the most valuable assets of a financial institution.


• Cross border / cross firewall methodology
  Money laundering is today an international issue with global consequences, so to fight against it, international co-operation is a critical necessity. HYDRA provides the right tool and methodology to create a cross border, cross firewall standard.

The main problem is that the present AML complex treats secondary elements of the financial system (i.e. the providers) as the primary ones, instead of focusing on the real primary component: the core element of every illicit money movement is money itself.

Financial institutions are independent actors of the financial systems. They are very heterogeneous regarding resources or characteristics deriving for example from their geographical locations. Therefore, their efforts providing as much relevant data as possible will still remain insufficient as they are not able to monitor the whole financial system, they can monitor their own “indoor” systems only. The task of LEAs is to collect all this data, place them into a bigger system and interpret patterns of suspicious activities. But because the primer sources of data are heterogeneous and independent from each other, the data system remains segmented and incomplete despite of strengthened cooperation and communication. Moreover, terrorists and criminals are always very motivated to create new agents and systems in order to hide their activity. It means that more and more data providers have to be included into an ever expanding system.

Financial institutions are not intelligence units regarding their purpose of foundation, their nature of operation and their expertise. Although, they operate compliance units and use anti-money-laundering IT tools in order to provide data for authorities, they do it mainly for the intention to comply with legal requirements and to reduce the level of their own financial risks. These tools are able to detect any kind of money movement, suspicious actions or gate-transactions that are needed to reveal illicit activities, but their efficient operation requires significant human input. The data that these tools generate has to be controlled and analysed by experts. If these tools are used to detect any suspicious activity in a bank’s system for example, it may result many false alerts. If the tools are used to detect only obvious activities (e.g. transactions to offshores) or just apparent changes of client patterns, then investigation may lose important instances of illicit money movement.

As a result of these aspects in the present situation:

• the detection of illegal activities and related financial transactions is ineffective, resource intensive, and therefore very expensive;
• the detection of a case takes relative long time, usually 18 months on average from first notification to judgement; and since the traditional transaction monitoring methodologies are too slow, the perpetrators and the money often disappear before the investigative process ends.

The detection of illegal activities and related financial transactions is ineffective, resource intensive, and therefore very expensive.
In addition to this the detection of a case takes relative long time, usually 18 months on average from first notification to judgement.

A paradigm shift

In order to overcome these systemic problems, a significant paradigm shift is needed. Hydra AML solution offers the following new paradigm:

• Instead of following transactions at financial service providers it is money that has to be followed by authorities primarily in order to track down real money in real time. And instead of obliging service providers to carry out and manage semi-investigative tasks, the money tracking has to be transparent and accessible for the authorities principally.
• If we extend this new paradigm, and instead of following transactions and suspicious activities in segmented parts (i.e. financial institutions) of the system, we follow the traces of money through the global financial system, criminal activities will be unable to be covered, because the traces of money will appear at the new agents immediately.
• Further extending the new paradigm, we place special ‘markers’ on digital money itself the new platform of HYDRA AML will be able to detect complex and large scale patterns of suspicious activities automatically, and report it to experts only in well-founded cases and in real time, thus maximizing efficiency of investigative units and compliance activities.