Money laundering (the process of moving assets in order to disguise the illicit origin of the money behind them) has been a huge and growing business for years, used by terrorists to finance their work, by criminals to launder the their loot, (some) fat cats to avoid taxes, and more. Aided by the rise of digital tools to speed up the flow of funds and increasingly sophisticated techniques to evade detection, bad actors move between $800 and $2 trillion annually, equivalent to 2-5%, according to the United Nations of global GDP.
Of course, in the tech world, that also means opportunity: Technologists interested in trying to solve particularly thorny problems are challenged to build better tools to detect and stop such activity.
And today, an Israeli startup doing just that announces a major funding round on the back of strong business growth. ThetaRay, which built an AI-powered anti-money laundering (AML) platform to automatically scan and identify illicit transaction activity at banks and other financial institutions, raised $57 million.
Portage, a specialist fintech investor, leads the all-equity investment, with JVP, OurCrowd and other unnamed former backers also participating. The company has raised around $160 million to date, with previous backers including strategic players such as ABN Amro, as well as General Electric, Alibaba, PwC and SVB Financial. Its valuation was not disclosed, but its chairman Erel Margalit, who also leads JVP’s investment, said it was higher and the round itself was oversubscribed.
Its clients include the likes of Santander Bank, which knows all too well how things can go wrong: In 2022, it was the recipient of one of the biggest fines, nearly $135 million, from the regulator of the United Kingdom for failing to protect its AML processes; as well as Travelex and a number of other large companies and fintech startups. The plan is to continue to grow the business along these trajectories, said CEO Peter Reynolds.
“This gives us a few years of runway to scale up the business and to drive forward the existing growth vectors of the fintech and corporate payments space,” he said in an interview. Over the past year the company has seen its customer base grow 10x and its annual recurring revenue grow 5x. The startup estimates the broader market for AML tools to be worth a whopping $9 billion, so the opening to grow further is large.
Significantly, Reynolds himself had previously been in charge of the company’s revenue, taking over in June from co-founder David Gazit, who continued to advise the company.
In a world where there are now dozens, maybe even hundreds, of AML tools, many if not all using some degree of artificial intelligence to get the job done, ThetaRay is carving out a significant chunk of the business for itself, also in the way it which is by delving deeper into a broader range of financial applications.
One of these is in the mail-order banking industry, where the financial institution involved in the transfer of funds is neither the sender nor the recipient of those funds. For bad actors, these have become an effective way to disguise the origin of their funds, as well as the final recipients; but at the same time it is also often one of the only ways to move money from one place to another and, of course, represents a business opportunity for some banks.
Using an AI toolset (ThetaRay is called Sonar) to monitor such transactions and identify when they are illicit is essential – some techniques nowadays include partitioning transactions across hundreds of accounts so it is important to use automation to monitor immediately all movements to find patterns.
“In this environment where AI has become very topical, you often see them putting it in their name or leveraging AI technology,” said Devon Kirk, partner and co-founder of Portage. “We have done a thorough analysis of ThetaRay and find them clearly delineated in terms of the effectiveness of AI and how to implement it. The technology can and will be applied in a wide range of contexts”.
Reynolds said future plans for the company include a public flotation when markets look more favourable. That plan had been in the works for a while: the previous CEO also pitched the idea in 2021.
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