Money laundering – the process of transferring assets in order to hide the illicit source of the money behind them – has been a huge and growing business for years, used by terrorists to fund their businesses, criminals to launder their spoils, (some) cat fat to avoid taxes and more. Aided by the emergence of digital tools to speed the flow of money, and increasingly sophisticated technologies to avoid detection, bad actors move between $800 billion and $2 trillion annually, equivalent to 2-5% of global GDP, according to a World Bank report. United nations.
Of course, in the world of technology, this also presents opportunities: technologists interested in trying to solve particularly thorny problems are required to build better tools to detect and stop such activities. Today, a startup from Israel is doing just that by announcing a major round of funding on the back of strong business growth. Thetaraiwhich built an AI-based anti-money laundering (AML) platform to automatically scan and identify illicit transaction activity at banks and other financial institutions, received $57 million.
Portage, a dedicated fintech investor, is leading the investment in all of the shares, with participation from JVP, OurCrowd and other unnamed previous backers. The company has raised about $160 million to date – with previous backers including strategies such as ABN Amro, as well as General Electric, Alibaba, PwC and SVB Financial. The company did not disclose its valuation, but its president, Eryl Margalit, who is also leading the investment from JVP, said it was priced higher and that 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 received one of the largest fines, nearly $135 million, from the UK regulator for failing to secure its anti-money laundering operations; In addition to Travelex and a number of other major companies as well as small startups. CEO Peter Reynolds said the plan is to continue growing the business in this vein.
“This gives us a few years of runway to scale the business, and continue the current growth vectors of the fintech and enterprise payments space,” he said in an interview. Last year, the company saw its customer base grow 10-fold and its annual recurring revenue grow 5-fold. The startup estimates that the larger market for anti-money laundering tools is worth $9 billion, so being open to growth is big. Interestingly, Reynolds himself was previously the company’s chief revenue officer and took over his position June From co-founder David Gazit, who continues to advise the company.
In a world where there are now dozens, perhaps even hundreds, of anti-money laundering tools, with many, if not all, of them using some degree of artificial intelligence to process activity, ThetaRay is making up a significant portion of the business, not least because of how it works. Look deeper into a wide range of financial applications.
One such area is that of correspondent banking, where the financial institution involved in the transfer of funds is neither the originator nor the recipient of those funds itself. For bad actors, this has become an effective way to hide the origins of their funds, as well as the ultimate recipients; But at the same time, it is often one of the only ways to get money from one place to another, and of course represents a business opportunity for some banks. Using an AI toolkit (branded Sonar for ThetaRay) to monitor those transactions to determine when they are illicit is essential: some techniques these days involve splitting transactions across hundreds of accounts, so it’s important to use automation to monitor all movements at once to find Patterns.
“In this environment where AI has become a very important topic, you see a lot of people putting their name on it or leveraging AI technology,” said Devon Kirk, partner and co-founder of Portage. “We’ve put a lot of effort into ThetaRay and we see it as very clearly defined in terms of the effectiveness of AI and how to implement it. This technology can be applied in a wide range of contexts.”
Reynolds said the company’s future plans include a public listing, when markets appear more manageable. This plan has been in the works for a while: the former CEO also floated the idea again 2021.