I really enjoyed reading this article by Charles Riely and Danielle Muniz at Jenner and Block looking at how the SEC has successfully used data analytics in respect to white collar crime. Specifically they look at how they have used data analytical techniques to detect and investigate breaches of securities law, such as insider trading and market manipulation.
The SEC have long been proud and voiced their use of data analytics and that is something that companies should take on board. My colleague, Jeremy Cusimano (https://www.alvarezandmarsal.com/our-people/jeremy-cusimano) regularly uses these and other techniques in the investigations he has performed in respect of exchanged-traded and OTC physical commodities, financial derivatives and other securities. However, the benefits of data analytics as a risk management and investigation tool extends well beyond these types of offence and is useful to detect and investigate any form of white collar crime.
The backdrop to this is the ever increasing volume of data that companies hold that they regularly use to increase business and make the processes more efficient or to interact with customers more effectively. They don't always use that same data to monitor for and tackle white collar crime, and it should be used for risk management and investigations.
There are many advantages associated with data analytics throughout the timeline of an incident, be it:
- to help identify areas within a business to focus attention on;
- as an integral part of any audit or risk management program;
- to analyze the population of data looking for unusual transactions, patterns or relationships within the data; and/or
- to test hypotheses; if there are suspicions it can be used to validate and quantify the extent of what is suspected.
Data analytics should not be seen as a separate, standalone task, but should be fully incorporated within the overall scope of the matter. It can then feed into and be fed by the overall work program and add the maximum value, including enriching the data with appropriate external data sources. Specific tests and approaches will vary greatly depending on the matter in hand and the nature of the industry involved, but there are a large inventory of tests, tools and approaches that can be invaluable to detect and investigate white collar crime.
What data analytics allows the SEC to do is to use quantitative tools at the outset to help it identify stark trading patterns at the beginning of an investigation or exam, or at least in the early stages. The SEC’s public cases highlight the way that data analytics works in practice, and the commission routinely cites the surveillance work of the Analysis and Detection Center in generating insider trading cases.