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May and June are the fintech months at the e-Estonia Briefing Centre. Fittingly, the recent episode of our “The Art of Digitalisation” podcast featured Taavi Tamkivi and host Florian Marcus discussing the fintech industry, with a focus on fincrime-fighting. Taavi is the founder and CEO of a startup called Salv, an anti-money laundering platform that helps financial institutions, banks, etc., to be compliant while also fighting financial crime.
Here is the full transcript, but if you prefer listening, you can find it here:
The current money laundering landscape
Florian Marcus
Hello, and welcome to The Art of Digitalization. It’s another episode. My name is Florian Marcus and today with us Taavi Tamkivi. He works to kill an industry, which according to the United Nations Office on Drugs, and Crime is valued somewhere between $800 billion and $2 trillion a year. He is the founder and CEO at Salv, which is an anti-money laundering platform that helps financial institutions, banks and so on to be compliant and also catch fraudsters at the same time. Thank you so much, Taavi, for being with us. How are you today?
Taavi Tamkivi
I’m really good. Thank you for inviting me here.
Florian Marcus
That’s excellent and we plan to go ahead exactly with that spirit. So I mentioned the word anti-money laundering, or AML, for short. Maybe before we talk about what you guys do and what Salv brings to the game, what does the traditional AML landscape look like? And what are the shortcomings of the traditional tools?
Taavi Tamkivi
Just to start with the AML landscape, actually, we need to take a step back and explain what money laundering is and how it starts. We need to think of it in phases. It might sound like some white-collar crime, some top bankers laundering money and getting caught with clean money. But actually, the main problem is that this money that’s getting laundered is coming for the worst crime that you can imagine, human trafficking! You remember, few years ago, people were being trafficked, brought into Europe from Africa, or like in Asia, there is human trafficking going on. There’s still drug trafficking going on between Mexico and the US and the stuff that you can buy from the street. And even most recently, if you think about the war in Ukraine, people are getting killed, but also, many people are making lots of money from that, many people have been funding that war.
Actually, these kinds of really worst things ever are creating these criminal proceeds, which are then getting laundered through the financial institutions. But also not only through the financial institutions, getting it from Africa or like Moscow into the luxury apartments in London or French Riviera. So actually, money laundering is like the middle step of this criminal procedure, which is now impacting a huge part of the world. And what’s wrong with that? As you said, trillions of euros or dollars get laundered every year. And just to put it into perspective, it’s about the size of the German or Japanese economy that is getting laundered every year or around 2 to 4% of the GDP. And only 1% of that is being found by the institutions who should have it. If you think about it, if you’re doing your work and you should achieve 100 but actually you’re only achieving 1 or getting to 1% level with your work, then it’s really poor and something is really broken.
And what is broken? If you work normally in the private sector, then you’re focusing on your business results, you want to maximise your profit and you want to limit your losses and costs. And it works well in many of the industries but in the AML world, when you’re like the biggest financial dictator of your industry in your country, if you’re doing it wrong, you get some fines, but these fines are not huge. And you don’t have internal business drivers to mitigate the risk of money laundering because you don’t have direct losses, you’re not losing your customers. So, some people making money off of you doesn’t have a direct impact.
Florian Marcus
It’s more like the cost of doing business effectively.
Taavi Tamkivi
Exactly. You pay these fines, which for us individuals, paying millions or billions for fines sounds like a lot of money, but actually for the larger institutions, it’s just a tiny piece. So, that’s the ultimate reason why this money laundering isn’t well-controlled and there isn’t real intention in the private sector to stop it.
Florian Marcus
Yeah. So how does Salv solve the current situation? What does it add to the conversation?
How Salv is fighting fincrime
Taavi Tamkivi
First of all, the whole ecosystem is changing now and constantly, the world is changing around us, always. But now, we’re living in a really fast change cycle. On one hand, there are a lot of financial technologies which are available in the market like instant payments, API connections, and even when you think of crypto companies. So, all of these revolutions, we, as consumers and businesses, enjoy them but actually these are opening more gates for the criminals. But also it, luckily, brings more attention to this world.
The second part is due to the COVID situation which we had or some places we still have, people were more reluctant to actually becoming victims of the crime themselves. Like investment scam fraud and romance or love scam, where money was cheated out from the people, again, brought lots of attention to this wider crime and fighting it. And lastly, the current war, as we said, actually, has the biggest impact on fincrime. So, a lot of countries are writing about more and more sanctions. Especially here in Europe, companies and banks and fintechs are really interested in doing something, actually, at least to limit this war.
As a company, Salv, is in a super interesting position where these kinds of movers in the markets are actually helping us to beat financial crime. And what we’re doing differently is that we are focusing heavily on the collaboration between the financial institutions. And it’s not only about us doing that, but actually, the institutions themselves here in Estonia do that. And we saw a massive success story over the last year, even the last half of the year, where Estonian banks and also regulators came together to come up with a solution which would allow them to exchange information about possible criminals, about suspicious cases.
Florian Marcus
If I’m not mistaken, you’re referring to the AML Bridge?
Taavi Tamkivi
Exactly. Because that was and still is the name of the platform. We built the platform, but the initiative and the passion came from the market, from the banks and regulators that actually wanted to stop the crime. And they have seen massive and really good results. They keep reporting about reduced fraud rates and making higher quality reports or findings to the police forces about suspicious cases.
Florian Marcus
So before Salv, how can we imagine… I mean, Estonia is a reasonably high-technology country, so to speak. How was the cooperation between banks before the AML Bridge? Did it exist at all? Or was it, I don’t know, a random WhatsApp chat where people just posted information into, or how can we imagine this?
Taavi Tamkivi
Yeah, I cannot expose all the methods which were used before but of course, some information exchange was happening thanks to, just to give an example, our digital ID, digital signing encryption. You can encrypt files with an Estonian ID card, you can sign them and send them over email to your counterparty. So, it’s completely safe and secure but super unscalable. If you have hundreds of thousands of customers, or thousands of things that you would like to exchange about them with a legal reason, putting them into the digital container is going to take some time. It’s not possible. You deal only with the very niche cases where we really need to exchange data and then you get a response a couple of days later. But if this poor customer or potential criminal has to wait for many, many days, before they can get any feedback or before the report is sent to the police, it’s still like the Stone Age.
After we resolved that, we saw that the volume of the messages went up like ten or twenty times, and the speed of the information exchanged was increased, I think 200 times. So it was taken down from a couple of days to tens of minutes now. And it’s doing a specific thing because the banking industry around us, like in other countries, is very similar. And they have the same challenges. On one hand, crime fighters really want to share their suspicion about the possible crime to become smarter, and at the same time, they’re afraid to do any data exchange because they don’t have tools which are compliant. And everywhere you see the GDPR implications on the webpage, you just close this pop-up window. But actually, GDPR is a good thing because they help us as consumers to be sure that no one is violating our data.
And now, banks know that super well. Like what are the legal requirements and what are the technologies that banks can use or should use in order to exchange data about consumers who might be or who might not be criminals? Meanwhile, of course, banks want to protect themselves against the implications of going against the laws. So that’s a huge complex puzzle that we had to resolve through the technology, through the legal discretion, through the UI, in order to make something which is compliant with all the legal regulations and compliant with the bank’s own needs, and that actually fulfils the need of the crime fighters as well.
A cross-border network for fincrime-fighting
Florian Marcus
So you mentioned just halfway through that, obviously, banks in other countries would feel in a very similar way about these challenges as Estonian banks would. And I would imagine that a lot of financial crime happens across borders. So what kinds of expansion plans do you have? Is there a Bridge in the making for or in between different countries at this stage? What does the future hold for Salv?
Taavi Tamkivi
Yes. I think Europa showed that about seven out of ten crime cases are happening cross-border. For instance, to launder money from Moscow to London, it doesn’t go there straight. There are many hops involved. In our region, already, we see this happen, with countries like Lithuania, there used to be Ukraine involved, or the Emirates, or like the Nordic countries. Some of the transactions moving in between these countries might not be the best ones, actually. And what we’re doing is that we’re establishing similar networks in other countries like we did in Estonia like seven months ago.
Florian Marcus
Can you mention some other countries?
Taavi Tamkivi
Yeah, we’re working closely with the UK, Lithuania, Latvia, Sweden, Poland, and it’s pretty much the same although these countries are bigger than Estonia. But that’s actually the luxury of Estonian startups. Many of us have experienced that first, we launch something over here, we test it, we build the product up into the level which is needed for this market, and then we can start expanding it in other countries. And of course, the sales process itself is not easy, as you can imagine to build trust in the banking sector, and get all the licences, permissions and get good responses back. But the thing is that it’s so cool to see how viral this is. You might think that ‘okay, Skype was a viral thing, or Facebook is a viral thing,’ that more and more members are joining constantly. But even in the banking sector, if one or two brave banks say that, ‘yes, it’s a good start for us. We’ll use it,’ the other banks are joining almost automatically with them.
The legal challenges involved
Florian Marcus
This is actually something that I wanted to ask. Where do you face the least resistance and where do you face the most resistance when you are offering Salv? Or do you feel like literally every single stakeholder is on board the second that you talk to them?
Taavi Tamkivi
Actually the least resistance is coming from the crime fighters themselves, people who are working with the anti-money laundering teams, the sanction-fighting teams, and the anti-fraud teams. They clearly see the benefit and they want to communicate it with others. Even before we came into play, they wanted to communicate with the others. But the difficult part is actually all the legal aspects, especially data protection departments, because the mentality of data protection is to minimise all the risks, not to take risks and not take the balance risk, but actually to minimise all the risks. And of course, it’s super risk-free if you’re not exchanging any of your customers’ data with other parties.
Florian Marcus
If you don’t do anything, then there is no risk to your data.
Taavi Tamkivi
Exactly! And there are really interesting and mentally challenging debates on the kinds of permissions to actually allow your colleagues to exchange data with other banks. And you understand what is the debate between privacy interest to protect our data versus public interest to mitigate the risk of crime or when should the public interest right over someone who is suspected to be a money launderer be dominant. These are really interesting debates, but how to put them into products, how to put them into business procedures, how to put them into contracts, that’s a really big challenge for us.
Salv on growing a community of crime fighters
Florian Marcus
Speaking of working on the product, is there a certain roadmap for how you want to change your offering or expand what Salv does or are most clients happy with exactly what you have right now? How’s the product development path going?
Taavi Tamkivi
Yes, it’s going in two directions. I would say that one thing is the current customers. We have over ten banks and large fintechs using us on a day-to-day basis with this particular product. Altogether, we have many more customers. But with this Bridge product, it’s so cool to see how the crime fighters are gathering into this strong community. And it’s not only about using the technology or product itself, it’s also a matter of if they feel that they’re exchanging information with other intelligent people, they want to come together, have lunch and learn sessions, or experience-sharing or common newsletters, or like how they’re asking us to build a forum to exchange data. It is not the private data, but the information between themselves. This community of crime fighters keeps growing. So, we’re not building product anymore; we’re growing the community of crime fighters.
Florian Marcus
It sounds a bit like a Marvel universe where people used to have to fight all on their own and finally, they have this fancy building where they can all hang out together and, you know, exchange information and fight together.
Taavi Tamkivi
Exactly how it is.
Florian Marcus
That’s very romantic.
Taavi Tamkivi
It’s that you’re finally seeing that your work has meaning and that they can actually do something materially better than they have done so far. So that’s one direction of development. And the other is automating more activities. If we’re working with bigger customers, we have more transactions, more customers, then everything cannot be treated manually. So, it is a matter of how to increase the number of bits and pieces that go by, a thousand or million times bigger. Because, of course, at some point of time, human interaction is just not any more possible and we need to automate things to make them faster and even more scalable.
Florian Marcus
I don’t know whether you can publicly disclose anything of that, or whether there are any public cases even, but what was the biggest case where the AML Bridge has helped flag a certain transaction or scheme?
Taavi Tamkivi
Yes. Actually, thanks to our partner banks, we have published some numbers and cases, like when €50,000 was cheated out from someone, and then it was reverted thanks to the information exchanged over the Bridge. The person was initially really sad but became really happy. The point is that for us consumers or individuals, this €20,000, or €50,000, loss or avoided loss sounds like a really big number and it’s quite easy to get a lot of attention on that. But the problem is that if we’re talking about real money laundering, then we’re not talking about tens of thousands, we’re talking about millions, tens of millions, or hundreds of millions. That’s a pretty unimaginable number for normal people. And to be sure that it was really a criminal procedure, it has to go to the police, then the court. The court has to make a decision.
Florian Marcus
All of that bureaucracy.
Taavi Tamkivi
Exactly. And they get the outcomes like three years later. So it’s really challenging. Also, true evidence rarely ever comes back on whether the work is going in the right direction or not.
Crypto still less of a fincrime abettor
Florian Marcus
Right. One thing that struck me both, you mentioned previously and also just recently with the sizes of the numbers that make up the big money laundering cases that we still have to detect. One thing that comes to mind is the world of cryptocurrencies, also in the context of the Ukrainian war, what can Salv do in this context? I mean, most data about financial institutions and so on struggle, themselves, with the world of cryptocurrencies. So, of course, the advantage is that every transaction is public on the ledger, but you don’t have the identities necessarily of the people that make these transactions. So how can you help in this space?
Taavi Tamkivi
First of all, cryptocurrencies are risky as new technologies, but the risk in terms of money laundering or crime is heavily overestimated is what I see. There is a large crime-fighting company offering services related to cryptocurrencies, which is called Chainalysis. And their estimation shows that the crime rate annually is about 0.3% of all the money that’s moving around. In the banking sector, this percentage is about five to ten times higher. And volume-wise, you can imagine that banks are still delivering lots of money more than in the crypto space but however, in the crypto space, as this is a really young industry, there are definitely some good players and some bad players as well. And these bad players just need to be filtered out from the system and that takes time.
It’s actually getting more and more clear now because if you’re buying a crypto and if you’re signing up for new fiat to crypto provider, then they’re always asking you to do the proper KYC, send your documents and source of wealth and that’s already similar to any other fintech or banking world. But now also, the crypto companies are mature, they are also doing the background AML checks as every other normal financial institution does. And the guys who are not doing that, of course, there is risk and they will be kicked out from the market at some stage. But how we are helping is that we are focusing on this segment, which is exchanging fiat to crypto, or crypto to fiat. They have linked to our system, and there, we can help them as much as any other sector that we can focus on.
The growing global popularity of Estonia’s fintech sector
Florian Marcus
Yeah. And now, it is the fintech month here at e-Estonia. And you’re a busy man, naturally. You’re not just the founder of Salv but you’re also a board member of Finance Estonia. Finance Estonia, for those not in the know, represents the public-private financial sector, also abroad. What are the latest developments and trends that you see in the Estonian fintech and financial institutions scene and what do you think that the global future holds for this sort of branch?
Taavi Tamkivi
Yes, it’s a good question. I’ve been in this organisation for one and a half years now and surprisingly, I noticed… I think it was about a year ago when I started seeing huge interest globally from various organisations, governments, and fintechs. They explicitly reached out to us in Finance Estonia and asked us to tell them about our fintech success stories, experiences, and the legal environment. We got requests from Israel, Singapore, Brazil, of course, from Nordic countries, and real top startup and fintech countries. And I really couldn’t realise why it’s happening because there hasn’t been any conscious marketing towards making this particular segment popular. Of course, Estonian startups are well-known, and we have a number of unicorns. But when we’re talking about startups, we’re not pushing regtech, fintech or whatever ridesharing, as the top players. We are commonly promoting all but somehow, it’s a self-generated trend
Florian Marcus
Word of mouth
Taavi Tamkivi
Exactly! And now, it’s super interesting to introduce our fintechs to foreign financial technology centres, and to learn from them and they learn from us. Hopefully, there are lots of good common projects or customers or new collaborations coming out. So that was definitely the most interesting part. Maybe I’m just shyly saying we have a couple of good companies, definitely, but it doesn’t seem so shiny as it looks from the other side. But objectively, it is probably more successful than most other countries.
The real pressure point in fincrime-fighting
Florian Marcus
I think Estonians are terribly self-critical when it comes to their own success. Very interesting! Are there any other things that we have not mentioned that are really burning on your chest and you really want to get them out?
Taavi Tamkivi
Yeah, it’s just… people who are listening and or thinking about AML, then mostly, I think expats or different people who have been trying to open bank accounts, and other fintech accounts in different countries, recently have felt the pain of how hard it is to open a bank account or deliver bigger amounts of money between countries, not because of the price or slowness; Transferwise or Wise and many other companies are resolving these problems already. But actually, getting loads of painful questions from your service provider, like why do you want to make this transfer?
Florian Marcus
Why that much money?
Taavi Tamkivi
Exactly. Where did you get this money, to whom are you sending it? Like every time when I’m speaking with ambassadors, or people who are more well-known, and political spokespeople, their experience… Also like VC investors who are trying to invest in new countries, they’re going through huge pain through this. Financial revolution is here and it eases payments and everything, but to open a bank account or deliver money is a pain. I just want to say that these companies are following their legal obligations in the best possible way. And these obligations are coming from the laws. People who are writing the laws can have a high level understanding of how the financial crime should be stopped, but not too good understanding of the other aspects, because they haven’t been in that frontline in the fight, as me and many other people have been. So, the crime fighting should start from the other hand, not stopping or creating extra pain for the good customers and for the mass of consumers.
Actually, I really believe that crime-fighting should start by chasing the bad guys. And there are different tools, like our products, but also many other products available in the market, which make crime-fighting much more effective than today’s laws are pushing. And that’s why I’m really keen to focus on this crime-fighting. Of course, minimising financial crime is one objective but the other is that I see that if we’re doing it successfully, then it automatically would really reduce the burden of the good customers as well. And I really hope that will give the world more free access to banking and financial services. We can automate the stress first, and we can generate more and better automated verification technology and stuff, but still, the hurdle is there. And it will be there until we’re able to minimise the actual financial crime.
Florian Marcus
Is it realistic to hope for regulatory change there or what can we expect to get towards the vision that you just spelled out to us?
Taavi Tamkivi
I just believe that if financial institutions and regtech providers like us are working together and showing that, ‘okay, while doing these mandatory things, we’re also doing the voluntary things like data exchange between the institutions. And if we’re doing these extra things, the crime detection rate will go up, and then the crime rate itself will go down.’ And if governments see that there’s less drug trafficking happening because traders cannot launder their cash anymore.
Florian Marcus
They know that it is not possible like that anymore.
Taavi Tamkivi
And human trafficking, again, like when people who are making money from there cannot convert that much anymore into them. Then, hopefully, the laws, which are legacy laws and touching more than good customers, will be relaxed as well. But yeah, that’s the cycle that I see happening. When you’re resolving the problem, not directly, it’s not about being compliant, it’s about stopping the crime, and then being compliant also gets easier.
Florian Marcus
Well, I hope that we can get to that big and heavy ball rolling. Taavi, thank you so much for your time. Thank you also to our listeners, and we are looking forward to hearing from you next time again. Thanks and have a lovely day.
Taavi Tamkivi
Thank you, have a good day.
