Reported by FinCEN

The recent FinCEN alert on deepfake media highlights growing risks to financial institutions, particularly regarding Know Your Customer (KYC) and Customer Due Diligence (CDD) processes. The use of generative AI and deepfakes enables bad actors to create realistic fraudulent identity documents, voice recordings, and videos that can bypass traditional verification measures. This challenges institutions to maintain compliance with the Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) requirements .

Impact on KYC and CDD Processes:

1. Fraudulent Identity Verification:

• Deepfakes can mimic live video or voice authentication, undermining the integrity of remote onboarding processes.

• Fake identity documents enhanced with AI often evade detection by automated systems, complicating initial customer verification.

2. Enhanced Due Diligence Challenges:

• Synthetic identities created using deepfakes may result in financial institutions failing to identify high-risk customers or entities during Enhanced Due Diligence (EDD) evaluations.

• The difficulty in distinguishing legitimate from fraudulent interactions increases compliance risks and the potential for regulatory penalties.

3. Risk to Beneficial Ownership Verification:

• Generative AI can fabricate documents or videos to obscure true beneficial ownership, posing challenges in detecting money laundering or illicit financing through shell companies.

Red Flags for Financial Institutions:

• Unusual Document Features: Poor alignment, pixelation, or mismatched data across submitted documents.

• Behavioral Anomalies: Delays, hesitation, or unnatural behaviors during video KYC sessions.

• Suspicious Patterns: Rapid account changes, reset attempts, or inconsistencies in a customer’s historical data.

To mitigate these risks, FinCEN recommends financial institutions enhance their KYC/CDD systems by incorporating advanced detection technologies, such as AI-driven fraud detection tools, and by increasing staff training on deepfake recognition . Institutions should also report suspicious activity to FinCEN to support broader efforts in combating this evolving threat. For more information, refer to the full alert here.