resources Article

Simulation is my Telescope to
Uncover Hidden Fraud

“I can think of myself as an astronomer, eager to learn more about the universe, but without a proper tool or telescope it would be hard to learn more than I can see with my eyes. Simulation is my telescope to explore the universe of financial fraud.” Dr. Edgar Lopez-Rojas (interview at Kaggle 2017).

This article is based on a blog post written by Dr. Edgar Lopez-Rojas, Modeling and Simulation Expert at Simudyne, which you can read here.

Two years ago, after publishing the widely recognized PaySim dataset, Dr. Edgar Lopez-Rojas commented that simulation is the telescope to explore the universe of financial fraud. This comparison became even more apt when the first picture of a black hole was taken on the 10th April 2019, through the coordinated effort of more than 200 scientists and observatories around the globe.

Professor Falcke had the idea for the black hole project when he was a PhD student in 1993. At the time, no-one thought it was possible. However, “breakthroughs in technology, connections between the world’s best radio observatories, and innovative algorithms all came together to open an entirely new window on black holes”.

Unveiling hidden fraud

Until now, a black hole was the domain of science fiction and artist’s impressions. Similarly, the current scale of hidden fraud is only an estimation. While some reports put the global cost of fraud at $3 trillion, this is just guesswork. Present fraud detection systems do not consider the undetected criminals (known as False Negatives), because this information is unknown; how can you measure what you can’t see?

However, just like the eight radio telescope observatories that were used to generate the image of the black hole, simulation is the key to unveiling a new universe of hidden fraud that lies within financial services.

Simulation as a telescope

According to Dr. Edgar, Galileo didn’t build the Everest Horizon Virtual Telescope on his first attempt, but he laid the foundation for others to incrementally build more and better telescopes.

Simulation has been among us for several years and today, we have the technology, the computational power and the knowledge to use it as a powerful weapon in the fight against financial fraud. Thanks to the research of Dr. Edgar Lopez-Rojas and other academic minds we are now able to generate information about False Negatives and help organisations move from an active to a proactive approach to fraud analytics.

A coordinated effort

Like Dr. Kate Bouman and the rest of the team, the war against crime requires a coordinated action from a multitude of parties to make a significant improvement and move the odds in our favour. But by using simulation and generated synthetic datasets, researchers, regulators and financial services can communicate to create better policies that reduce the profit from crime.

Chloe Hibbert