Supervisors align explainable AI and global cooperation on sanctions

Executive Summary

Authorities in Singapore, Canada, and Germany published joint guidelines for auditing explainable AI applied to transaction monitoring, establishing documentation references, performance metrics, and limits for human intervention. FATF published an alert on dual-use trade routes using shell companies in Central Asian logistics hubs, connected to sanctioned networks in Russia and the Middle East. The UN Security Council strengthened requirements for reporting violations in sensitive exports, recommending continuous due diligence mechanisms for PSPs. Meanwhile, Canadian FINTRAC reported an increase in suspicious venture capital investments linked to sanctions and industrial espionage risks. For institutions, the focus is on mapping AI models, integrating extended due diligence, and strengthening governance over global partners.

Top Signals

1. Trilateral guide on explainable AI for AML

The Monetary Authority of Singapore, BaFin, and FINTRAC published a joint guide detailing criteria for model auditing, with mandatory metrics for accuracy, fairness, and continuous monitoring.

Why it matters: institutions having frameworks aligned with three jurisdictions facilitates cross-inspections and reduces the risk of coordinated enforcement actions.

2. FATF alert on dual-use trade hubs

FATF identified routes through Kazakhstan and the Emirates where newly created companies trade dual-use components with final destination to sanctioned entities.

Why it matters: banks and trade finance providers must strengthen beneficial ownership and screening of logistics partners.

3. FINTRAC monitors venture capital linked to sanctions

The Canadian authority reported a 23% increase in fund investments with links to sanctioned conglomerates in the aerospace and semiconductor sectors.

Why it matters: investment structures can bypass traditional banking controls; specialized due diligence and continuous monitoring are required.

4. UN strengthens reporting of violations in sensitive exports

Security Council resolution requires quarterly reports on sanctions violations involving dual-use components and related financial services.

Why it matters: financial institutions must prepare internal channels to communicate violations to national authorities and multilateral bodies.

Deep Dives

Regulation & Supervision

The trilateral guide defines that AI models used in AML need local explanations by alert type, training data maintenance, and documentation of human decisions. BaFin insists on quarterly stress tests, while MAS recommends dashboards with fairness and drift metrics. FINTRAC reinforces the need for independent audits and contingency plans that revert to static rules when metrics exceed thresholds.

Practical impact: Global banks must align governance frameworks with requirements from three regulators simultaneously. Fintechs need to update pipelines to record human interventions. Vendors will be required to deliver inspection-ready documentation. Regulators gain a common basis for cooperative audits.

Tech & Typologies

FATF and UN reports show shell companies acquiring dual-use components with venture capital financing and settlement via PSPs in Dubai and Vancouver. The flows use digital letters of credit and factoring contracts to disguise origin and destination. FINTRAC alerts indicate that investment structures appear as legitimate contributions to hardware startups, masking links to sanctioned entities.

Practical impact: Banks need to strengthen due diligence in trade finance and VC investments. Fintechs must implement specific watchlists for logistics hubs. Vendors must offer detection of corporate networks related to sanctions. Regulators strengthen international cooperation and intelligence sharing.

Data Points

23% increase in suspicious venture capital cases reported to FINTRAC.
3 regulators aligning mandatory explainable AI metrics.
90 days is the deadline suggested by the UN for submitting violation reports.

Watchlist

EU sanctions list update focused on logistics hubs scheduled for October 22.
FATF meeting with private sector on November 5 to detail dual-use trade controls.