Money laundering — the process of transferring assets around in order to disguise the illicit origin of the money — has been a huge and growing business for years, used by terrorists to finance their work, criminals to wash their spoils, (some) fat cats to avoid taxes and more. Aided by the rise of digital tools to speed up the flow of funds, and increasingly sophisticated techniques to evade detection, bad actors are moving between $800 billion and $2 trillion annually, equivalent to 2-5% of global GDP, according to the United Nations.
Of course, in the world of tech, that also spells opportunity: Technologists interested in trying to solve especially thorny problems are in demand to build better tools to detect and shut down such activity.
And today, a startup out of Israel doing just that is announcing a big round of funding on the back of strong business growth. ThetaRay, which has built an AI-based anti-money-laundering (AML) platform that automatically scans and identifies illicit transaction activity at banks and other financial institutions, has picked up $57 million.
Portage, a specialist fintech investor, is leading the all-equity investment, with JVP, OurCrowd and other previous unnamed backers also participating. The company has raised around $160 million to date — with previous backers including strategics like ABN Amro, as well as General Electric, Alibaba, PwC and SVB Financial. It’s not disclosing its valuation but its chairman Erel Margalit, who is also leading the investment from JVP, said that it’s higher, and that the round itself was oversubscribed.
Its customers include the likes of Santander Bank, which knows all too well how things can go wrong: in 2022, it was the recipient of one of the bigger fines, close to $135 million, from the U.K. regulator for failing to secure its AML processes. Other customers include Travelex and a number of other big corporates, as well as fintech startups. The plan is to continue growing the business along those trajectories, said CEO Peter Reynolds.
“This gives us a few years of runway to scale the business, and to carry along those existing growth vectors of fintech and the corporate payment space,” he said in an interview. The company has seen in the last year its customer base grow ten-fold and its annual recurring revenue grow five-fold. The startup estimates that the bigger market for AML tools is worth a whopping $9 billion, so the opening for growing that more is a big one.
Tellingly, Reynolds himself had previously been the company’s chief revenue officer, taking over in June from co-founder Mark Gazit, who has continued to advise the business.
In a world where there are now dozens, maybe even hundreds, of AML tools, with many if not all of them using some degree of artificial intelligence to tackle activity, ThetaRay is carving out a notable piece of business, not least because of how it’s looking deeper into a wider range of financial applications.
One of these is in the area of correspondence banking, where the financial institution that is involved in transferring funds is neither the originator nor recipient of those funds itself. These have, for bad actors, become an effective way of masking the origins of their funds, as well as the final recipients; but at the same time it’s also often one of the only ways of getting money from one place to another, and of course represents a business opportunity for some banks.
Using an AI toolset (ThetaRay’s is branded Sonar) to monitor those transactions to identify when they are illicit is essential: Some techniques these days include partitioning transactions across hundreds of accounts so it’s important to use automation to monitor all of the movement at once to find patterns.
“In this environment where AI has become very topical you see a lot putting it in their name or leveraging AI technology,” said Devon Kirk, partner and co-head of Portage Capital Solutions. “We did deep diligence on ThetaRay and see them as very clearly delineated in terms of effectiveness of AI and how to implement it. The tech can and will be applied in a wide range of contexts.”
Reynolds said that future plans for the company include a public listing, when the markets look more amenable. That plan has been in the works for a while: the previous CEO also floated the idea back in 2021.
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