January 18, 2024
Research Fellow:
- Chris Hughes, CISSP
Use Case: Cross-Border Financial Crime Intelligence Sharing using Homomorphic Encryption
Scenario:
A multinational bank, operating in multiple countries, is required to comply with various financial regulations, including those related to preventing money laundering and terrorist financing. The bank collects vast amounts of financial transaction data, which could be crucial for identifying and preventing financial crimes.
Challenge:
The bank needs to share this data with regulatory bodies in different countries for financial crime analysis. However, it must do so without compromising the privacy and confidentiality of its customers' data, adhering to various national data protection laws (for example GDPR in Europe).
Possible Solution: Leveraging a Homomorphic Encryption-Based Platform
- Data Encryption: The bank encrypts its transactional data using a homomorphic encryption scheme before storing it on its servers. This encrypted data is unreadable to anyone without the proper decryption key.
- Data Sharing: When a regulatory body requests data, the bank shares the encrypted data. Since the data is encrypted, it remains confidential, and the bank complies with privacy laws.
- Data Analysis: The regulatory body performs analyses on the encrypted data. With homomorphic encryption, they can run algorithms to detect patterns indicative of financial crimes, such as money laundering or terrorist financing, without ever decrypting the data.
- Results and Action: The regulatory body obtains encrypted results from their analysis. These results are then sent back to the bank, which can decrypt them and take appropriate actions, such as reporting suspicious activities to authorities, freezing accounts, or conducting further investigations.
- Collaboration Across Borders: Multiple regulatory bodies from different countries can independently analyze the encrypted data shared by the bank. This allows for a coordinated approach to combating international financial crimes.
- Audit and Compliance: The entire process is auditable, and the bank can prove compliance with data protection and financial regulations without exposing the actual data.
Solution Benefits:
- Privacy Preservation: Customers' personal and financial data remain encrypted throughout the process, ensuring privacy.
- Regulatory Compliance: The bank complies with international regulations without breaching data privacy laws.
- Global Collaboration: Enables cross-border collaboration in fighting financial crimes without compromising data sovereignty.
- Efficiency: Reduces the need for complex data-sharing agreements and allows for real-time analysis by regulators.
Solution Considerations:
- Computational Overheads: Homomorphic encryption is computationally intensive, which might limit the complexity of the analyses.
- Implementation Complexity: Setting up a secure and efficient homomorphic encryption system requires significant expertise.
- Evolving Legal Framework: Continuous assessment is needed to ensure compliance with evolving international data protection laws.
Possible Solution Risks:
- Implementation Security: While the theoretical foundations of homomorphic encryption are strong, the security can be compromised through poor implementation. If a system using homomorphic encryption is not properly designed or implemented, it could be vulnerable to various forms of attacks, but these would be due to the implementation and not the encryption scheme itself.
- Side-Channel Attacks: Like other cryptographic systems, homomorphic encryption could potentially be susceptible to side-channel attacks. These attacks don't target the encryption directly but rather aim to gather information from the physical implementation of the system, like power consumption, electromagnetic leaks, or even sound, to find vulnerabilities.
Conclusion:
Regarding this specific use case, it is the Research Institute’s opinion that practical applications are just beginning to emerge. Homomorphic encryption can enable secure, private, and compliant cross-border data sharing, enhancing the global fight against financial crimes while respecting individual privacy. However, the Research Institute feels it is important to note that 1) the field of homomorphic encryption is still largely in the research and development phase and 2) there are potential implementation and data leakage risks.