LGJul 6

Counterfactual Methods for Detecting Unfairness in Anti-Money Laundering Algorithms

arXiv:2607.051014.5
Predicted impact top 72% in LG · last 90 daysOriginality Incremental advance
AI Analysis

For the AML domain, it demonstrates a concrete fairness-accuracy trade-off, urging systematic fairness analysis in critical financial systems.

The paper applies counterfactual path-specific effect analysis to detect unfairness in AML algorithms, finding that models with higher predictive accuracy from sensitive features exhibit greater fairness violations, highlighting a trade-off between accuracy and fairness.

The application of machine learning-based predictive algorithms to Anti-Money Laundering (AML) has grown rapidly, driven by the vast volume of financial transaction data available to banks. These algorithms are typically trained not only on transactional data but also on sensitive client information, which may raise fairness concerns. Despite this, AML detection systems remain largely underexplored from a fairness perspective, even though deeper analytical methods based on counterfactuals are now available. Such techniques enable the decomposition of the direct and indirect effects of potentially sensitive features on model predictions, thereby supporting the evaluation of whether their influence is acceptable from a fairness perspective. Closing this gap, we consider the synthetic IBM AMLSim transaction dataset and construct additional features of the country of an account and its average behaviour. This improves the predictive performance of diverse machine learning models, ranging from baseline decision trees to state-of-the-art graph neural networks. We assess the potential unfairness associated with these features through a counterfactual, path-specific effect analysis. This reveals that fairness violations tend to be more pronounced for models whose predictive performance benefits the most from the extended features. Such a finding highlights a concrete instance of the trade-off between predictive accuracy and fairness in AML applications, thus underscoring the urgency of a systematic fairness analysis in such critical domains.

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