Safeguarding privacy and fairness: the role of AI in fraud detection and AML within the recent EU legal framework developments

Abstract

Artificial Intelligence (AI) is playing an increasingly pivotal role in fraud detection and anti-money laundering (AML) efforts, offering enhanced capabilities to identify and prevent illicit activities. This paper explores the dual-edged nature of AI applications in these domains, highlighting both their potential and the accompanying challenges. Key concerns include data privacy, surveillance, and algorithmic biases, which may undermine the effectiveness and fairness of AI systems. The study examines the interplay between the European Union's General Data Protection Regulation (GDPR) and the proposed AI Act, assessing their collective ability to mitigate these risks. Through a detailed analysis, the paper evaluates whether current regulatory frameworks provide adequate safeguards to protect individual rights while fostering innovation in AI-driven fraud detection and AML. The findings aim to inform policymakers and stakeholders on the necessary balance between technological advancement and ethical considerations in the deployment of AI for financial security.