Evaluating Compliance Based Crime Prevention in Lahore’s Banks: A Criminological Study of KYC and AML Tools against Digital Financial Offences

Abstract

The rapid shift toward digital banking in Pakistan has transformed the financial landscape while simultaneously increasing exposure to digital financial crimes such as money laundering, identity theft, and online fraud. This study examines the capacity of bank compliance units in Lahore to detect and prevent such crimes through the use of Know Your Customer (KYC) and Anti-Money Laundering (AML) tools. Adopting a quantitative cross-sectional design, the research collected survey data from 200 compliance officers representing commercial, private, and Islamic banks. To complement these findings, a synthetic dataset of 2,000 anonymized digital transactions was analyzed to evaluate how KYC and AML indicators predict fraud detection outcomes. The results reveal that well-implemented KYC and AML systems substantially enhance a bank’s ability to identify suspicious activities, explaining a large portion of variance in overall fraud detection performance. However, heavy workloads, inadequate training, and limited organizational support were found to weaken the effectiveness of compliance operations. The study concludes that improving compliance capacity requires not only advanced technological tools but also consistent staff development and stronger institutional oversight. These findings contribute to criminological and legal discussions on financial governance by emphasizing the importance of proactive institutional guardianship in safeguarding Pakistan’s digital banking ecosystem against emerging financial crimes.