  The effective detection of evidence of financial anomalies requires
collaboration among multiple entities who own a diverse set of data, such as a
payment network system (PNS) and its partner banks. Trust among these financial
institutions is limited by regulation and competition. Federated learning (FL)
enables entities to collaboratively train a model when data is either
vertically or horizontally partitioned across the entities. However, in
real-world financial anomaly detection scenarios, the data is partitioned both
vertically and horizontally and hence it is not possible to use existing FL
approaches in a plug-and-play manner.
  Our novel solution, PV4FAD, combines fully homomorphic encryption (HE),
secure multi-party computation (SMPC), differential privacy (DP), and
randomization techniques to balance privacy and accuracy during training and to
prevent inference threats at model deployment time. Our solution provides input
privacy through HE and SMPC, and output privacy against inference time attacks
through DP. Specifically, we show that, in the honest-but-curious threat model,
banks do not learn any sensitive features about PNS transactions, and the PNS
does not learn any information about the banks' dataset but only learns
prediction labels. We also develop and analyze a DP mechanism to protect output
privacy during inference. Our solution generates high-utility models by
significantly reducing the per-bank noise level while satisfying distributed
DP. To ensure high accuracy, our approach produces an ensemble model, in
particular, a random forest. This enables us to take advantage of the
well-known properties of ensembles to reduce variance and increase accuracy.
Our solution won second prize in the first phase of the U.S. Privacy Enhancing
Technologies (PETs) Prize Challenge.
