# Secure and Explainable Fraud Detection in Finance via Hierarchical Multi-source Dataset Distillation

arXiv: https://arxiv.org/abs/2512.21866 · HTML: https://mlsanity.com/paper/2512.21866/

## Key facts

- No citing papers in the map yet (data through 14 Oct 2026).
- Builds on 15 of its 35 references that are in the map.
- First posted on arXiv 26 Dec 2025.

## Builds on (most cited first, 15 of 15)

- [Communication-Efficient Learning of Deep Networks from Decentralized Data](https://mlsanity.com/paper/1602.05629/) (2016)
- [Federated Optimization in Heterogeneous Networks](https://mlsanity.com/paper/1812.06127/) (2018)
- [Improved Training of Wasserstein GANs](https://mlsanity.com/paper/1704.00028/) (2017)
- [Dataset Condensation with Gradient Matching](https://mlsanity.com/paper/2006.05929/) (2020)
- [Dataset Distillation by Matching Training Trajectories](https://mlsanity.com/paper/2203.11932/) (2022)
- [Dataset Condensation with Distribution Matching](https://mlsanity.com/paper/2110.04181/) (2021)
- [Evaluating Gradient Inversion Attacks and Defenses in Federated Learning](https://mlsanity.com/paper/2112.00059/) (2021)
- [Scaling Up Dataset Distillation to ImageNet-1K with Constant Memory](https://mlsanity.com/paper/2211.10586/) (2022)
- [Dataset Distillation using Neural Feature Regression](https://mlsanity.com/paper/2206.00719/) (2022)
- [Efficient Dataset Distillation Using Random Feature Approximation](https://mlsanity.com/paper/2210.12067/) (2022)
- [Efficient Dataset Distillation via Minimax Diffusion](https://mlsanity.com/paper/2311.15529/) (2023)
- [Synthesizing Informative Training Samples with GAN](https://mlsanity.com/paper/2204.07513/) (2022)
- [D4M: Dataset Distillation via Disentangled Diffusion Model](https://mlsanity.com/paper/2407.15138/) (2024)
- [Federated Learning via Synthetic Data](https://mlsanity.com/paper/2008.04489/) (2020)
- [Generative Dataset Distillation: Balancing Global Structure and Local Details](https://mlsanity.com/paper/2404.17732/) (2024)

## Abstract (arXiv)

We propose an explainable, privacy-preserving dataset distillation framework for collaborative financial fraud detection. A trained random forest is converted into transparent, axis-aligned rule regions (leaf hyperrectangles), and synthetic transactions are generated by uniformly sampling within each region. This produces a compact, auditable surrogate dataset that preserves local feature interactions without exposing sensitive original records. The rule regions also support explainability: aggregated rule statistics (for example, support and lift) describe global patterns, while assigning each case to its generating region gives concise human-readable rationales and calibrated uncertainty based on tree-vote disagreement. On the IEEE-CIS fraud dataset (590k transactions across three institution-like clusters), distilled datasets reduce data volume by 85% to 93% (often under 15% of the original) while maintaining competitive precision and micro-F1, with only a modest AUC drop. Sharing and augmenting with synthesized data across institutions improves cross-cluster precision, recall, and AUC. Real vs. synthesized structure remains highly similar (over 93% by nearest-neighbor cosine analysis). Membership-inference attacks perform at chance level (about 0.50) when distinguishing training from hold-out records, suggesting low memorization risk. Removing high-uncertainty synthetic points using disagreement scores further boosts AUC (up to 0.687) and improves calibration. Sensitivity tests show weak dependence on the distillation ratio (AUC about 0.641 to 0.645 from 6% to 60%). Overall, tree-region distillation enables trustworthy, deployable fraud analytics with interpretable global rules, per-case rationales with quantified uncertainty, and strong privacy properties suitable for multi-institution settings and regulatory audit.