Revolutionary financial technology has led to the invention of efficient electronic payment systems — useful for anyone working in financial services, but organised crime groups have also been attracted to these convenient innovations.
Crime typologies are shifting — vast funds can be stolen in an instant and criminals now have a global reach. The financial services industry manages to protect against fraud and money laundering by using regulation which encourages firms to develop robust prevention controls. However, the overwhelming amount of data collected from this creates many challenges in regulatory screening, data management and security.
Digital recordings make detection easier for firms and authorities, however, as the ‘digital trace’ proves to be a problematic obstacle for many criminals. An increasing trend to bypass this risk involves the recruitment of ‘money mules’.
A money mule or “smurfer” is a person who allows illegally acquired money to flow into and out of their bank account, enabling money laundering. They can either be knowingly or unknowingly complicit in the criminal activity. By transferring funds through multiple accounts, a network of criminals and money mules can cover multiple jurisdictions. The end goal of a money launderer is likely to be to withdraw the illicit funds into cash.
Why would criminals want cash? Europol reports that cash can offer control, anonymity and break the link to the predicate (original) crime. But security experts are aware of this as 38% of FIUs (Financial Intelligence Units) reported that the number one trigger for a suspicious transaction report includes the use of cash.
Cash-intensive businesses are frequently used to launder the proceeds of predominantly cash-generating crime such as the drug trade. But what happens when the predicate crime is sourced from cyber-crime, fraud and corruption which generate electronic payments? They send the payments through bank accounts which transform the illicit digital funds into physical cash.
The UK’s National Risk Assessment of Money Laundering 2017 highlighted the issue of money mules in retail banking that makes banks vulnerable to being used as the conduit for the proceeds of crime, or as a conduit for terrorist financing. The nature of mule activity means that, cumulatively, significant sums of money can be laundered across a network.
In May of 2017, the highest levels of identity fraud were recorded, and recent media news articles described the trend at ‘epidemic levels’. The knock-on effect of the rising fraud and cyber-crime trend has a direct correlation with money mule activity, with the acceleration and growth running almost parallel.
How to deal with a money mule
Money mule activity increased by 9% from 2016 to 2017
, with a majority of young adults being targeted. Bank accounts impacted by the misuse of facility fraud also rose by 7%.
The media have highlighted that young adults are increasingly a target for money mule scams, but other vulnerable customers are also at risk of exploitation. These include customers who are unable to detect unusual activity or comprehend the gravity of their actions. However, early intervention with those who are vulnerable to being ‘recruited’ by an organised criminal group could help mitigate the risk of firms being used as vehicles for money laundering.
Identifying money mules and handling suspected money mules can be very challenging. These people may be knowingly involved and suspected of money laundering, which legally obligates organisations to submit a Suspicious Activity Report (SAR) to the National Crime Agency (NCA). However, the customer could also be an unknowing victim of a money mule scam and need bank intervention to prevent further misuse of their account. It’s essential to balance stringency over financial crime compliance with consideration for the treatment of the customer in these fragile situations. Avoiding ‘tipping off’ and prejudicing an investigation under the Proceeds of Crime Act 2002 is critical to compliance staff and the firm.
With all this considered, how can your firm identify and handle money mule activity?
ANALYSING THE RISK OF MONEY MULES
Risk assessment is a powerful mitigation tool which can prevent money laundering. Under regulation 18, the Money Laundering Regulations 2017 require firms to carry out written risk assessments to assess the risk of money laundering and any terrorist financing that it may face.
The assessment must consider:
- The countries or geographic area the firm operates in
- Products and services
- Delivery channels
But, organised crime groups with money mule networks can manipulate and exploit these risk areas in your business. Understanding these areas in terms of anti-money laundering (AML) and fraud can allow for more specific solutions to be implemented.
Firms that can understand and interpret the data and management information produced by the ongoing assessment of each area will be able to react more effectively.
What you can do
The money mule dilemma is an important issue for many firms as The National Strategic Assessment 2017 predicts an increase of money mules as a result of the EU Payments Account Directive. The Directive allows bank accounts to be opened without UK residency, which the NCA believes creates a “realistic possibility” that increased mule accounts will be opened as a result.
The Payments Strategy Forum is also addressing money mules by proposing a Payments Transaction Data Sharing and Data Analytics solution. This will be aimed at areas to fight money laundering through the misuse of payments with clear implications for payment providers.
Thanks to the increase in money mule activity and cybercrime, firms need to harmonise their data to better understand their customers and exposure levels. This can be achieved with a single customer view across an organisation, particularly where there are multiple channels, service lines and products. Firms with disparate customer data and inefficient transaction monitoring cannot effectively close loopholes, decrease opportunities for criminals and may struggle to spot vital red flags.
Setting a course of action that combines technology, regulatory expertise and an understanding of criminal trends will keep your firm protected from financial crime and the associated regulatory risks, whilst disrupting organised crime which threatens your firm.
How we can help
At Huntswood Recruitment, we remain engaged with key industry bodies and are on top of all the issues that matter to our clients. We can defend your firm against financial crime by providing specialist resources for our clients, ensuring that you have the right people embedded to spot the risks and manage them effectively.