How Banks Can Detect Money Mules in the Time of COVID-19
26 Jun 2020

With all of the terrible economic news that has followed the COVID-19 pandemic, it’s easy to miss the fact that at least one line of work is welcoming new job seekers: money laundering.

As the FBI noted earlier this month, organized crime groups are increasingly turning to so-called “money mules” to help exploit the chaos caused by the pandemic. The “mules”—individuals who are hired to deposit criminal proceeds into bank accounts under the guise of ordinary financial activity—are not always aware that they are handling illicit funds. In some cases, their criminal employers have framed the job as legitimate work for a legitimate business.

Most money-mule operations rely on establishing informal ties to the global financial sector. In his 2005 report to the National Institute of Justice, Professor Nikos Passas cited numerous informal value transfer methods that can serve to whitewash dirty money. Among them are the manipulation of invoices, the use of trade diversion schemes, the exploitation of a correspondent accounts and the utilization of credit and debit cards by multiple individuals.

Typically, criminal groups recruit willing participants who are aware they are moving illicit funds. The new recruits are coached on what they are meant to do and what steps they should take to avoid detection by financial institutions and law enforcement authorities. Many of them begin by opening a bank account to accept deposits of illicit funds, which are subsequently sent to separate accounts overseas that are directly controlled by the crime group. In such a scenario, banks that have done their due diligence properly at the account opening stage will be able to effectively detect that something is amiss.

But that process becomes much more difficult when the money mule is unaware that he or she is committing a crime.

In such cases, criminal organizations may use fake job adverts (e.g. ‘money transfer agents’), or create social media posts about opportunities to make money quickly, in order to recruit potential unwitting money mules.  The new recruits may have already been classified as either low-risk or medium-risk customers by their financial institution. Understandably, criminal networks often prefer such a set-up, given that it adds to the perception that all of the transactions in question are legitimate.

This paper will discuss the different mechanisms that banks can employ to detect illicit funds in the accounts of low- or medium-risk customers who are unaware that they are money mules.

Keeping an eye out for suspicious transactions 

Ongoing account monitoring is critical to ensure that bank accounts are reviewed for unusual and suspicious activity. The bank should be aware of higher-risk transactions in these accounts, such as activity that has no business or apparently lawful purpose, funds transfers to and from higher-risk jurisdictions, currency-intensive transactions and frequent changes in the ownership or control of a nonpublic business entity. 

For example, if an individual who claims to be working with an online company or a money transfer agent receives numerous cash deposits into his or her account, and those funds are sent by wire transfer shortly thereafter, the bank should make an attempt to verify the purpose of the transactions as well as the actual business of the majority of the beneficiaries of these transfers.

Compliance professionals must ensure that their automated monitoring systems capture not only the amount and date of a transaction, but also the identity or geographic location of the persons sending or receiving the wires. Failure to do so may lead to a situation in which the bank is unable to identify and investigate potentially suspicious transactions based on the presence of important risk factors, such as jurisdiction and the potential involvement of politically-exposed persons.

Paying close attention to countries of origin

Banks may be able to detect informal value transfers involving unwitting participants by paying very close attention to the country of origin of the money in question. Those funds are likely to come from the country of residence of individuals who have been indicted by the U.S. Justice Department for romance scams, and from countries with a low scores or rankings on the Corruption Perceptions Index published by Transparency International.

The U.S. Justice Department recently indicted 80 individuals—78 of whom are Nigerians—accused of involvement in a massive business email scam and money laundering scheme valued at approximately $3 billion. In this instance, the involvement of Nigeria should raise red flags and prompt compliance officers to question the clients involved on the purpose of the transactions and the sources of the funds.

Since the customer is unlikely to be aware that he or she is laundering money, they should be able to provide valuable information to their bank. For example, the customer may tell the bank that the funds are coming from a high-risk country like Nigeria and that he or she was told to provide the account number so that individuals in Nigeria can transfer funds to the account domiciled in the United States. The money mule might also tell the bank that the funds are to be invested in a lucrative business. The bank will now further inquire into the nature of the business, including any relevant addresses. After its investigation, if a bank suspects that the funds are proceeds of criminal activity, the bank must file a Suspicious Transaction Report with its Financial Intelligence Unit.

Watching where the money goes

Compliance officers can identify money mules by looking at where the money is sent. The funds are likely to be transferred to countries with low assessment ratings in the Financial Action Task Force’s fourth round of Mutual Evaluation Reports. When a bank finds that funds are moving to jurisdictions that have been evaluated as having weak anti-money laundering systems and controls, red flags should be raised and questions should be asked of the client in order to determine the sources of the money and the purpose of the transactions.

Monitoring well-heeled clients

As is stated in guidance issued in June 2017 by the United Kingdom’s Joint Money Laundering Steering Group,

Wealth management is the provision of banking and investment services in a closely managed relationship to high net worth clients. Such services will include bespoke product features tailored to a client’s particular needs and may be provided from a wide range of facilities available to the client including: current account banking, high value transactions, use of sophisticated products, non-standard investment solutions, business conducted across different jurisdictions and off-shore and overseas companies, trusts or personal investment vehicles.

Criminal networks may convince an individual with an account in a British or American bank to create shell companies and trusts as part of their “legitimate” job. In some cases, the illicit funds may have already been deposited into the account of the mule by a victim of the predicate offence. The hidden agenda here is to obscure the beneficial owner of the account with a shell firm or another legal entity. These shell corporations are often referred to as ‘private investment corporations’ or PICs, and they are often formed in well-known secrecy havens, such as Panama. When such legal vehicles and structures are in play, it is important for the bank to establish that their use is genuine and to be able to follow any chain of title to know who the beneficial owner is.

Staying up-to-date on client activity

Compliance professionals should remember that a strong due diligence process entails identifying account owners and legal beneficiaries before the establishment of a business relationship, and that doing so can allow a bank to reduce its risk of exposure to money mules. A carefully balanced approach has to be taken, because if identification processes are too lean, monitoring may make a limited contribution to risk mitigation, and manual or electronic scanning of transactions may not be able to identify individual suspicious activity effectively.

It is vital that banks accept every opportunity to update information on customers in order to maintain a high standard of monitoring. Attention should also be given to ensuring that documentation is reviewed on a regular basis and is automatically updated when events such as changes of address or changes of jobs occur. Identification of any of the types of transaction does not automatically establish suspicion, but should arouse prompt enquiry and consideration of the circumstance. Hence, there is need for good Know Your Customer (KYC)/Know Your Customer’s Business (KYCB) knowledge and records.

Whereas the primary responsibility for identifying suspicious transactions lies with the staff processing or checking items, as an additional safeguard banks should deploy appropriate software and technology that will generate reports for suspicious transactions that are scrutinized by compliance professionals

In such a way, we can all help mitigate some of the negative effects of the global pandemic.

About the author: Ehi Eric Esoimeme is the Deputy Editor-in-Chief of DSC Publications Ltd and a KYC360 contributor. His published works include Balancing Anti-Money Laundering/Counter-Terrorist Financing Requirements and Financial Inclusion: The Case of Telecommunications Companies and The Risk-Based Approach to Combating Money Laundering and Terrorist Financing and Deterring and Detecting Money Laundering and Terrorist Financing: A Comparative Analysis of Anti–Money Laundering and Counterterrorism Financing Strategies. For more information on Ehi’s books, visit here.

This article is expressing personal opinions and is meant for information purposes only. The article does not intend to replace professional or legal advice. It is recommended that readers seek independent professional or legal advice, or speak to authorised persons/organisations.

RiskScreen: Eliminating Financial Crime with Smart Technology

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