The COVID-19 pandemic has brought about unprecedented change in the world across industries and lifestyles. Unfortunately, it also provided an opportunity for many financial crime syndicates to carry out their money laundering activities by exploiting lingering uncertainty and fears around the pandemic. Recently, banks in the Philippines have issued warnings on the rise of money mule scams, with experts calling for tighter regulations to curb the impact of emerging financial crimes amidst the uncertain economic climate.
What is money muling? According to the US Federal Bureau of Investigation, a money mule is someone who transfers or moves illegally acquired money on behalf of, or at the direction of another. They are typically tricked into depositing a fraudulent check into a bank account, or into receiving money from accounts without authorization of the account owner, although there are also complicit money mules who intentionally move stolen funds in exchange for a portion of the money.
Money mules are inherently dangerous as they add layers to the money trail from a victim to a criminal actor, which complicate and hinder the ability of regulators to accurately identify the source of these illegal funds. They are often moving chess pieces in a much larger, elaborate international criminal operation such as human and drug trafficking. To complicate things further, money mules are sometimes victims of scams themselves.
How COVID-19 became a catalyst for financial crime. The COVID-19 pandemic has reshaped global economies and left millions unemployed. During the peak of the pandemic, unemployment rates in the Philippines hit a 30-year record high. While things have since improved, this ongoing economic stress will likely make more people susceptible to the siren song of money muling, especially with movement restrictions that severely limit work opportunities. Those desperate for work and financial stability are at risk of being lured by false work-from-home job listings that promise easy money for little to no effort. Unbeknownst to them, these jobs will unwittingly turn them into money mules.
Transaction behaviors have also evolved during the pandemic. Consumers are increasingly taking “mobile to the max” by using their phones for mobile deposits, contactless payments, and person-to-person payments, a trend that will likely remain as the “new normal” even after the pandemic. While these real-time payment transfers make it much more convenient for people to move money around, they also create opportunities for criminals looking to introduce ill-gotten funds into the legitimate banking system through money muling. Real-time payments allow money to be moved across multiple accounts nearly instantaneously, into the control of the criminals and out of the reach of law enforcement, making the funds more difficult to trace.
Kicking back against mules. To fight money mules—a likely fixture in the post-pandemic world of financial crime—it is important for banks to continuously improve their detection capabilities to reduce fraud losses and keep their reputations intact.
One method is to leverage network analytics to identify behaviors typical to that of mule activity, such as when several customer accounts are sending money to the same account. Network analytics can also identify cases where a customer’s account is receiving money from an unusually large number of people or for atypical transaction amounts.
Given that money laundering follows some form of criminal act, banks recognize the importance of a holistic approach. A recent FICO survey revealed that 71 percent of Asia Pacific banks believe that the convergence of their fraud and antimoney laundering compliance functions will improve the ability to stop fraud and financial crimes.
Banks with an enterprise-wide customer view and can monitor all inflows, outflows, banking channels and devices down to the customer level. They can also use link analysis solutions to group and compare suspected mules with each other, and with entities suspected of money laundering.
Given that many people can be attracted to the dollars offered by criminal syndicates to participate in what can seem like a “victimless” crime, governments and banks need to deploy regulation and technology to try and curb this trend. Otherwise, it will continue to facilitate cybercrime, online fraud, drugs, human trafficking, and more, both in the Philippines and around the world.
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Timothy Choon is FICO’s compliance lead in Asia Pacific.