Proceeds of fraud – Detecting and preventing money mules

On October 19, 2023, the Financial Conduct Authority (FCA) released the results of its review of payment account providers‘ systems and controls in relation to money mule activity. The review followed the implementation of a strategy by the UK government earlier this year which prioritizes money mule activities due to their harm to the UK financial market and society as a whole. It may be noted in this context, that – according to the FCA – a money mule is defined as „someone who is recruited by criminals to move illegally obtained money“, knowingly or unknowingly. This activity typically involves the prompt movement of cash among various accounts to conceal the true identity of the source of cash funds.
In detail, the review encompassed an examination of the policies and procedures payment account providers have in place to identify and deter money mule activities, including an assessment of how firms handle mule-related issues, including measures during the onboarding process, ongoing monitoring, and corresponding reporting procedures. The key findings of the review are presented below along with some good practices and areas where firms should make improvements to detect money mule activities:
#### Key findings
(1) Overall findings: Most firms have meanwhile recognized the potential risks associated with money mules and have adopted technological solutions to adjust their systems accordingly. In fact, many firms are deploying innovative tools like facial recognition, device profiling, and geolocation to identify suspicious activities and uncover potential money mule networks. Some firms are also investing in machine learning systems to adapt to evolving fraud tactics. However, not all firms the FCA reviewed appeared to be focused on tackling the issue.
Firms are increasingly turning to lawful data sharing through collaborative efforts, including cooperation with law enforcement. By sharing data through appropriate channels, they can more effectively identify potential money mule networks and track the movement of funds across multiple accounts. Many firms also engage with external bodies to discuss intelligence and emerging threats.
(2) Onboarding practices: Most firms use the National Fraud Database for onboarding checks which has proven valuable in identifying higher-risk customers and share information with relevant authorities to combat fraud. However, some firms did not collect sufficient information in the onboarding process to determine where funds are coming from (e.g. salary information or other income information). This practice makes it hard to identify any potential money mule networks.
(3) Transaction monitoring: Concerning transaction monitoring, the FCA found that many firms focused on outbound transactions to other institutions and neglected inbound account activities. Furthermore, in various cases, transaction monitoring alerts sometimes triggered incorrectly or failed to trigger when they should. On top, many staff members engaged in account monitoring were not sure about the triggers altogether.
(4) Suspicious activity reporting: As far as the reporting of suspected money mule activity is concerned, some firms appeared to be very slow to report mule accounts, which delays notifications to other institutions. Additionally, some firms receiving fraudulent funds weren’t acting swiftly on alerts from notifying institutions, hindering efforts to shut down mule networks.
(5) Staff training: Many firms are now prioritizing staff training as a critical component of their anti-fraud efforts. Some have implemented dedicated training programs focused on financial crime and fraud. These programs ensure that relevant staff stay updated on new criminal typologies, enabling them to detect and prevent money mule activities effectively.
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To conclude, the FCA notes that it expects firms to take a proactive and proportionate approach to combat money mule activity. This includes strengthening controls during onboarding, improving transaction monitoring to detect suspicious money mule activity, and optimizing reporting mechanisms for prompt action. Firms should also educate consumers about the risks of participating in money mule activities to protect them, particularly given the current cost of living situation which may make some customers vulnerable to providing their account details for money mule activity purposes.