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How to prevent money mule scams

Author: Laura Ballam

Money mule scams have been getting a lot of attention lately as they gain momentum across the globe. With fraud and scams increasing dramatically over the past few years the estimated amount of money laundered globally in one year is 2-5% of global GDP -approximately $800 billion to $2 trillion USD. And money mules are a key component of money laundering. For financial institutions this means the importance of understanding and identifying mule situations is critical in preventing money mule scams.

In our last blog, Money mules: victim or criminal, we looked at money mule scams and the impact on the mules themselves. Now we're digging into the most common types of money mule scams, and how to prevent them. Money mules are often just one piece of the fraud puzzle - although a critical one - and are centered around a secondary victim, the mule. Because of the high people-factor, they're one of the most difficult types of fraud to detect and prevent. But that doesn't mean it can't be done!

Types of money mule scams:

Romance Scams

Playing on the loneliness and trust of the victim, the potential mule is contacted through social media or dating sites. An online “relationship” develops, building trust over time until eventually the victim is coerced into acting as a money mule. While it sounds obvious, the fraudsters don’t immediately ask for tens of thousands of dollars. They work their way up, spinning highly believable stories about family struggles, building a business, or travel issues - and they always start with a small ask. Then they increase the amount and frequency of their requests, making it feel like a natural progression to the money mule. Who does this happen to? Anyone.

Take for example this story from the FBI about Glenda, an 81-year-old money mule convicted of two federal felonies for being a victim of this type of scam. Glenda thought she met the love of her life, an American working in Nigeria. Over time he asked her to send him money to assist with his business and help him leave Nigeria, then had people send her things like cell phones to pawn and send him the money. Then he asked her to open personal and business accounts to deposit money into. Even when informed by the bank and law enforcement, she didn’t believe it – because she loved him.

Impersonation scams

Exactly as it sounds, fraudsters impersonate a person or organization through calls or messages from individuals pretending to be a courier company, law enforcement, or government agency. With a credible story, and often some mined personal data to back it up, they ask the victim to provide account details or to accept and transfer funds. Often the excuse for the money transfers is to aid in a fraud investigation or confirm their account due to suspicious activity. They're certainly not afraid of irony!

Fraudsters also create spoofed profiles of a “known” person the victim trusts, then use it to ask for their help with various transactions. Imagine your cousin (or someone you think is your cousin), reaching out via social media telling you they just separated from their partner, who took all their money and put a hold on their account. Could you PLEASE help by letting them deposit a check into your account and then sending it to their other account so they can afford to buy groceries, pay the rent, etc. It can be very convincing.

Job scams

We all see the job posts on social media - “easy, work-from-home, no experience needed”. These types of posts can be used to reel in new money mules for fraudsters. Fraudsters can also contact potential mule victims directly about a job they never applied for, targeting out-of-work individuals. Once engaged, they have you set up a new account or use your regular bank account to assist in moving money around. These jobs often provide a commission (i.e., 10% of every transfer you complete), or a weekly cash payday. Clever fraudsters even provide job descriptions and believable titles, such as “Agent for Cryptocurrency Conversions”. Think of all the remote accounting or bookkeeping jobs – who would question the money transfer aspect of such a position? Especially when you’re grateful to have a job that lets you work on your own schedule.

Investment scams

Excuse the repetition but as you can see, social media is ripe for recruiting money mules in almost all scams. In this case, would-be investors are targeted with stock market trading advertisements, promotions to invest in this or that for huge returns, etc. The criminal convinces the victim to move money to a fictitious fund, or to pay for a fake investment. They offer high returns and tons of “testimonials” to entice victims into making the transfer. Typically, they use high pressure tactics urging people to act quickly so they don’t miss out – such as a limited time deal, or a fixed number of units available.

Since the goal of the fraudsters is to move money continually, the money mules can be kept in the dark indefinitely. Imagine you’re a would-be investor. You see an enticing deal for a hot new stock and invest $5,000 to make a guaranteed 20% every month, as long as you reinvest the gains every month for the first year. Like clockwork, $1,000 is added to your balance every month and you roll it back into the investment. The fraudster is effectively hiding their money, and you think you’re making a killing. When it comes time to cash out, you may get your initial investment back with some excuse as to why you don’t get the returns, or the fraudsters may disappear with all of it.

How to tackle money mule scams:

One of the biggest hurdles in combatting money mules is the people factor. Since mule accounts are used to disguise funds from fraud or other criminal activity, hindering the use of them can yield impressive results. There are two primary aspects of combatting money mules: system-based and people-based. Both must be utilized in tandem to effectively combat money mule fraud.

The system-based approach to prevention is to maximize the use of modern fraud prevention tools by utilizing a single platform solution that looks at the whole picture rather than a single fraud type (such as application fraud). By analyzing historical account data and patterns, organizations can identify and alert on suspicious activity such as a large deposit that’s out of the norm, a change in frequency of transfers, or a change in behavior. For example, a comprehensive fraud solution can quickly identify multiple small transactions from multiple accounts to the same person around the same time, while a single transaction to one person wouldn’t appear suspicious.

A platform solution also supports maintaining a comprehensive identity profile of legitimate customers to enable faster detection of fraudulent behavior. If you know who your customers are, then you also know who they aren’t. A comprehensive profile includes PII as well as historical activity and behavioral biometrics, requiring a first-party solution. Behavioral biometrics are a great tool in detecting typical fraudulent behavior during account opening, as well as changes in user behavior that may signal account takeover. An unwitting mule situation can be uncovered when minor changes in behavior are detected over time – such as increased activity or a change in behaviors – for example, a customer being used as a money mule may suddenly add multiple new pay-to accounts out of the blue. A platform fraud solution will also make use of link analysis to detect other mule accounts being controlled by the fraudster and trace them back to the larger mule network and even entire fraud organizations.

The people-based approach understands that money mules can be as much a victim to the fraudster as the original target. Customer education is a critical component of a successful fraud prevention strategy, especially when it comes to money mules. Many consumers are not familiar with the concept and can be easily conned into becoming a mule. Educating them on the signs, the scams, and the consequences, is a huge part of protecting them from becoming a money mule. By combining this with a platform solution, organizations can maximize their fraud prevention efforts. When mule activity is detected, or a known mule account is added as a new pay-to, an integrated system can instantly present an alert to the customer letting them know this account is suspected of criminal activity. The resulting actions can be more passive - such as advising them to stop and think before completing a transfer and recommending they contact their financial institution, or more active - blocking the transfer completely.

New regulations such as the latest proposal from PSR will hold financial institutions (FIs) financially responsible for reimbursing victims, with the requirement that FIs take a strong focus on detecting and preventing APP scams, including the use of money mules. They will also need to demonstrate the proactive measures taken. To successfully meet this obligation, financial institutions must combine the systems-based and people-based approaches. The only way to do this is with a first-party, unified fraud prevention solution that captures, contextualizes, and activates data across devices and domains in real-time.