Fighting against the money mules

Ken Palla at BioCatch describes how the Financial Conduct Authority is combatting money mules

In 2022, more than 39,000 accounts linked to money mule activity were reported to the UK’s National Fraud Database. Mule accounts play a critical role in the fraud supply chain and are a mechanism to cash out fraudulent transactions, launder money, and support criminal operations.

Money mules are the people who, whether they’re aware of it or not, move money around for criminals. According to Europol, more than 90% of all money mule transactions are directly linked to cyber-crime.

Last month, the Financial Conduct Authority (FCA) released its study on how financial services (FS) institutions in the UK are addressing the identification and removal of money mules. The FCA recognises that money mules are an essential cog in fraud engines and there needs to be a renewed focus on safeguarding the public. Furthermore, the FCA says that FS firms need to have a risk-based approach to not put people at risk.

This emphasis on the eradication of financial fraud and scams is welcomed by the industry and public. So, what does the report say, and where do we go from here?

What does the report say?

The FCA discovered that while some businesses are treating this issue seriously, not all businesses are giving it the adequate and proportionate attention it deserves. Businesses that have put in place a workable plan to deal with the money mule problem are employing creative fixes like:

• Stronger customer checks at onboarding to minimise money mule accounts from being established.
• Calibrating systems according to risk (risked-based approach).
• Use of facial recognition systems and device profiling/geolocation.
• Stronger risk assessment of outbound and inbound transactions to include investing in machine learning and behavioural biometrics to help reduce the risks inherent in rules-based only solutions.
• Using reporting systems to analyse flow of funds between firms to identify and disrupt mule activity.
• Using lawful data sharing to combat mule mules.

In addition, most effective firms are engaging/sharing with UK groups including CIFAS, UK Finance, NECC and the Fintech FinCrime Exchange.

Kathryn Westmore, Senior Research Fellow at the Centre for Financial Crime and Security Studies (CFCS) at RUSI, made an interesting point on LinkedIn on October 19: “A lot of the smaller players/payment firms do not have the resources or access to take part in some of the industry-led initiatives. And yet, there is clear evidence of bad actors targeting those smaller firms.”

Although Kathryn’s comment was directed towards the exchange of fraud data, it is relevant to the way smaller businesses handle the identification and removal of money mule accounts in general. Regional banks, credit unions, neobanks, and other small firms have the potential to be the weak link in money mule process.

How we can improve

The FCA reported several common issues with financial services firms not as focused on the money mule problem and expects firms to take a ‘proactive and proportionate” approach to:

1. Strengthen controls during onboarding
2. Improve transaction monitoring to detect suspicious activity involving money mules
3. Optimise reporting mechanisms for swift action
4. Raise consumer awareness about the risks of acting as a money mule in order to protect them

Firms that fail to maintain proportionate and adequate systems and controls for money mule accounts could face enforcement actions from the FCA.

Overall, the FCA highlighted what is effective with onboarding and money mule detections and should be a blueprint for other countries and banks to follow and implement solutions in the fight against fraud.

In my view, all banking regulators worldwide ought to have the same expectations of UK firms, namely that they set up proportionate and risk-based systems and controls to manage the problem of money mule accounts.

We must stand up quickly and assertively to fight against money mule accounts as soon as possible. We have some way to go, but it’s going in the right direction.

Ken Palla is an Independent Industry expert for BioCatch

Main image courtesy of iStockPhoto.com