Money-Mule Schemes: How to Protect Customers

Learn to Spot the Tell-Tale Signs that Your Institution or Customers are Involved in Fraud "Give us your broke, your desperate, your unemployed." This is the tacit plea from fraudsters seeking to lure new "money mules" to enable their money-laundering schemes.

And the recruitment effort is working to the point that the Federal Deposit Insurance Corporation (FDIC) last week issued an alert to financial institutions about the increasing number of money mules - many of them unknowingly - using U.S. financial institution accounts to help overseas criminals launder money.

The alert listed some of the different ways these accomplices operate, and the FDIC stressed that financial institution are required to file Suspicious Activity Reports (SARs)and take necessary steps to close down suspected money mule accounts.

The FDIC says money mule schemes can take many different forms, but most involve receiving unauthorized electronic fund transfers (EFTs) into a deposit account and then withdrawing the funds or forwarding them on to another party via another EFT.

The Mule Test

These are some tipoffs cited by the FDIC that could indicate money mule account activity:

  • A deposit account opened with a minimal deposit soon followed by large EFT deposits.
  • Deposit customers who suddenly begin receiving and sending EFTs related to new employment, investments, business opportunities or acquaintances (especially opportunities found on the Internet).
  • A newly-opened deposit account with an unusual amount of activity, such as account inquiries, or a large dollar amount or high number of incoming EFTs.
  • An account that receives incoming EFTs then shortly afterward originates outgoing wire transfers or cash withdrawals approximately eight to 10 percent less than the incoming EFTs.
  • A foreign exchange student with a J-1 Visa and fraudulent passport opening a student account with a high volume of incoming/outgoing EFT activity.

Faces of Fraud

Among the ways fraudsters are recruiting often-unwitting mules:

  • Online job posting Web sites used by criminals to locate individuals seeking employment with flexible work hours that can be performed from home. These work-at-home schemes often involve written employment contracts, job descriptions and procedures to legitimize the scam.
  • Advance fee scams promising large monetary rewards for acting as a financial intermediary can entice individuals to participate in this activity.
  • Mystery shopping jobs that require the employee to assess the performance of money service businesses by completing EFTs and then evaluating the service using customer satisfaction forms.
  • Social networking sites used to recruit individuals to act as money mules. Criminals conjure up various imaginative stories to befriend and persuade individuals to receive and forward stolen funds.
  • Education is the Key

    Desperate people do desperate things, or are conned into believing the money laundering is legitimate, says Uri Rivner, a security researcher at RSA in Israel who has seen many criminal money mule offers. "Most times the unwitting money mules don't realize they are part of a money laundering ring until their bank or law enforcement agencies contact them," Rivner says.

    Typically, money mules are recruited, given some story, receive money transfers, take the money out and wire it internationally to a money drop. Then the money goes to the cash-out fraudsters. Rivner described the detailed lifecycle of how online fraud occurs in an earlier interview.

    Even if the customer is an unwitting money mule, "The fraud laws say it is not just the bank's sole responsibility," says Nancy Atkinson, Senior Analyst at Aite Group, a Boston, MA-based financial services industry research firm.

    "Most banks try to help get the money back, but in most cases of these money mules, the money is sent via Western Union, and there is no way to get it back," she explains. Though the recession is bad and people think they're being asked to do something that doesn't look illegal, they can still be held liable, Atkinson notes.

    Financial institutions can do more to protect their customers, says Elaine Dodd, vice president, Fraud Division, Oklahoma Bankers Association.

    "Your customers think they have landed the perfect Internet job and may not be inclined to be suspicious," Dodd says. "It's simple. You must educate your customers."

    Education could include customer/community education events, statement stuffers, on-hold messages and brochures in the bank regarding work-at-home scams. "If your customer receives a large wire that is out of the norm (usually just under $10,000) and asks to withdraw funds immediately in cash, be politely 'nosy'," Dodd says,

    If customers mention working at home, wiring through Western Union or MoneyGram, or sending the funds out of the country, "You should inform them that there is a probability that they are involved in a scam."

    There is also a possibility that even unwitting money mules could be prosecuted as a principal to money laundering fraud since that is already happening in many states, she notes.

About the Author

Linda McGlasson

Linda McGlasson

Managing Editor

Linda McGlasson is a seasoned writer and editor with 20 years of experience in writing for corporations, business publications and newspapers. She has worked in the Financial Services industry for more than 12 years. Most recently Linda headed information security awareness and training and the Computer Incident Response Team for Securities Industry Automation Corporation (SIAC), a subsidiary of the NYSE Group (NYX). As part of her role she developed infosec policy, developed new awareness testing and led the company's incident response team. In the last two years she's been involved with the Financial Services Information Sharing Analysis Center (FS-ISAC), editing its quarterly member newsletter and identifying speakers for member meetings.

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