A growing challenge that has been identified in the financial sector this year has been money muling. The practice, which involves people being persuaded to let cash flow through their bank account in exchange for gifts, has been a key hub for the rise of financial crime. How can RegTechs act as the first line of defence?
Money muling is a serious problem amongst everyday consumers, particularly younger ones. While money muling may be seen as an opportunity to make some quick and easy cash for people, the practice is a criminal offence.
Recent research from Barclays recently found there was a rise in student money mules of 23% last October. Meanwhile, Europol also discovered that 90% of money mule transactions were linked to cybercrime.
How does the industry get to work on dealing with this challenge? In the view of Joe Lemonnier, product marketing manager at Resistant AI, the first step is to recognize that money muling itself is becoming increasingly complex – with money mules tending to fall into several different categories.
He explained, “The hacked mule is an unknowing victim whose account has been compromised, often without their knowledge, presenting high technical challenges for fraudsters but minimal risk of detection. Meanwhile, the coerced mule is someone forced to participate in criminal activities under threat, easier to recruit than hacking but with a significantly higher risk due to the traceable connection.
“The professional mule is a complicit individual, sometimes deceived about the job’s legality, whose involvement is hindered by recruitment difficulties and the risk of being linked to the scammer. The crowdsourced mule is an individual recruited through mass outreach via online platforms to move small amounts of money, reducing individual risk and detection through the sheer volume of participants.”
The last example of a mule by Lemonnier was the synthetic money mule, which involves stolen or fabricated identities to open accounts with low cost and risk, potentially remaining inactive until required for fraudulent purposes.
“While all variations of money mules are dangerous, with their low risk, cost, and opportunity to scale almost infinitely, synthetic money mules operated remotely are fast becoming the go to option for criminals,” he said.
To effectively stop money muling, Lemonnier remarked that what needs to be detected can include new mules at onboarding when they try to open an account, as well as existing customers who all of a sudden change transactional behaviours, either by coercion, incentive or account takeover.
“This means tying together elements of identity fraud prevention and transactional, behavioral, and cybersecurity monitoring,” Lemonnier remarked. “Given this complexity, single touchpoint solutions will always fail to truly tackle the issue, and any financial institutions should take serious pause before embarking with any Regtech that claims differently.”
RegTech firms that only focus on part of the issue – such as onboarding – will need to develop capabilities in order to share findings with, and take findings from, other risk systems in order to provide customers with a clear view of what is happening and to effectively leverage information from elsewhere, Lemonnier professed.
He added, “The same applies to the RegTechs that provide solutions for multiple touch points in the risk journey but fail to unite the data they see into a single cohesive view for the customers.”
The Resistant AI product marketer also stated there are RegTechs like Resistant AI who recognise ‘there is no silver bullet and take a layered approach’, which includes offering solutions for onboarding and ongoing monitoring of customers that can also take in any data point to analyse and provide actionable insights and create a truly adaptive and perpetual KYC system.
He finished, “That said, technical capability is just one part of the puzzle. Money mules are a perfect storm for most financial institutions who have separate department ownership for the various parts of the customer journey. Often enough, the biggest hurdle most RegTechs capable of waging this battle face is to get buy-in and deployment from all involved parties. So perhaps more than anything, RegTechs will need a confluence of salesmanship and trust to convince institutions that they can truly resolve their issue.”
In the view of Joseph Ibitola, growth manager at Flagright, money muling represents a significant challenge in the financial sector, often exploiting unaware individuals and creating complex layers in money laundering schemes. He explained that RegTech companies play a crucial role in combating this issue by leveraging advanced technologies and innovative approaches.
He said, “Firstly, effective use of data analytics and machine learning can identify patterns indicative of money muling, such as unusual transaction volumes or frequencies that don’t align with a customer’s profile. By analysing vast amounts of data, these systems can flag potential mules more accurately and rapidly.
“Secondly, integrating sophisticated KYC and continuous monitoring processes are vital. Enhanced due diligence on customer activities and backgrounds can uncover links to potential money laundering activities. Continuous monitoring ensures that any unusual behaviour is detected in real-time, allowing for prompt action.”
Education is also paramount. Ibitola said that customers must be informed about the risks and signs of money muling, with awareness campaigns that can inform individuals about the legal implications of allowing their accounts to be used for such purposes.
Furthermore, collaboration is a key watchword for Ibitola. He said, “RegTechs can work closely with financial institutions, law enforcement, and regulatory bodies to share insights, trends, and strategies. This collective approach ensures a more robust defense against money muling activities.”
Need for vigilance
Fending off the challenge of money muling won’t just come from policy makers and industry thought leaders, but from the vigilance of employers and employees.
Anthony Quinn, founder and CEO of Arctic Intelligence, said, “There has been a massive amount of increase in fraud related activities over the last few years off the back of COVID and increasing cyber-attacks making every single organisation vulnerable to financial crime.
“Organisations need to remain vigilant to fraud or other predicate crimes, as well as the proceeds of crime being deposited and moved through their books and records, money mules are just one mechanism for achieving “placement” of illegal proceeds but there are many others.”
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