Disrupting Fraud – Stopping the Flow of Funds

US law enforcement agencies recently completed a three-month campaign to disrupt frauds perpetrated by foreign actors. John and Elliot discuss the campaign’s details, why it is essential, and what financial service providers can do to support it. They also chatted about several other events this week.

Disrupting Fraud – Stopping the Flow of Funds - TRANSCRIPT

Elliot Berman: Hi, John, how are you this week?

John Byrne: Hi, Elliot. Good. Thanks. A lot going on. We've been able to do some recordings. As we record this, we're getting ready for our webinar in May on private public partnership. When people listen to this, that will have occurred and then a few other things in the pipeline. But a whole host of things going on, which you can't always do a great service to in 10 minutes, we'll flag some things and I'll start off and I know you have a few things as well. There was a press release from DOJ on Monday. And this was about what they call their fifth campaign of US law enforcement, so DOJ, FBI, and other agencies, working on a whole series of fraud related issues. And the fraud related issues are the things that we've talked about before, utilizing what they call quote, money mules, unquote to move Illegal funds and many of them are foreign fraudsters.

According to the press statement in the three month period that just ended law enforcement took over 4,000 actions against individuals and groups that are responsible for these schemes, lottery fraud, romance scams, pandemic fraud, all those sorts of things. So this does a couple of things, right? It obviously shows the continuing focus by law enforcement on the transmission of these illegal networks, number one. Number two, that it's global. And, number three, it's been very successful in terms of disruption.

So I think we always talk about, we're not really hearing what we, meaning the fraud prevention community does. We don't get a lot of feedback while this is not necessarily feedback from financial sector, reporting, it does talk about the focus on fraud, which is obviously impacting all of our financial institution clients, big, small, midsize banks.

And in the same press release, they list some very specific cases and regions and I'll just reference one here that the lottery fraud scheme, which sadly hits home because I do have a relative that was hit by this. Central District of California and the District of Nebraska charge individuals who continue facilitating the fraud after being warned by law enforcement, which is interesting that they would be warned to keep going. But they charged one person for her role in taking funds from fraud victims. Business email compromises something that we know a lot about. They opened 11 bank accounts at seven separate financial institutions to further the scheme.

And then in the Nebraska part of this two individuals were charged with facilitating a lottery fraud scheme, including receiving cash cashier's checks in the mail, which is another model for this. But again, this shows the connection with federal law enforcement within different agencies, obviously, the scope of fraud, but also the commitment of these various campaigns.

I think all of that warrants, a reference and commendation from us. People should take a look at it. It was, May 22nd press release from DOJ. They also mentioned besides the 4, 000 of these five campaigns over 12,000 actions have been taken since the campaigns began.

Elliot Berman: They also noted in the press release that this is part of a coordinated global effort. So they link to a similar set of actions that are happening in Europe through Europol and the importance of coordination. And you and I have talked a lot about coordination. In fact, last week's conversation was really about having governmental organizations around the globe to be more interactive with each other.

The other observation I would make, and I guess it just shows that you and I have been at this a long time, the phrase money mule 25, 30 years ago, meant, the people who physically carried money sometimes called Smurfs, but also money mules who physically carried currency from point A to point B to facilitate the action.

Now many of the transfers that are asked to be made by the mules who get pulled into things are electronic transfers, or as you mentioned, drawing cashiers or other checks and mailing them. I guess just like everything else the channels are changing, but the schemes really aren't that much different,

John Byrne: And toward the end of the press release, it sounds like I'm being facetious but I'm not they say, do not agree to receive money or checks mailed to you or sent to your bank account for someone you have met over the phone or online. That's good advice. And then they also say, do not open a bank or cryptocurrency account at someone else's direction.

It's don't walk in the middle of the street, but unfortunately people get caught up in these things and I think again, the various agencies doing a great job on outreach. We just need to do our part and help get this information out as well because it does. These frauds do impact obviously our clients, the financial institutions that these accounts are opened at.

Elliot Berman: Yes and again, I guess it goes without saying, but I'll say it anyway. If it sounds too good to be true, it probably is. And I know, as you said, I don't mean to be facetious, but it's interesting many of these scams are... I would say are not particularly sophisticated, but they are an effort to get people to take advantage of, what they think is a rare opportunity as opposed to really, trying to think clearly about what the real opportunity is or isn't.

And so it's important for, as you point out, for us to be a megaphone for this message. And I know our clients, financial services companies do a lot to educate their customers. When I was, working for a bank we had a regular ongoing effort to inform customers and remind them about just these same things, don't open an account at the direction of someone you don't know or or don't know well and things like that. And something just to keep on with.

John Byrne: You also mentioned before we got on this conversation there's a Bloomberg News story that you wanted to highlight.

Elliot Berman: Yes. They reported yesterday on efforts by Russia to push India for India to exert its influence as a member of FATF because Russia's concern is that FATF will, put as a proposal for the June plenary to add them to the blacklist. Which is, the worst of the worst in terms of countries who do not have good anti-money laundering and anti-financial crime programs as well as may be state sponsors of it.

And it was interesting to see that because Russia for all of their bravado about a lot of things do seem to be seriously concerned about the additional restrictions they would be under from FATF or participating countries in terms of access to global markets.

John Byrne: And we should mention our game plan right now is in July to do our webinar in July on the June plenary. So we're still working on getting our panelists together, but that's our game plan right now. And obviously, this will be a very hot topic, as they say, for that conversation as well.

Elliot Berman: The other thing I saw was that there are indications that Lebanon is likely to be placed on the gray list at the next plenary. Again we'll follow that up with future conversations and in the July webinar. All of this is an indication that the FATF process is impactful and that member countries really do care how they're viewed globally.

There are some that don't. There's no indication, for example, that North Korea really cares what it's rating is. They're going to go off and do what they want. But larger countries, more visible countries, I think do really care. So that's another way to think about the FATF process being effective.

John Byrne: Right. Again, more to come on some of these issues. Obviously, we'll cover them in various interviews and webinars and that sort of thing. I just want to mention, I was able to sit down virtually with Don Fort, our Advisory Board member, former IRS:CI chief and Don talked about his testimony last week before the Senate Finance Committee. So look for that. That'll be posted shortly.

Elliot Berman: Yes. Your interview with Don is on track to publish Thursday so when everybody hears this podcast, you should be able to find that on our website.

Our June webinar, which is the will be June 22nd at 1 p. m. Eastern time is going to be on models, both identifying them and validating them. Want to emphasize this is not a U. S. only kind of issue. While the U. S. regulators have published regulations and requirements related to model validation and identification.

The UK and the EU also have an expectation that financial services providers will be able to verify that their models actually do what they're supposed to do. You'll be able to register for that when you hear this. So we look forward to that. John, anything else?

John Byrne: I'm also going to be doing an interview this week with John Fishman from the Treasury Department on the Treasury's recent derisking strategy. So we're giving John an opportunity to talk about the strategy that obviously got mixed views from the AML community. So I'm looking forward to having that conversation.

Elliot Berman: Lots more to come and John you have a great weekend and I will talk with you next week.

John Byrne: Take care, Elliot. Stay safe.

Elliot Berman: Bye bye.