Tackling money mule abuse of the financial sector – no place to hide

Money laundering is the lifeblood of organised criminals – put simply, without the ability to move and convert criminal proceeds into “clean” money to fund further crime and the lavish lifestyle criminals aspire to, organised crime gangs cease to function.

It has long been known that organised fraud gangs rely heavily on the use of networks of so-called ‘money mules’ to move criminal cash through the financial system. These groups actively recruit witting and unwitting mules – defined as someone who receives illicit funds into their account and transfers it into another account for ‘cashing out’ or onward transfer – by offering payment or gifts. In some instances these individuals may also be coerced and manipulated into moving money.

Whether willingly or unwillingly, money mules are facilitating the organised crime gangs perpetrating fraud on an industrial scale in the UK against UK citizens, businesses and public funds – a crime said to be costing the UK economy upwards of £200 billion per annum according to recent research.

Scale of the problem

Cifas data shows an indication of the potential scale of the problem – in 2022, nearly 40,000 cases on bank accounts were recorded that display information indicative of money mule behaviour. Given the scale of the problem, the UK government’s 2023 Fraud Strategy puts a strong emphasis on tackling money mule activity and the government has committed to publishing a money mules action plan by the end of the year.

Aligned to the forthcoming money mules action plan, the financial sector regulator, the Financial Conduct Authority (FCA), recently published its review into how it expects financial services firms to play their part in tackling the problem.

The report is clear in its findings – tackling the money mule problem should be an industry priority. However, while clear examples of industry best practice exist, not all firms are responding to the threat with the same focus and some firms need to do much more.

Best practices

In terms of industry best practices, the FCA report highlights a number of areas as indicators of a proportionate, risk-based approach.

First, the report highlights innovative use of technologies, such as machine learning, facial recognition and device profiling and geolocation, particularly at the onboarding stage by some firms as a key component of effective systems and controls against money muling.

Second, the FCA report notes the success of cross-industry and public-private data-sharing initiatives. At Cifas we were pleased to note the FCA’s finding that “firms using the National Fraud Database as part of onboarding checks were able to access valuable insights and data to detect and prevent mule activity. It also helped identify customers who were higher risk.”

Third, the report notes the importance of complementing technological and data systems and controls with human interventions – it notes that “firms with [these] dedicated training programmes help ensure relevant staff are kept up to date with new criminal typologies and are therefore better able to detect and prevent money mule activity”.

Areas for improvement

However, the FCA report is clear that some firms were failing to follow best practices in a number of areas.

For example, the report highlights that some firms onboarding processes were failing to pick up on clear red flags for money mule behaviour, such as virtual addresses and multiple use of the same device to open more than one account.

Furthermore, the report noted that onboarding controls alone were not enough to tackle money muling - weaknesses in ongoing transaction monitoring and an over-reliance on the monitoring of outbound rather than inbound payments meant that some firms may be failing to pick up on money muling activity.

In addition, the FCA highlighted the need for a cross-industry focus on improving the timeliness of money mule behaviours reporting to relevant databases, such as the Cifas National Fraud Database, and on speeding up response times by receiving parties to alerts from others.

No place to hide

In sum, as a growing core of the financial services sector starts to demonstrate how the right systems and controls as well as training and resourcing can help to prevent and detect money mule networks on their platforms, those failing to take action will be increasingly visible as industry outliers.

The FCA, in its report, has made its expectations on firms clear; it expects “firms to take a proactive and proportionate approach to address the problem of money mule activity” by establishing “proportionate systems and controls to manage the problem of money mules”.

In short, those firms who choose not to invest technological and human capital in the response may eventually view this as a false economy; the FCA commits in its report to using its “full regulatory tools, including enforcement action” if it identifies firms falling behind in this area.