Following the coronavirus outbreak, mandated lockdowns were implemented that led millions of people to stay home. The financial industry has seen less money laundering cases and fines from regulators because COVID-19 completely disrupted the demand of illicit drug trafficking and successive money laundering measures. During these months of lockdown, millions have been left jobless and have consequentially run out of savings. For substantially marginalized people no work means no pay, so continuing social distancing is nearly impossible. Businesses have eliminated jobs as demand for nonessential goods and services has drastically reduced. Thus, an increase in job cuts and subsequent unemployment can lead to a growth in unprecedented criminal activities.
Due to the forced lockdowns, banks have taken measures to protect their staff and clients. Many banks have limited the hours of their branches and reduced staff in their offices. Because these emergency restrictions have limited access to traditional banking channels, banks are also pushing customers to avoid visiting a branch or an ATM. Many banks now must modernize their traditional service channels and adopt digitization via mobile, internet banking or other contactless technologies.
Due to deglobalization and reduced international trade activity, international money laundering slowed down at the beginning of the pandemic. Dirty money piled up and could not enter the financial system because of decreased financial activity overall, which would have raised suspicions to banks and law enforcement agencies. But as lockdown measures have eased and as criminals have adapted, money laundering activities are likely to return but in different forms that will exploit financial insecurity, unemployment and other anxieties. Whilst businesses are eliminating jobs, money launderers seem to have opened employment opportunities for people in need, specifically money mule schemes. The FBI, the Financial Action Task Force (FATF), and Interpol have all recently warned financial institutions (FIs) about money mule schemes and other COVID-19 fraud.
Money Mule―The Unusual Suspect
A money mule refers to a person who knowingly or unknowingly transfers illegally acquired money for someone else through a courier or banking channel. For instance, a launderer might send a person hard cash to deposit into a bank and will eventually ask the mule to transfer that cash into a different account. In return, the launderer offers some percentage of the money transferred. Teenaged students have deliberately facilitated illegal money as it is perceived as a lesser crime and not a punishable offense. But oftentimes criminals do not disclose that the money is dirty and create a compelling story, that way a person in financial need views this as a harmless, profitable opportunity. Money launderers are skilled at acting and social engineering, leaving no stone unturned to groom victims into becoming partners in crime.
Money Mule Methods, Trends and Typologies
During this time, moving ill-gotten money around may not be easy for a money launderer as unaffected financial behavior during the pandemic might attract the attention of banks and law enforcement agencies. Therefore, criminals have been actively seeking victims beginning with a friendly request, sometimes in exchange for money. But money launderers are now adopting advanced methodologies and technological means to recruit money mules. The following are the most widely seen money mule typologies and trends of the COVID-19 pandemic:
- Requests and offers made to close friends, relatives and acquaintances via social media apps (e.g., Facebook, WhatsApp, Viber) to do a quick task and earn some money
- Seemingly legitimate job openings that target groups that were recently laid off
- Requests to overseas/local students or recent immigrants to receive and transfer money to different accounts and in return receive a percentage to support themselves and their extended families abroad
- What appears to be legitimate freelancing job opportunities from local/international impersonated employers who eventually ask employees to do wire transfers to multiple accounts
- Part-time job offers to work as a local representative or agent of a front company/shell firm responsible for financial transaction facilitation
- Urgent wire transfer requests for someone in financial need due to deteriorated health conditions caused by COVID-19
- Work from home opportunities that require opening new bank accounts or business transactions to be performed through personal accounts
- Opportunities to work as a money transfer agent in exchange for commissions/bonuses on the number of funds routed through banking channels or traditional mobile financial services popular in developing countries such as Bangladesh and India
- Takeovers of banking accounts or purchases of bank details in exchange for cash from unemployed foreign students and workers
- Small and medium enterprise owners struggling financially to revive business receiving commissions/hard cash loans in exchange for transferring money from business accounts under the reporting threshold
AML and KYC Compliance Challenges
Every day, thousands of people open bank accounts, and millions of transactions are performed through ATMs or online. Thus, banks have regulatory obligations to monitor these transactions and apply know your customer (KYC) procedures. But there is no one-size-fits-all solution for solving the money mule crisis. FIs need to assess vulnerabilities in exposed areas, increase awareness, reassess and develop a compliance strategy to minimize the impact during the pandemic.
Asian countries and regulators have adopted FATF standards and supervisory frameworks in the early 2000s. However, compliance with these standards across Asia is uneven and generally remains moderate to low. Having perceived the vulnerability and risk level in this region, many Asian countries have made considerable progress on AML and counter-terrorist financing over the past years. Nonetheless, significant weaknesses remain. Most AML experts working in the field lack real pandemic or skyrocketing unemployment experience to understand money mule behavioral profiling completely. For instance, nonessential business and service professions should be deviating their prepandemic transactions and revenues. Any exception should be manually triggered and investigated because transaction monitoring software will not generate an alert for accounts that are still performing as usual or below the threshold. AML professionals and compliance officers should rethink and redesign the AML monitoring system since the traditional behavioral-based monitoring system keeps FIs at a disadvantage during a pandemic.
COVID-19 has led to skyrocketing unemployment, hunger, deglobalization and inflation, leading to the rise in money mule schemes and other financial fraud. Victimizing people to use their bank account or conducting financial transactions for someone else not only endangers FIs but also creates severe economic impacts. Banks with weak preventative controls and slow responses from law enforcement agencies can negatively affect the stability of FIs. An increasing number of money mule activities appear to violate the public trust in the transparent operation of FIs. Such activities can harm the soundness of a country’s financial system and overall reputation. Regulators, governments and FIs should all increase awareness to stop money mule schemes and preventative/remediation controls must be implemented in each FI.
Mohammad Rezaul Karim, CAMS, CDD analyst, HSBC Bangladesh
MS. Rucsar Jabin, lecturer of marketing, University of Dhaka, Bangladesh