The Financial Action Task Force (FATF) published revised guidelines regarding cyber-enabled fraud (CEF) following the plenary meeting in October. The FATF examined how cybercrime is changing, how it is related to other illegal activities, and how criminal organizations launder their illegal profits.
The report highlights the pervasive nature of CEF, estimating that 80 percent of all fraud in the UK is now cyber-enabled. This rise is attributed to the increased use of new technologies, smartphones, and remote financial transactions, making users more susceptible to fraudulent activities. The anonymity afforded by technologies like virtual private networks (VPNs) further facilitates criminal activities while maintaining anonymity.
What is CEF?
Cyber-enabled fraud (CEF) is rising as a transnational organized crime characterized by intricate syndicates with specialized areas, including money laundering. Investigative efforts are made harder by the decentralized and loosely organized structures in which these groups operate across jurisdictions.
Common Tactics in CEF
Use of Shell Companies and Money Mules: The report highlights how common criminals use both individual money mules and shell companies. These people are recruited by criminals through employment opportunities and social media, and they are given instructions to open corporate accounts or serve as strawmen in order to hide their illegal ownership. Shell companies are also used in online trading fraud to set up virtual point-of-sale accounts for processing transfers and payments.
CEF Types:
- Business Email Compromise (BEC) Fraud
- Phishing Scams
- Impersonation Scams on Social Media
- Fraud on Online Trading Platforms
- Online Romance Scams
Risk Indicators in Cyber-Enabled Fraud
Transaction Patterns
- Rapid or immediate high/low-value transactions are post-account opening inconsistent with the account's purpose.
- Immediate cash withdrawals or transfers of large amounts following funds transfer reception to deplete the account.
- Frequent large transactions inconsistent with the account holder’s economic profile.
- Transfers of funds to and from high-risk money laundering jurisdictions.
- Large, frequent transactions with recently established companies not aligned with their activities.
- Small initial payments are rapidly followed by larger value payments to the same beneficiary.
- Frequent round value amount purchases indicative of gift card transactions.
Customer Transaction Instructions and Remarks
- The customer requests additional payments after a successful payment to an unused account.
- Legitimate transaction instructions with different language, timing, or amounts than previously verified.
- Transaction instructions marked as "Urgent," "Secret," or "Confidential."
- Poorly formatted messages/emails presented as justification for a transaction.
- Instructions directing payment to a known beneficiary with different account information.
- Transactions ordered by individuals with no financial experience to companies in high-risk jurisdictions.
Suspicion in Account Holder's Profile:
- Unwillingness or inability to pass Customer Due Diligence (CDD) checks.
- Frequent changes in legal entities' names using foreign expressions.
- Inadequate knowledge or inconsistent explanations about transactions.
- Unfamiliarity with the source of funds or transacting for someone else.
Key Outcomes of the Report
Critical findings are presented in the most recent FATF report on CEF, highlighting the need for concerted efforts to counter the growing threat. The main conclusions center on strengthening international multilateral collaboration, improving domestic coordination, and fortifying detection and prevention strategies.
Improving Domestic Coordination
The report emphasizes eliminating groups and promoting domestic and international cooperation. Because CEF is decentralized, important financial data is frequently dispersed, which makes investigations more difficult. It is recommended that jurisdictions establish mechanisms for coordination that involve representatives from non-traditional sectors, such as social media, e-commerce, and telecommunication, and technical experts in cybercrime.
Encouraging Multi-Lateral International Collaboration
The report promotes a unified global approach, acknowledging the rapid movement of CEF proceeds across jurisdictions. Cooperation amongst jurisdictions is encouraged to stop CEF proceedings quickly, ideally within 24 to 72 hours.
Enhancing Detection and Prevention
The study places a strong emphasis on lowering CEF syndicates' overall profitability. It is recommended that jurisdictions expedite victim reporting by utilizing specialized platforms to guarantee accessibility. Cooperation with the private sector is essential to improve the reporting of suspicious transactions. Public education campaigns, such as those aimed at raising awareness of CEF and enhancing cyberliteracy, are essential for prevention. Cooperative efforts between government agencies and the private sector can support strategies like consumer protection and eliminating criminal instrumentalities.
Implications for AML Solutions
The results highlight the essential function that AML (Anti-Money Laundering) solutions play in solving CEF issues. Implementing AML solutions can improve the detection, prevention, and reporting of suspicious transactions associated with CEF by financial institutions and stakeholders. These solutions prioritize advanced analytics, collaborative platforms, user-friendly reporting mechanisms, and adaptability to evolving threats.