QUESTION
Recently, FinCEN provided guidance on detecting sextortion. I must admit I had never heard of it until my compliance manager told me about it. I've run my mortgage company for thirty years, and I have never heard of anything like sextortion scams.
So, I read FinCEN's notice. I'm not sure how sextortion could affect the mortgage industry. From what I can tell, the predator finds ways to get the victim to turn over sexually explicit information, then blackmails and extorts them to fork over their money. This is a terrible situation, but I'm unsure if my company should be concerned about this scam.
I'm looking for your opinion. I want to find out if financial institutions, whether banks or nonbanks, should be worried if sextortion can lead to problems in mortgage banking.
Does sextortion adversely impact mortgage companies?
OUR SOLUTION
QUESTION
According to my research, the term "sextortion" has been around, at least in print, since April 5, 1950, when the Los Angeles Times published the story Sextortion Charges to Come up Next Week. It is a serious financial crime. The guidance you must be referring to is FinCEN's notice of September 8, 2025, entitled Financially Motivated Sextortion.
If you are wondering if and how sextortion impacts mortgage banking, you might be interested in learning that sextortion causes profoundly damaging effects in the financial services industry. For FinCEN to publish an extensive notice on it shows the extent to which this financial crime can crush a mortgage loan transaction and seriously harm a mortgage originator.
The mortgage industry plays a key role in detecting and disrupting these schemes by reporting financially motivated crimes to law enforcement. I will provide information on reporting such suspicious activity shortly.
WHAT IS SEXTORTION?
According to FinCEN,
"Financially motivated sextortion occurs when perpetrators, using fake personas, coerce victims to create and send sexually explicit images or videos of themselves, only to threaten to release the compromising material to the victims' friends and family unless the victims provide payment."
Sextortion is a crime that often involves adults coercing minors, especially teenagers, into sending explicit images online. Sextortion schemes that victimize minors are also a form of Online Child Sexual Exploitation. It's primarily motivated by financial gain rather than prurient interest and targets individuals of all ages.
THE SCAM
Here is an outline of the scam, which is usually perpetrated on social media or popular online video gaming platforms.
· Perpetrators either create fake accounts or hack into the accounts of real individuals to impersonate someone known to the victim or to present themselves as a potential new friend.
o
Typically,
the perpetrators of financially motivated sextortion schemes will pose as an
attractive member of the opposite sex around the same age as the intended
target.
o Perpetrators of financially motivated sextortion attempt to learn as much as they can about the intended victim's interests from their social media profiles before contacting the individual.
· The perpetrator may initially make contact on social media or popular online gaming platforms and suggest moving their conversation to private messaging or video chat apps.
· Soon after making contact with the victim, perpetrators ask for nude photos or other sexually explicit material, or offer to exchange nude pictures with the victim.
· In addition, the perpetrator may use AI-enabled sextortion by inserting the victim's likeness into realistic, sexually explicit images and videos (often called "deepfake media”).
· Once the victim has sent explicit material, the perpetrator engages in financial extortion, threatening to publish the victim’s compromising photos or to share them with the victim’s friends and family unless the victim sends the perpetrator money.
· Perpetrators of financially motivated sextortion schemes can extort their victims in a matter of minutes, and often continually harass victims to make additional payments.
o
Perpetrators
of financially motivated sextortion schemes may initially demand that the
victim send them a large payment to avoid the perpetrator releasing the
victim’s explicit material. Despite receiving an initial payment, however, the
perpetrator often continues to demand additional payments from the victim.
o
Victims
are often directed to send the extorted payments to money mules through a peer-to-peer (P2P) payment
platform using a phone number or email address provided by the perpetrator.
o
Other
payment methods requested by the perpetrator could include a victim mailing
checks, cash, or money orders to a third party, or sending convertible virtual
currency (CVC) directly using P2P payment platforms or digital assets, such as
in CVC kiosks, the crypto ATM of the cryptocurrency industry.
o Perpetrators may also instruct victims to purchase prepaid access cards (i.e., gift cards). In such cases, they may request a victim to send a picture of a card’s PIN so that the value can be extracted to make purchases of goods and other items.
THE VICTIMS
The scam is perpetuated when victims report being further victimized by scammers falsely claiming to be recovery experts, attorneys, or law enforcement agents, who offer to retrieve a victim’s explicit material or “go after the perpetrators.” These scammers attempt to exploit victims’ feelings of helplessness or embarrassment for financial gain, often charging high fees for their purported services.
According to FinCEN’s analysis of BSA data, the top reported jurisdictions where the subjects of suspicious transactions potentially related to financially motivated sextortion schemes were located, in rank order, include: Cote d’Ivoire, the United States, the Philippines, Monaco, Burkina Faso, the Dominican Republic, Kenya, Benin, and Nigeria.
SUSPICIOUS ACTIVITY
So, how does this scam impact mortgage banking?
In mortgage banking, the primary intersection with sextortion involves financial institutions, such as mortgage lenders, that are used as conduits for financial sextortion schemes. Lenders are on the front line of detecting and reporting the suspicious transactions used by perpetrators to launder money and evade law enforcement. More broadly, the financial services industry is also a potential target for unrelated cyberextortion schemes.
By this point, most mortgage lenders should be aware that a mortgage loan transaction can be a target for laundering illicit funds. The sextortionist’s compilation of illicit cash can be laundered through mortgage transactions.
Such illegal activity is at the core of the Anti-Money Laundering Program, AML Compliance, and the proper filing of Suspicious Activity Reports in accordance with the Bank Secrecy Act mandates.
Anyone required to file a Suspicious Activity Report should be aware that FinCEN has issued specific warnings to financial institutions, including those in mortgage banking, regarding the detection of financially motivated sextortion.
MORTGAGE ORIGINATOR VICTIMS
Beyond being a conduit for sextortion payments, mortgage banking firms themselves can be the target of cyber-extortion and other criminal schemes. Two ostensible forms of extortion are cybercrime and insider threats.
· Cyber-Extortion
Criminals have used social engineering tactics to gain unauthorized access to a financial firm’s networks. They then threaten to publish or delete sensitive data unless the firm pays a ransom, sometimes for tens of millions of dollars.
· Insider Threats
Employees and insiders have also been involved in extortion. For example, former mortgage lender employees have been accused of running extortion schemes related to their industry knowledge.
This has been observed when perpetrators belonging to the malicious hacking group known as “Scattered Spider” called company help desks and convinced employees to reset passwords as part of a campaign to steal data and hold it for ransom.
DAMAGES
- For victims of financial sextortion, the exploitation can be psychologically devastating and sometimes fatal. There have been incidents of suicide directly linked to these schemes.
- For financial institutions, financial sextortion schemes pose significant risks, such as:
· Compliance Violations
o
The
misuse of a financial institution's payment systems is a violation of anti-money laundering
regulations, banking law, and safety and soundness guidelines.
o A loan or finance company that does not comply with the Anti-Money Laundering Program may lose its Safe Harbor, which protects a financial institution from civil liability for filing a Suspicious Activity Report, and is contingent upon meeting the regulatory requirements of the Bank Secrecy Act.
· Reputational Damage
Failing to detect criminal activity can harm a firm's reputation and customer trust.
· Financial Losses
Firms can suffer major financial losses from data breaches and ransom payments.
This article, Sextortion in Mortgage Banking, published on September 25, 2025, is authored by Jonathan Foxx, PhD, MBA, the Chairman & Managing Director of Lenders Compliance Group, the first and only full-service, mortgage risk management firm in the United States, specializing exclusively in residential mortgage compliance.
