Money Mules: ID Theft and AML Compliance

QUESTION 

Our company is under investigation by the banking department and law enforcement for allowing "money mules" to use our financial services. They managed to use our mortgage and depository services. The crooks targeted people in nursing homes and hospice care facilities. 

The banking department is now determining if we properly implemented an Identity Theft Protection Program and Anti-Money Laundering Program. They're looking back at the procedures as well as the level of testing and training. Our CEO has told us that she expects an administrative action against us. 

We haven't updated our Identity Theft Protection Program and Red Flags Rule in years. We're reviewing it now. Well, better late than never! 

But we do the Anti-Money Laundering Program testing and training as required. The banking department is closely scrutinizing both written policies. Yesterday, we received a notice from FinCEN that they are investigating our SAR filings. 

The news fallout has been devastating. We have been in business for decades and have never had a hit to our reputation, let alone something as shocking as being an unwitting accessory to an identity theft and money-laundering scheme. There's not enough money in the world to reestablish trust! 

How do "money mules" operate? 

How do "money mules" exploit the stealing of identities? 

How do "money mules" undermine anti-money laundering procedures? 

ANSWER 

Your situation reminds me of a recent arrest in California involving money mules. The victims' money is often initially handled by "money mules," individuals who permit their addresses or bank accounts to be used or agree to receive or negotiate cashier's checks. In brief, a money mule moves money obtained illegally on behalf of another individual. Funds are transferred in person, digitally, or through mail or courier. 

I have discussed money mules previously. Here is one about how the COVID pandemic was used by criminals to bilk the public: COVID-19: Imposters and Money Mules. 

Money mules can be – but are not always! – aware they are involved in laundering money obtained illegally. The purpose of this illegal activity is to obscure the source of funds. They are a key element in the money laundering and identity theft process. 

Scheme 

With some variance and nuances here and there, the following are the steps to money mule schemes: 

Step 1: Criminal looking to launder money employs a money mule to layer illicit funds. 

Step 2: Criminal transfers the funds to the money mule in person or electronically. 

Step 3: Money mule either places[i] the money into the financial system or receives money that has already been integrated[ii] into the financial system. 

Step 4: Money mule uses a series of transfers and transactions to layer[iii] the money. 

Step 5: Money mule returns the layered funds to the criminal. 

In the case I have in mind,[iv] the FBI arrested money mules involved in scams that bilked grandparents. This is brutal, wicked, and heartless, of course, but crooks will do what crooks will do! A con is a con. A mark is a mark. As Hamlet observed, "one may smile, and smile, and be a villain!"[v] 

Two money mules were arrested and indicted for their scheme to launder at least $2 million in proceeds obtained from victims of grandparent scams who were defrauded with false claims that their relatives were in distress and urgently needed funds. 

The indictment detailed how perpetrators of grandparent scams convince victims to send money – purportedly to help relatives, frequently their grandchildren, who are typically described as being in legal trouble – "to bank accounts, business entities, and physical addresses specified by the scammers, using interstate wires and cashier's checks…for the supposed purpose of assisting the relatives in distress." 

One of the money mules is said to be a manager of money mules, and the other, thus recruited, recruited his own money mules. Federal prosecutors further assert that the manager created business entities and opened bank accounts using information stolen from identity theft victims. 

Once the money was in the accounts associated with the money mules or identity theft victims, the two money mules allegedly engaged in transactions designed to conceal the true nature of the funds, which, in this case, had been obtained via wire fraud. 

The indictment specifically alleges that the scheme laundered funds obtained from victims of grandparent scams who live in California and Pennsylvania. The bank fraud scheme alleged in the indictment involves fraudulently obtained funds held in suspense in an account set up in the name of an identity theft victim. 

The two money mules and a co-conspirator allegedly worked in concert to contact the bank and impersonate the identity theft victim to secure the issuance of a check for nearly $83,000 that was remaining in the account. 

As I noted above, money mules can be unwittingly involved in a money mule scam. That seems hard to believe. Investigators find that the trail usually ends with the money mule, who might not have realized that they are laundering money for crime gangs. Unfortunately, the process often depends on the unwitting money mule for its effectuation. The enforcement authorities have found at least three primary types of money mules: (1) unwitting, (2) witting, and (3) complicit. Here's a synopsis of each type. 

Types 

(1) Unwitting Individuals are unaware they are involved in criminal activity and engage in it thinking it's legal. They are often deceived into doing the activity for someone they believe to be an employer, acquaintance, perhaps a romance scammer, or somebody in a position of some trust. 

(2) Witting Individuals who should be aware they are involved in suspicious activity but engage in it anyway. While they aren't fully aware of the extent to which they are involved in criminal activity, they typically ignore clear indicators that what they do is illegal or suspicious. 

(3) Complicit Individuals know they are involved in criminal activity yet still engage in it willfully. This type of money mule ranges from inexperienced individuals unaware of their involvement to experienced and adept fraudsters who run entire money mule rings. 

Identity Theft Prevention Program 

Beyond the legal ramifications of acting as a money mule,[vi] the people who serve as money mules may open themselves up to identity theft. All of their personally identifiable information ("PII") can be stolen by criminals, leading to the theft of their financial assets. Victims often wind up with drained accounts, damaged credit, and deprivation of medical treatment due to loss of cash liquidity. 

Stealing an individual's identity is a fraud committed or attempted using the identifying information of another person without authority.[vii] The "identifying information" of a victim is particularly onerous because such information means "any name or number that may be used, alone or in conjunction with any other information, to identify a specific person."[viii] 

The Red Flags Rule (" Rule") goes back to 2007 under a section in the Fair and Accurate Credit Transaction Act (FACTA), which amended the Fair Credit Reporting Act (FCRA).[ix] The Rule was promulgated in 2010.[x] 

If you haven't reviewed your written Identity Theft Protection Program – which is statutorily required – it is a bit late now, given that the regulators are currently involved in an investigation. In compliance, it is not the case to throw up your hands and, as you do, declare it is "better late than never." Indeed, that phrase harks all the way back to Geoffrey Chaucer in the 14^th century, who said, "For better than never is late; never to succeed would be too long a period."[xi] 

In compliance, virtually everything has a tail, a trace, a remnant, a vestige, some lingering scintilla of activity, a dash of evidence that cannot escape discovery at some point and in some way. Thus, "better late than never" is not functionally good enough in compliance. 

Pay attention to the second half of Chaucer's statement, "never to succeed would be too long a period." There are no viable exceptions to maintaining regulatory vigilance, and if there is a systemic or some other failure, admitting the mistake and fixing it permanently. Regulators are sometimes sympathetic to companies that recognize and willingly fix mistakes. But be assured that most of the time, they will find out about the errors you prefer not to tell them about. To succeed in compliance, you must proactively review, monitor, test, train, and implement regulatory requirements. 

There are notorious correlations between money mules and identity theft. I have been discussing "traditional" money mules, but there are "synthetic identities" used by money mules. Synthetic identities are created using a discrete combination of PII to fabricate a person or entity. Given the availability of stolen data on the dark web, these identities are easy to create on a large scale. 

If you haven't reviewed your Identity Theft Prevention Program in some time, you are quite remiss, and, from a regulatory compliance perspective, you are not only opening yourself to regulator scrutiny but may also be recklessly endangering your customers. 

Anti-Money Laundering Program 

You asked, How do "money mules" undermine anti-money laundering procedures? In our Anti-Money Laundering test audits, we have noted weaknesses in screening for money mules. The results of our findings are provided in our Executive Summary, and we offer our work papers so that you can see how deep we have gone to evaluate your AML program. We provide recommendations to fix the weaknesses. 

Our reviews have uncovered many money mule schemes. However, catching the scams is a never-ending task because the crooks are remarkably inventive in finding ways to undercut even the best AML programs. 

There are telltale elements that might indicate a money mule has landed on your AML radar. We are always adding to our audit list as crooks invent new schemes and scams. You should do the same! These scams come up repeatedly in our AML test audits to the point that we consider them triggers to conducting an investigation to determine if a Suspicious Activity Report (SAR) should be filed with FinCEN[xii]. 

Our organization maintains a list of warning signs that a money mule may be making their way onto a client's AML radar. Our list contains elements provided by CISA[xiii], and we build on these elements continually. In our estimation, AML compliance must include, among other things, periodic testing, employee training, due diligence, transaction monitoring, Identity Theft Protection Program mandates, KYC and KYB[xiv] requirements, CIP[xv], OFAC[xvi], identity theft[xvii] "frozen credit" alerts, and historical SAR filings. 

An example of due diligence is conducting your own investigation. Money mules can contaminate PII. During an investigation, a client of ours discovered that a money mule group used fake websites and social media profiles to trick victims into providing their personal information. It then used that PII to open bank accounts, apply for mortgage loans, and set up cryptocurrency wallets. This criminal group then laundered the stolen funds through a network of money mules, who received and transferred the funds on behalf of the criminals.

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director 

Lenders Compliance Group

---

[i] Placement is where illegitimate funds are introduced to the legitimate financial system.

[ii] Integration is where layered funds (which now appear legitimate) are returned to the criminal.

[iii] Layering is where the criminal intentionally moves funds to disguise where the money actually originated.

[iv] Two Indicted in Scheme that Allegedly Laundered over $2 Million Generated by ‘Grandparent Scams’ Targeting Elderly Victims, Press Release, Department of Justice, U.S. Attorney's Office, Central District of California, December 12, 2023

[v] Hamlet, Act 1, Scene 5, Shakespeare

[vi] For instance, among other things, the charge of conspiracy to commit money laundering carries a statutory maximum penalty of 20 years in federal prison, and the charge of conspiracy to commit bank fraud carries a sentence of up to 30 years.

[vii] 16 CFR 603.2(a)

[viii] 16 CFR 603.2(b)

[ix] The Red Flags Rule was issued in 2007 under § 114 of the Fair and Accurate Credit Transaction Act of 2003 (FACT Act), Pub. L. 108-159, amending the Fair Credit Reporting Act (FCRA), 15 USC 1681m(e). The Red Flags Rule is published at 16 CFR 681.1. See also 72 FR, Nov. 9, 2007.

[x] The Rule was amended in 2010 by the Red Flag Program Clarification Act of 2010, 15 U.S.C. 1681m(e)(4), Pub. L. 111-319, 124 Stat. 3457 (December 18, 2010).

[xi] Actually, the phrase is a direct translation from the Latin “potiusque sero quam nunquam” (viz., and better late than never) in Livy’s fourth book Ab Urbe Condita (History of Rome), 27 BC. The full quote in Livy is “Their insolence and recklessness must be opposed, and better late than never.” (My translation.)

[xii] Financial Crimes Enforcement Network (FinCEN), for nonbanks, see Anti-Money Laundering Program and Suspicious Activity Report Filing Requirements for Residential Mortgage Lenders and Originators, Financial Crimes Enforcement Network, 77 FR 8148-8160 (February 14, 2012), as revised from time to time.

[xiii] CISA provides several publications involving money mules and other schemes. One example is Understanding and Protecting Yourself Against Money Mule Schemes, Matthew DeSantis, Chad Dougherty, Mindi McDowell, US-CERT, Cybersecurity & Infrastructure Security Agency

[xiv] Respectively, Know Your Customer (KYC) and Know Your Business (KYB)

[xv] Customer Information Program (CIP)

[xvi] Office of Foreign Assets Control (OFAC)

[xvii] FCRA Identity Theft Rules, Op. cit. ix

COVID-19: Imposters and Money Mules

QUESTION

I am an attorney who handles compliance for a small bank here in the southeast. A customer came into our branch and indicated that a person claiming to represent a government agency contacted her by phone, followed up with email, and asked for bank account information to process an Economic Impact Payment.

Customers have told us about unsolicited communications from supposedly trusted sources or government programs related to COVID-19, instructing readers to open embedded links or files or to provide personal or financial information, including account credentials (i.e., usernames and passwords).

We even reported a SAR on a customer who made several atypical transactions involving an overseas account. When we asked about these transactions, the customer indicated they were for a person located overseas who needs financial assistance because of the COVID-19 pandemic.

I wonder if you would provide some possible scams relating to COVID-19. What are some illicit activities and consumer fraud schemes that are associated with COVID-19?

ANSWER

Most people want to obey the law. Unfortunately, there are plenty of bad actors who spend their time cooking up ways to defraud consumers. One set of responsibilities for a bank or nonbank is to detect, prevent, and report consumer fraud and other unlawful activities. COVID-19 has brought out the best and the worst in people, especially the worst of the worst: those who would stalk consumers to connive ways to filch their hard-earned assets amid a pandemic. Let’s face it, some people are just so broken that they don’t care about anyone but themselves. But everyone has a stake in a stable economy.

There has definitely been an increase in consumer fraud relating to COVID-19. I am going to briefly outline two types of fraudulent schemes: imposter scams and money mule schemes. Both of these deceptive tactics are described in your question.

Keep in mind that crooks are very creative. As soon as their scam is exposed, they come up with another way to commit fraud. So, even as I write a response, the bandits are continuing to find new ways to manipulate consumers, doing their illegal most to exploit vulnerabilities caused by the pandemic.

Imposter scams and money mule schemes happen where actors deceive victims by impersonating federal government agencies, international organizations, or charities. FinCEN has identified the financial red flag indicators to alert financial institutions to these frauds and to assist financial institutions in detecting, preventing, and reporting suspicious transactions associated with the COVID-19 pandemic. We have broadened our Anti-Money Laundering Program testing, policies, and training to include such red flags.

For AML compliance assistance, contact us HERE.

But no single financial red flag indicator is necessarily indicative of illicit or suspicious activity. Financial institutions should consider additional contextual information and the surrounding facts and circumstances. Such context-related information includes a customer’s historical, financial activity, whether the transactions are in line with prevailing business practices, and whether the customer exhibits multiple indicators. Various criteria should be considered before determining if a transaction is suspicious or otherwise indicative of potentially fraudulent COVID-19-related activities.

In other words, your review should be “risk-based,” ensuring compliance with the Bank Secrecy Act (BSA). Therefore, perform additional inquiries and investigations where appropriate. Unfortunately, some of the financial red flag indicators may apply to multiple COVID-19-related fraudulent activities. Given that many scammers are targeting customers as opposed to financial institutions directly, financial institutions should remain on the alert for potential suspicious activities when interacting with their customers,

Let’s discuss imposter scams first, and then follow with a discussion about money mule schemes. I have given you numerous footnotes to help you to train yourself, train your staff, and inform your customers. I will conclude with some guidance on completing the Suspicious Activity Report. You can always contact me if you want to discuss your compliance needs in detail. Contact me HERE.

Imposter Scams

In imposter scams, criminals impersonate organizations such as government agencies, non-profit groups, universities, or charities to offer fraudulent services or otherwise defraud victims. While imposter scams can take multiple forms, the basic methodology involves an actor who (1) contacts a target under the pretense of representing an official organization, and then (2) coerces or convinces the target to provide funds or valuable information, including engaging in behavior that causes the target’s computer to be infected with malware, or spreading disinformation.[i] In the case of schemes connected to COVID-19, imposters may pose as officials or representatives from the Internal Revenue Service (IRS),[ii] the Centers for Disease Control and Prevention (CDC),[iii] the World Health Organization (WHO), other healthcare or non-profit groups, and academic institutions.[iv]

Imposters defraud and deceive the vulnerable, including the elderly and unemployed, through the solicitation of payments (such as digital payments and virtual currency), donations, or personal information via email, robocalls, text messages,[v] or other communication methods. For instance, an imposter may contact potential victims by phone, email, or text to require that the victim must verify personal information or send payments to scammers in return for COVID-19-related stimulus payments or benefits, including Economic Impact Payments (EIP)[vi] under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.[vii]

We have provided considerable information about EIPs in our free Checklist & Workbook, Business Continuity Plan, COVID-19 Pandemic Response (now on its Update # 7, with Update # 8 to be released soon). Get it HERE.

Another instance includes imposters contacting victims and posing as government or health care representatives engaged in COVID-19 contact tracing activities, implying that a victim must share personal or financial information as part of contact tracing efforts.[viii] I could give a host of multiple examples, including phishing schemes, where imposters send communications appearing to come from legitimate sources, to collect victims’ personal and financial data while potentially infecting their devices by convincing the target to download a malicious attachment or click malicious links.[ix]

Scammers may also impersonate legitimate charities or create sham charities, taking advantage of the generosity of the public and embezzling donations intended for COVID-19 response efforts.[x]

As to other communication methods, criminals often use social media accounts, door-to-door collections, flyers, mailings, telephone and robocalls, text messages, websites, and emails mimicking legitimate charities and non-profits to defraud the public. These operations may include words like “relief,” “fund,” “donation,” and “foundation” in their titles to give the illusion that they are a legitimate organization.[xi]

Money Mule Schemes

You may not have heard this term before. It’s a pretty nasty activity. A money mule is “a person who transfers illegally acquired money on behalf of or at the direction of another.”[xii] Money mule schemes, including those associated with the COVID-19 pandemic, span the spectrum of using unwitting, witting, or complicit money mules.[xiii] An unwitting or unknowing money mule is an individual who is “unaware that he or she is part of a larger criminal scheme.”

This crook is motivated by a host of reasons, most of them not worth mentioning.[xiv] A witting money mule is an individual who “chooses to ignore obvious red flags or acts willfully blind to his or her money movement activity.” The individual is motivated by financial gain or an unwillingness to acknowledge his or her role.[xv] A complicit money mule is an individual who is “aware of his or her role as a money mule and is complicit in the larger criminal scheme.” The individual is motivated by financial gain or loyalty to a criminal group.[xvi]

During the COVID-19 pandemic, U.S. authorities have been detecting recruiters using money mule schemes, such as good-Samaritan, romance, and work-from-home schemes.[xvii] In work-from-home schemes, for instance, COVID-19 money mule recruiters, under a false charity or company label, approach targets with a seemingly legitimate offer of employment under the pretense of work-from-home jobs, often through Internet or social media advertisements, emails, or text messages. Once the target accepts the “employment,” he or she receives instructions to move funds through accounts or to set up a new account in the target’s name for the bogus “business.” The target (i.e., the money mule) earns money by taking a percentage of the funds that he or she helps to transfer per the instructions of the bogus “employer.”[xviii]

U.S. authorities also have identified criminals using money mules to exploit unemployment insurance programs during the COVID-19 pandemic.[xix]

Suspicious Activity and Elder Financial Abuse

QUESTION 

Our bank caters to older people, so-called seniors and elders. As a group, these customers are 65 and older. We are located in a state where the senior and elderly population is about 20% of the population, which is the highest percentage in the country. 

Not a week goes by when we don’t have alarm bells going off because one of our elderly customers seems to be getting financially exploited. It is harrowing and unnerving. You would not believe the types and number of scams. It is so frustrating I could scream! 

I’m just a lowly branch manager. I have taken the BSA/AML employee training. But I am required to pass these situations up to our compliance people, who do a great job of resolving the issues. I believe they file SARs with FinCEN, too. Although compliance does a great job, I want to have my own list of Red Flags. 

You’ve written about elder financial abuse and even provided some Red Flags. But I would like to spot behavioral and financial activities. I would be very grateful if I could get a list of such Red Flags.

What are some Red Flags for elder financial abuse?

ANSWER 

For many years, I have written about elder financial exploitation. I have spoken at conferences, interviewed, been a podcast guest, and provided many checklists and Red Flag templates. Yet the situation keeps getting worse. Often, I feel like the proverbial Dutch boy with his finger in the dike, but I am only one person. 

Here’s an article with downloads and links to some of my writing on this subject. 

I’ve been so concerned about Elder Financial Exploitation that my firm developed and added the EFE Tune-up® to our Compliance Tune-up® series. Now, our clients have an additional tool to fight back at the crooks and scammers. Click HERE to request information about the EFE Tune-up®. 

What is there in human nature that drives a person to take advantage of an older adult? 

Our audits and reviews have encountered horrific elder financial abuse over the years. I recall one older gentleman left bereft of his money and virtually all other earthly assets by his son’s greedy, avaricious actions. Others in his family jumped into the feeding frenzy. His financial advisor came to us through a bank referral for a due diligence review of the excessive cash-out refinancing of his home. This man was of sound mind and body. But he was old, and age often brings many cognitive, emotional, and physical challenges. An older person can be easily preyed upon by corrupt family, friends, professionals, and strangers. 

Sad to say, but the clown in Hamlet got it about right when he said 

“Age, with his stealing steps,

Hath clawed me in his clutch.”[i] 

In 2021, financial institutions filed 72,000 Suspicious Activity Reports (SARs) related to EFE.[ii] This represents an increase of 10,000 SARs over the previous year’s filings. The Consumer Financial Protection Bureau’s (CFPB’s) estimate of the dollar value of suspicious transactions linked to EFE has similarly increased from $2.6 billion in 2019 to $3.4 billion in 2020. This is the largest year-to-year increase since 2013.[iii] 

I appreciate that you have asked for Red Flags based on behavior and financial actions. My firm has placed these Red Flags into a dynamic Behavioral and Financial Red Flags Checklist, which includes SAR filing instructions. Later on, I will give you a link to request it. As a courtesy to you, it’s free. 

Because you are a branch manager, you are often on the “front lines” of first noticing elder financial exploitation, categorized by the Financial Crimes Enforcement Network (FinCEN) as “EFE.” FinCen has been tracking EFE for many years. Recently, it issued an Advisory on Elder Financial Exploitation (“Advisory”).[iv] I am going to discuss some aspects of this Advisory because of its outlining of behavioral and financial Red Flags. The last time FinCEN came out with typologies and Red Flags goes back to 2011. 

But remember, crooks come in many guises, and their scams seem always to be one step ahead of the law. 

Broadly speaking, FinCEN defines EFE as an act that involves the illegal or improper use of an older adult’s funds, property, or assets and is often perpetrated either through theft or scams. 

EFE schemes generally involve either theft or scams. The perpetrators of elder theft are often known and trusted by older adults, but many scams, which can disproportionally affect older adults, frequently involve fraudsters, usually located outside of the United States, with no known relationship to their victims. Regardless of the relationship, these criminals can place older adults in financially, emotionally, and physically compromising situations. The resulting loss of income and life-long earnings devastates the victims’ financial security, dignity, and quality of life. 

Let’s bifurcate the way the crooks go about preying on the elderly. One way is through elder theft. The other is through elder scams. 

In the case of elder theft, perpetrators are often family members and non-family caregivers who abuse their relationship and position of trust. In 2019, FinCEN analyzed a statistically significant, random sampling of SAR narratives. It found that a family member was involved in the theft of assets from older adults in 46% of elder theft cases reported between 2013 and 2019. Unfortunately, the trusted persons who commit elder theft can also include familiar associates and acquaintances, such as neighbors, friends, financial services providers, other business associates – or even those in routine proximity to the victims. 

According to the Advisory, elder theft often follows a similar methodology: “trusted persons may use deception, intimidation, and coercion against older adults to access, control, and misuse their finances.” The financial abuser frequently exploits victims’ reliance on support and services and “takes advantage of any cognitive and physical disabilities or environmental factors such as social isolation to establish control over the victims’ accounts, assets, or identity. 

The abuse takes many forms, including the exploitation of legal guardianship and power of attorney arrangements or fraudulent investments such as Ponzi schemes. Thus, older adults are stripped of their income and retirement savings. 

It bears repeating, these relationships enable trusted persons to continuously abuse the elderly victims “by liquidating savings and retirement accounts, stealing Social Security benefit checks and other income, transferring property and other assets, or maxing out credit cards in the name of the victims until most of their assets are stolen.” 

Elder scams are a conglomeration of criminals defrauding victims into sending payments and disclosing personal identifiable information (PII) under false pretenses or for a promised benefit or good the victims will never receive. These scammers are often located outside the United States and have no known previous relationship with the victims.

Elder Theft and Elder Scams

QUESTION 

Our bank formed a group to prevent elder financial exploitation. Most of our clients are seniors and elderly, so we want to be sure our customers are protected from being exploited. They revised a number of screening procedures to catch fraud. They report directly to our Chief Compliance Officer. 

In the last year, we have seen a substantial increase in elder financial exploitation. What bothers me is that most of the crooks seem to get away with financially exploiting older people because we sometimes catch the crooks after the fraud happens. This means we are constantly revising the filters, and we are continually having to update our training. 

As a member of the group, I have been asked to contact you to help us further develop our policy and procedures involving the prevention of elder financial exploitation. In particular, we are interested in outlining the difference between Elder Theft and Elder Scams because we plan to separate the policy into those two primary parts. We have read your articles on elder financial exploitation and have heard you speak on this subject. We need some assistance in developing better filters. 

What is the difference between Elder Theft and Elder Scams? 

COMPLIANCE SOLUTIONS 

EFE TUNE-UP®

Elder Financial Exploitation - Prevention 

POLICIES AND PROCEDURES 

ANSWER 

I have published extensively on the financial abuse and scams referred to as Elder Financial Exploitation (EFE). My efforts have included numerous articles and published White Papers, lectures, and webinars, being a panelist in organizational conferences, and, of course, working with clients who needed to file a Strategic Activity Report (SAR) or notify the FBI with respect to EFE concerns. 

Here are a few of my writings on this subject: 

Suspicious Activity and Elder Financial Abuse 

Elder Financial Abuse: Disclosure, Schemes, and “Red Flags” 

Elder Financial Exploitation 

Elder Financial Exploitation: Prevention and Filing SARs 

Elder Financial Abuse Epidemic 

Elder Financial Abuse: Prevention and Remedies (PDF) 

Elder Financial Abuse (PDF) 

The Articles section of our website has several articles that directly and indirectly relate to Elder Financial Exploitation. Use them to help build your policy and procedures document. 

My firm even provides a free checklist of Behavioral and Financial Red Flags – Elder Financial Abuse! Contact us for a copy! 

I will tell you straight out: EFE seems to keep happening relentlessly – and growing rapidly. 

My answer here is going to be in the form of a “preamble” to your policy. Consider using these preambles as a base for the further formulation of your policies and procedures relating to Elder Theft and Elder Scams. 

For many years, amid rampant fraud and abuse targeting older adults, FinCEN has urged financial institutions to detect, prevent, and report suspicious financial transactions. Every year since 2006, FinCEN has issued an advisory in support of World Elder Abuse Awareness Day[i], commemorated on June 15^th. The statistics are not getting better. They are worsening. 

For instance, depository institutions filed 46,888 EFE-related BSA reports from March 2023 to May 2023, accounting for nearly 30 percent of the total EFE-related reports filed in the review period. This pace appears to be continuing, as FinCEN received an average of 15,993 EFE BSA reports per month between 15 June 2023 and 15 January 2024.[ii] You do the math! 

Before we get too far into my response, let me put down a working definition of EFE: 

Elder Financial Exploitation (EFE) is the illegal or improper use of an older adult’s funds, property, or assets. Older adults are typically considered individuals aged 60 or older. EFE consists of two primary subcategories: elder theft and elder scams. 

Elder theft consists of schemes involving the theft of an older adult’s assets, funds, or income by a trusted person. Elder scams involve the transfer of money to a stranger or imposter for a promised benefit or good that the older adult did not receive. EFE is one type of elder abuse, which includes physical, emotional, and financial abuse. Elder abuse and EFE definitions vary statutorily by state.[iii] 

Elder theft often occurs when persons known and trusted by older adults steal victim funds, while elder scams involve fraudsters with no known relationship to their victims. Indeed, some scammers are located outside the United States.[iv] Sadly, elder theft is likely to be underreported and can go undetected because the perpetrators are typically individuals whom the victim trusts.[v] 

FinCEN analysis of Bank Secrecy Act (BSA) information indicates that elder scams mostly rely on less sophisticated scam typologies. However, some scammers make their scams more complex by blending multiple scam types into one victimization and using victims both as a source of funds and to launder illicit gains.[vi] 

Scammers are often organized, with fraud rings ranging from small groups of individuals to organizations with hundreds of members. There are violent criminal organizations known to carry out fraud schemes, including EFE-related fraud. 

Unfortunately, perpetrators of EFE schemes often do not stop after first exploiting their victims. In both elder theft and elder scams, older adults are frequently re-victimized[vii] and subject to potentially further financial loss, isolation, and emotional or physical abuse long after the initial exploitation due to the significant illicit gains at stake. Scammers may also sell victims’ Personally Identifiable Information (PII) on the black market to other criminals who continue to target the victims using new and emerging scam typologies.[viii] 

ELDER THEFT 

Elder theft is so insidious because the family of the victim is often the perpetrator. Another form of elder theft is where a non-family caregiver financially abuses the relationship from t a position of trust. In 2019, FinCEN analyzed SARs based on elder theft narratives.[ix] The analysis found that a family member was involved in the theft of assets from older adults in 46 percent of elder theft cases reported between 2013 and 2019. 

Who were these perpetrators? Family members, familiar associates, acquaintances such as neighbors, friends, financial services providers, business associates, or those in routine close proximity to the victims. 

Considerable studies have been undertaken by senior citizen organizations, FinCEN, DOJ, and many state governmental authorities to find a pattern to this criminality. It turns out elder theft often follows a similar methodology in which trusted persons may use deception, intimidation, and coercion against older adults in order to access, control, and misuse their finances. Criminals frequently exploit victims’ reliance on support and services and will take advantage of any cognitive and physical disabilities.[x] Environmental factors such as social isolation lead to elder theft. 

The criminal’s goal is to establish control over the victims’ accounts, assets, or identity.[xi] Here are just a few of the ways in which financial exploration takes place. The elder may be financially abused by the exploitation of legal guardianships[xii] and power of attorney arrangements[xiii] or the use of fraudulent investments such as Ponzi schemes[xiv] to defraud older adults of their income and retirement savings. These relationships lead to repeated abuse, as the trusted person repeatedly abuses the victims by liquidating their savings and retirement accounts, stealing Social Security benefit checks and other income, transferring property and other assets, or maxing out credit cards in the name of the victims until most of their assets are stolen.[xv] 

ELDER SCAMS 

Criminals involved in elder scams defraud victims into sending payments and disclosing PII under false pretenses or for a promised benefit or good the victims will never receive. These scammers are often located outside of the United States and have no known previous relationship with the victims. 

Like Elder Theft, a pattern of criminality can be identified. Elder scams often follow a similar methodology in which scammers contact older adults under a fictitious persona via phone call, robocall, text message, email, mail, in-person communication, online dating apps and websites, or social media platforms. In order to appear legitimate and establish trust with older adults, scammers commonly impersonate government officials, law enforcement agencies, technical and customer support representatives, social media connections, or family, friends, and other trusted persons. 

There are several typical types of elder scams. To name but a few: 

·       Government Imposter Scams; 

·       Romance Scams;[xvi] 

·       Emergency or Person-in-Need Scams; 

·       Lottery and Sweepstakes Scams; 

·       Tech and Customer Support Scams. 

This set-up is a con that evokes stress in the victim. Perpetrators often create high-pressure situations by appealing to their victims’ emotions and taking advantage of their trust or by instilling fear to solicit payments and PII. This is, in effect, an Imposter Scam.[xvii] Scammers often request victims to make payments through wire transfers at money services businesses (MSBs) but are increasingly requesting payments via prepaid access cards, gift cards, money orders, tracked delivery of cash and high-valued personal items through the U.S. Postal Service, ATM deposits, cash pick-up at the victims’ houses, and convertible virtual currency (CVC).[xviii] 

Money Mules are a particularly deceitful way to trap victims into an elder scam.[xix] A money mule is a person who, wittingly or unwittingly, transfers or moves illicit funds at the direction of or on behalf of another, in this case, transfers or moves illicit funds at the direction of the scammers. The victim of an elder scam can also serve as a money mule: the scammer convinces the victim to set up a bank account or Limited Liability Corporation (LLC) in the victim’s name to receive, withdraw, deposit, or transfer multiple third-party payments from other victimized older adults to accounts controlled by the scammer under the illusion of a “business opportunity.” In some circumstances, victims of EFE acting as money mules may be prosecuted for this illegal activity and are liable for repaying the other victims. They may also be subject to damaged credit and further victimized through their stolen PII.[xx] 

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director
Lenders Compliance Group

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[i] World Elder Abuse Awareness Day, Administration for Community Living, launched by the International Network for the Prevention of Elder Abuse and the World Health Organization at the United Nations.

[ii] Financial Trend Analysis, Elder Financial Exploitation: Threat Pattern & Trend Information, June 2022 to June 2023, April 2024, Financial Crimes Enforcement Network.

[iii] Memorandum on Financial Institution and Law Enforcement Efforts to Combat Elder Financial Exploitation, Consumer Financial Protection Bureau (CFPB) and FinCEN, August 30, 2017; see also, Elder Abuse and Elder Financial Exploitation Statutes, U.S. Department of Justice (DOJ).

[iv] Advisory on Elder Financial Exploitation, FinCEN Advisory, FIN-2022-A002, June 15, 2022

[v] Recovering from Elder Financial Exploitation, A Framework for Policy and Research, September 2022, Consumer Financial Protection Bureau

[vi] Phantom Hacker Scams Target Senior Citizens and Result in Victims Losing their Life Savings, Alert Number I-091223-PSA, September 29, 2023, Federal Bureau of Investigations Internet Crime Complaint Center

[vii] For additional information on re-victimization in EFE schemes, see Addressing the Challenge of Chronic Fraud Victimization, March 2021, FINRA Investor Education Foundation (FINRA Foundation), American Association of Retired Persons (AARP), and Heart+Mind Strategies.

[viii] List Brokerage Firm Pleads Guilty to Facilitating Elder Fraud Schemes, September 28, 2020, Department of Justice

[ix] Elders Face Increased Financial Threat from Domestic and Foreign Actors, December 2019, FinCEN Financial Trend Analysis

[x] Idem

[xi] Associate Deputy Attorney General Paul R. Perkins Delivers Remarks at the ABA/ABA Financial Crimes Enforcement Conference, December 9, 2020, Department of Justice

[xii] Court-Appointed Pennsylvania Guardian and Virginia Co-Conspirators Indicted for Stealing Over $1 Million from Elderly Wards, June 30, 2021, Department of Justice

[xiii] Franklin, Tennessee Couple Charged With Defrauding Elderly Widow of $1.7 Million, May 12, 2021, Department of Justice; and Former Waterloo Medicaid Provider Sentenced to More than Five Years in Federal Prison for Defrauding Elderly Victim, June 28, 2021, Department of Justice

[xiv] Arizona Man Sentenced for Multimillion-Dollar Nationwide Investment Fraud Scheme, March 15, 2021, Department of Justice

[xv] Annual Report to Congress on Department of Justice Activities to Combat Elder Fraud and Abuse, October 18, 2021, Department of Justice

[xvi] In Romance Gone Awry: A Tale of AML and Negligence, April 14, 2022, I outline litigation involving a Romance Scam. Visit https://mortgage-faqs.blogspot.com/2022/04/romance-gone-awry-tale-of-aml-and.html. See O’Rourke v. PNC Bank, 2022 Del. Super. (Del. Sup. Ct. February 15, 2022)

[xvii] The Federal Trade Commission provides extensive information about Imposter Scams. Visit its webpage How To Avoid Imposter Scams, https://consumer.ftc.gov/features/how-avoid-imposter-scams. See my articles, such as Imposter Robocalls, February 9, 2023, https://mortgage-faqs.blogspot.com/2023/02/imposter-robocalls.html and COVID-19: Imposters and Money Mules, August 6, 2020, https://mortgage-faqs.blogspot.com/2020/08/covid-19-imposters-and-money-mules.html.

[xviii] FBI Warns of a Grandparent Fraud Scheme Using Couriers, Alert Number I-072921-PSAJuly 29, 2021, FBI; New Twist to Grandparent Scam: Mail Cash, December 3, 2018, Federal Trade Commission

[xix] See my article Op. cit. xvi COVID-19: Imposters and Money Mules.

[xx] The FBI maintains a website to increase public awareness of money mules. Visit Money Mules at https://www.fbi.gov/how-we-can-help-you/scams-and-safety/common-scams-and-crimes/money-mules