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Money Muling Detection and Prevention

Money muling activities can be detected and prevented with a robust AML & KYC solution. Here's how.

Many companies implementing identity verification solutions have anti-money laundering (AML) checklists for determining if their prospective customers are politically exposed persons (PEPs) or wanted fraudsters. This has made cybercriminals devise new ways to launder money, and one of such is through money muling. What is money Muling?

Money muling is a money laundering activity that relies on the use of people who knowingly or unknowingly help criminals move large amounts of illegally acquired funds through a financial system to clean the money. These people, known as money mules, usually transfer or withdraw in cash while keeping some commission for themselves. These transactions are not restricted to local accounts or large sums, they are sometimes intercontinental and done as micro-transactions.

Money mules can broadly be categorised into three types;

  1. The unwitting or unknowing who are nudged by someone they meet online or trust, to use their personal accounts to receive and transfer money.

  2. The witting money mules who know the repercussions of money laundering but are undaunted due to the commission they get to keep for themselves.

  3. The complicit money mules who actively participate in money laundering by serially opening bank accounts, and control funnel accounts that would receive money from other low-ranking money mules.

The mainstreaming of the fintech and the digital assets industries has also provided money laundering options to criminals. Therefore it has become crucial for companies to put roadblocks on the path of criminals seeking to perform fraudulent transactions through their platforms. But how can one detect money muling?

How to detect money mules

A robust customer identification program (CIPs) that verifies your client’s identity is the first step towards detecting a money mule. As a compliance or product manager, it is in your best interest to implement a comprehensive CIP and enforce cohesive risk-based measures that would help your company detect money mules if you are to have any chance of stopping their activities. These risk-based measures include:

KYC and Monitoring – At onboarding, Know Your Customer (KYC) processes are undergone by a customer where relevant personal information about them are collected for identity verification and AML compliance purposes. Evaluation of this information about existing clients or potential clients helps in detecting fraudulent individuals. Such information should be checked across published sanction lists by governments, AML watchlists, and public data like company listings. This can expose the risks of your company doing business with such customers and prevent the onboarding of a professional money mule.

Though spotting an unwitting money mule might be a little more difficult, it isn’t impossible with ongoing monitoring. They might pass your initial checks at onboarding since they have no criminal history, but you can keep an eye on accounts with multiple transactions within a short duration or those whose transactions do not match their stated profession. With that, you can then categorize the risk level of clients early.

Customer Authentication – After a customer has been onboarded, you can authenticate them during transactions or at certain durations to ensure they are who they are. Additional security checks like selfie recording for liveness, additional ID document verification, database check and use of fingerprint technology help companies to those behind an account’s activities are the account owners. Also, accounts could be linked with devices or IP addresses, and a change could trigger an account lock until the identity of the user is sufficiently verified. This way, multiple transactions from different locations or above a certain limit will be detected and monitored for money muling activities.

How to prevent money muling

Preventing and stopping mules will not only protect institutions but it will also weaken criminal enterprises, as some money mules do not stop at laundering money but also use the same money to finance other forms of organized crime like terrorism, human trafficking, and drug trafficking. How can you stop money muling activities from crippling your business?

Complying with AML regulations

Undoubtedly, strict compliance with AML regulations have helped companies prevent money muling activities. Recent reports show that the collaborative efforts of Europol, 26 countries and other anti-financial crime agencies has led to the identification of over 18,000 money mules and resulted in 1803 arrests. In 2020, the European Money Mule Action 6 (EMMA 6) carried out a campaign that resulted in the identification of 227 money mule recruiters and 4031 money mules, while having 422 persons arrested worldwide. This goes to show that simply complying with AML regulations, implementing suggested solutions like ID verification, and reporting suspicious activities to regulatory authorities go a long way in money muling prevention.

Making identity verification a prerequisite for users at onboarding

Identity verification tools which Passbase offers provide an opportunity to flag any client that might pose a risk to your company. Clients whose documents have conflicting information or clients who seem to have stolen identities can always be identified during identity verification. Since KYC comes with monitoring and AML checks, money mules (especially professionals) are deterred from carrying out their illicit activities on your platform for fear of getting caught.

Account and Transaction monitoring customer transactions over time

As part of AML guidelines, suspicious activity ought to be flagged, the user account frozen and a referral made to Suspicious Activity Report (SAR) for necessary action. SAR is a security tool provided by the Bank of Secrecy Act of 1970 which empowers any trained employee within a financial institution to report suspicious activity. Since money mules provide a way for criminal enterprises to continue their illegal operations which undermine societies, a good way to stop them is by account monitoring and subsequently reporting them to the right authorities for prosecution.

Conclusion

Money mules present great risks for crypto and fintech companies especially as unwitting money mules can slip through the cracks and continue transacting for criminal enterprises. Thankfully, compliance and product managers do not have to combat money muling activities alone with KYC, as regulatory bodies also provide the needed security boost that these companies need.

On top of that, Passbase offers you enhanced identity verification solutions with a comprehensive AML watchlist that will help you detect if a money mule is opening an account on behalf of a third party. overtime and provide information about any triggers.

Passbase provides a convenient way for crypto businesses to perform KYC and AML checks through identity verification. You can integrate Passbase into your platform via the Passbase API or with SDKs for iOS, Android, and web. To see how identity verification can work for your business today, try Passbase today or book a demo.

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Passbase is an identity verification solution that makes facial recognition, liveness detection, ID verification and KYC and AML compliance accessible through a suite of flexible developer tools. A zero-knowledge architecture ensures that companies using Passbase can securely verify users from over 190 countries without having to store their data. Built for developers, it can be integrated with just a few lines of code on iOS, Android, and Web.