Wire transfers have long been the tool of choice for money launderers and fraudsters and AML compliance and fraud professionals must understand how wire transfers work to mitigate these risks.
Alessa has released a new webinar delving into why wire transfers present a greater money laundering risk than ACH or direct deposits. The webinar was presented by Laurie Kelly from CAMS and the former director of compliance at CoBank.
Money laundering commonly involves getting proceeds from illegal activity into legitimate respectable businesses in order to make it appear normal and legal. Quoting a study, she detailed that 76% of all fraud and money laundering attempts involved wire transfers and it’s probably safe to say that figure is the same or even higher today. One of the key reasons wire transfers are more vulnerable compared to other forms of money transfer is that they’re irrevocable and funds are available for withdrawal immediately.
Another reason is wire transfers not only offer more opportunities for fraudsters because of technological advances but also because of the many different points of compromise and ways to initiate a wire.
“Methods of compromise include malware that gets onto a customer’s computer or mobile device, or social engineering where the fraudster convinces someone to send funds by wire. Then there’s phishing or fooling someone into providing information like account numbers and passwords. And the wildly successful email compromise,” she continued.
Highlighting some of the reg flags, Kelly pointed out that any ‘out of pattern activity’ such as wire transfers to or from financial secrecy promoting countries like Caribbean nations and Eastern European countries like Latvia might link to a money laundering case. Given that most businesses have stable patterns of payments, sudden incoming or outgoing wire transfers when they’ve never really used wires before is a potential red flag, Kelly said. This could also indicate they’re acting as an intermediary in the during phase of money laundering.
Furthermore, the amount might also be indicative of a warning, especially wire transfers of $25,000 to just under $50,000. “These amounts seem to be some kind of magic number when it comes to fraud and money laundering. These amounts seem to be less likely to be detected by a bank’s monitoring system. Common sense would say that a million-dollar wire would probably generate more scrutiny than just $25,000 wire,” Kelly added.
Detailing on the ideal target group, Kelly said that SMEs are the most popular target for social engineering. “Because they’re likely to have more money than a small business but yet they may not have the comprehensive internal controls that a large company would,” Kelly said.
However, despite having robust anti-AML processes to track these scams, small as well as large businesses fall prey to fraud more often than not. “The most advanced fraud monitoring systems available today are still no match for the skill and sophistication money launderers have. However, not everyone who monitors money is that smart and those are the ones that we want to catch,” Kelly said.
This is just the surface and there are a lot more issues businesses need to be aware of to identify suspicious activity and ensure they can prevent fraud and phishing.
Watch the webinar here to get an in-depth look at other red flags and best practices businesses can implement to avoid fraud risks.
Last month, Alessa released a webinar about how financial institutions can improve OFAC compliance and you can read more about it here.
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