‘Follow the money’
Synthetic fraud is among the latest trends in money laundering.
Among the fastest growing drivers of money laundering is synthetic fraud, says Sue Landauer, who spoke at the 2019 CUNA BSA/AML Certification Conference with NASCUS in Tempe, Ariz.
While synthetic fraud isn’t new, Landauer says fraudsters are finding more advanced ways to apply it, collaborate, and scheme to get away with money laundering-related crimes.
“It all goes back to following the money,” says Landauer, a certified public accountant with Forensic Accounting Services Group. “You play a very critical role in this process. You can help uncover a lot of crime.”
With synthetic fraud, the criminal fabricates an identity by applying for credit. Typically, they obtain an individual's Social Security number and use a fake name, Landauer says. The perpetrator is initially turned down for credit but eventually develops a profile and establishes credit. Many of the accounts are store credit cards and auto loans, Landauer says.
Landauer explains other trends in money laundering schemes, which include:
- Data furnishing. Perpetrators create shell companies and approve credit to fraudulent applicants. The business reports payments on the credit account associated with the applicants.
- Bust-out schemes. Fraudsters run up a balance and pay for it with counterfeit checks. They then run up another balance before the checks clear.
- Piggybacking. In this scheme, a criminal will pay to appear as an authorized user on someone else’s existing credit card. Although the authorized user is not the primary account holder on the card, they can use the card and develop a credit record.
- Direct purchases from China. These accounts usually deposit money through a merchant services account or through online payment, often through many small payments.
- Convertible virtual currency (CVC). The most common type of CVC is bitcoin. These payments are often made for drugs and then converted to U.S. currency. “It adds another layer of anonymity to the transactions,” Landauer says.
Financial institutions are finding methods to catch up with fraudsters. Some require individuals to appear at a branch in person to complete a loan application. Landauer also says credit unions should take extra efforts to verify the source of funds on any suspicious activity.
“You can find a lot of information through social media,” Landauer says. She explains how she once used social media to find a father who refused to make child support payments—while hiding an account with a million dollars in it.
Financial institutions are also using artificial intelligence and voice recognition to identify applicants and members, Landauer says.