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Understanding Money Mules and How Identity Verification Can Stop Them

Charlie Rowland
January 4, 2024

Make no mistake  – fraudsters are creative. While their work is deceitful and illicit, if not always outright illegal, they take advantage of gaps in systems and processes to perpetrate financial crimes that are rarely – if ever – victimless. 

The financial services industry often concentrates on the initial part of a scam, typically leaving the aftermath and outcomes overlooked. The crucial aspect often neglected is where the ill-gotten gains from scams or fraud end up. To capitalize on this lack of transparency, fraudsters are turning to the use of money mules, a type of fraud that the U.S. Department of Justice defines as:  

Money mules are people who, at someone else’s direction, receive and move money obtained from victims of fraud. Some money mules know that they have been recruited to assist in criminal activity. Knowingly moving money for illegal activities can lead to serious consequences — including criminal charges. Other money mules, however, move money in someone else’s direction, not knowing that their activity benefits fraudsters. These individuals, even if they don’t realize it, enable fraudsters to harm others.

In money mule scams, “mules” play a pivotal role in all of this, acting as the linchpin in the fraudulent process by facilitating the transfer of stolen funds to criminals. Whether utilizing their own bank accounts or opening new ones solely for the purposes of fraud, money mules aid criminals in evading typical identity verification checks, making it challenging to trace funds acquired from scams or account takeover attacks (ATO).

Once the funds are in the possession of fraudsters, they work to find ways to transfer those funds to mules. That begins a series of various activities, such as transferring, withdrawing, or using the money to purchase high-value items for later resale. A staggering revelation from recent research underscores the severity of the issue – almost two-thirds of individuals in the U.S. and U.K. have encountered attempts to recruit them as money mules. This alarming trend is fueled by a confluence of factors, including inflation and the rising cost of living. Opportunistic recruitment methods on social media and gaming networks, coupled with increasingly sophisticated scam tactics, contribute to the escalating prevalence of the money mule attack approach.

As fraudsters continually evolve their strategies for scams and fraudulent activities, banks can no longer concentrate solely on preventing funds from leaving their customers' accounts. It is imperative for them to be equally vigilant regarding the funds entering customers' accounts, particularly those associated with money mules. Essentially, banks must proactively monitor both outbound and inbound transactions to thwart criminals from capitalizing on illicit activities. The diligent monitoring of incoming payments becomes pivotal in unveiling money mules, ensuring customer trust, preventing financial crimes and safeguarding revenues.

Financial institutions such as banks and credit unions may currently lack comprehensive strategies to eradicate money mule activity within their operations. By adopting a robust identity verification approach, however, they can implement a disciplined strategy capable of identifying and thwarting money mule scams. This proactive approach not only detects such fraudulent activities but also serves as a deterrent, sending a clear message to fraudsters that their tactics will be ineffective within the institution.

How Money Mule Activity Works

Although it is a relatively new phenomenon, money mules have become integral components of sophisticated financial crimes. They act as intermediaries between criminals and their ill-gotten gains and play a pivotal role in facilitating the movement of stolen funds, serving as conduits for the transfer of money obtained through fraudulent activities. The term "money mule" refers to individuals who, often unwittingly, allow their bank accounts to be used for the illicit transfer of funds.

After the funds infiltrate the financial system, money mules take on the role of "layering" or systematically moving funds across various accounts to obscure the true origin of criminal proceeds. While there is still a legitimate paper trail, adding complexity and layers of steps make it all harder to detect and track. The process involves transferring funds through a series of accounts, creating multiple layers that serve as a protective barrier between the fraudsters and the ultimate destination of the funds. The intention is to insulate both individuals and their organizations by adding complexity to the money trail.

The layering technique extends beyond individuals; it may involve the creation of shell or front companies to present the funds as legitimate. This step aims to give the illicit funds a semblance of authenticity, allowing them to exit the financial system with a new narrative or a rebranded source. By introducing multiple layers and utilizing individuals or fictitious entities, criminals create a level of obfuscation that hinders investigators and financial institutions from following the money trail accurately.

The FBI classifies money mules into three categories based on their intentions and degree of involvement:

  • Unwitting Money Mules: Unwitting money mules are individuals who participate in a larger criminal scheme without being aware of it. Their motivation often stems from trust, either in the person who recruits them or through deceptive tactics like catfishing on dating platforms. They might be unsuspecting victims recruited online through social engineering techniques.
  • Witting Participants: Witting participants possess some awareness of their involvement in suspicious activities. The nature of their assigned tasks, such as opening multiple bank accounts, raises concerns for most people. Despite having an understanding that they are engaged in potentially illegal activities, they may choose to ignore warnings, rendering them "willfully blind" to the fraud.
  • Complicit Money Mules: Complicit money mules are fully aware of their actions and willingly participate in criminal activities. Some may even advertise their experience and expertise in money muling. They often operate muling rings, recruit others into their schemes, and manage funnel accounts where funds laundered by lower-level mules are received. Due to their active participation and conscious awareness of the illicit nature of their activities, complicit mules typically face more serious criminal charges.

The process unfolds in a rather straightforward series of processes, usually following these steps:

1. The criminal illicitly acquires funds through various methods, such as phishing, e-commerce fraud, or illegal sales.
2. The criminal recruits a money mule, whether witting or unwitting.
3. The criminal transfers the ill-gotten funds to the money mule's account.
4. The money mule engages in money laundering using diverse techniques, including:
a. Breaking down the money into multiple sums and distributing it across various accounts before transferring.
b. Directly transferring the money to a third-party account.
c. Converting the funds into cryptocurrencies, such as BTC or ETH, before forwarding it.
5. The laundered money ultimately reaches the criminal.

The system seems simple enough, and one that would appear, on the surface, to be easy to detect. But what makes the whole endeavor so hard to shut down is that mules are operating in so many ways, through a wide variety of channels, and are being recruited (again, this recruitment is done to both willing participants and innocent bystanders). Let’s look at how mules are pulled into action.

How Money Mules Are Recruited

The path to becoming a money mule often begins with the art of persuasion, where criminals leverage various tactics, preying on human emotions like desperation, trust, or even love. These tactics include:

  • Social Engineering and Account Takeover: This is probably the most common form of money mule recruitment. Fraudsters gain unauthorized access to individuals' social media accounts, utilizing established connections to weave convincing tales to followers and others. They exploit these relationships to deceive the account holder's friends or family, creating scenarios that request financial assistance that look legitimate. To help, these friends and family members deposit money into accounts as directed by the hidden fraudsters.
  • Investment Deceptions: Under the guise of financial expertise, scammers entice victims with promises of high returns and minimal risks. Much like the social engineering used in other methods, these fraudsters persuade individuals to invest funds, often funneled through the accounts of unsuspecting third parties.
  • Recruitment via Open Channels: Some criminals simply (and boldly) recruit money mules through platforms like social media, email, or direct communication. They present the operation as simple: process money through your account and retain a fee. Many do not realize that accepting these jobs entails illegal activity, although most will recognize the illicit nature of the work fairly quickly.
  • Romance Scams: Romance scams keep popping up in almost every type of fraudulent activity because, well, because they are so effective. Fraudsters assume the identity of romantic partners, either through online interactions or in person, establishing trust and emotional connections. They fabricate emergencies or financial dilemmas to extract money from victims who have developed genuine feelings for them, or manipulate victims into facilitating financial transactions on their behalf.

While online scams are a persistent threat to all consumers, there is a concerning lack of awareness about the insidious threat of money mules. What makes this particularly complicated is the ubiquity of bank account participation, which creates a broad and diverse range of potential victims. In the U.K., it is estimated that more than 99% of citizens have bank accounts, which means, that to criminals, there are more than 67 million potential victims or partners.

Law Enforcement’s Efforts to End Money Mule Fraud

Thankfully, there have been recent successful efforts to stop money mule activity. Of special note is the European Money Mule Action (EMMA) 2022, a law enforcement effort with collaboration from 25 European countries, backed by Europol, Interpol, and others, that was intended to crack down on money mules. The effort identified almost 10,000 money mules across Europe and resulted in the prevention of almost €32M (almost $35M USD) in ill-gotten gains.

Yet, even with efforts like these, investigators in the U.K., Europe, and the U.S. have observed several significant shifts in the landscape of international money laundering and money mule activity in particular. Across the EU, migrants from Ukraine, looking for safe passage out of their war-torn homeland, have become increasingly vulnerable targets for criminals seeking unwitting accomplices in illicit activities. Exploiting the migrants' vulnerability and economic distress, criminals coerce them into unknowingly participating in money laundering schemes, often by compelling them to open bank accounts.

A surge in bank impersonation crimes has also been noted, particularly affecting the elderly population. Perpetrators frequently go as far as visiting victims in person to acquire copies of identity documents and signatures.

Adding to the concerns is the emerging trend of utilizing artificial intelligence for fraudulent purposes. Criminals are now leveraging AI to create fake identities, allowing them to circumvent Know Your Customer (KYC) security features during the online account creation process. This sophisticated approach poses a significant challenge to traditional security measures.

How Identity Verification Can Help Stop Money Mule Fraud

Among the most effective solutions for combatting money mule fraud is applying an identity verification solution that gives fraud teams at banks and financial institutions the ability to accurately identify legitimate users. With that information, verified individuals can be granted access to business products and services. Those who are flagged because there are identity qualification discrepancies (due to being fake, stolen, or synthetic identities) can be denied access. This gives fraud teams the ability to prevent money mule activity before it can start, which protects their users and their own company systems.

These solutions also leverage what can be termed as "scam signals" to effectively identify potential scams during online sessions. These signals are a combination of advanced technologies and algorithms designed to detect suspicious activities, irregularities, and patterns that may indicate fraudulent behavior, particularly in the context of scams involving money mules.

First off, it’s critical to understand the different layers of how identities are used in these processes. Identity verification is the confirmation process that establishes that an individual is genuinely who they claim to be. Typically conducted during the initial stages of onboarding a new customer, this process involves evaluating evidence of personal data from the customer, such as a digital copy of a government-issued ID and a phone number.

Prove has been regularly praised for our unique approach to identity verification. We employ a phone-centric methodology that has demonstrated itself as a more convenient and expeditious means of authenticating digital identity. This approach guarantees optimal efficiency while maintaining a seamless user experience.

Our Prove Identity® digital identity verification solution relies on billions of signals from authoritative sources pulled in near real-time, making it a powerful – and essential – proxy for digital identity and trust. If you think about how many people have mobile phones, how long they have had them, and how often they use them, you can see why these attributes and related telephony signals can be highly correlated with identity and trustworthiness. Instead of scanning IDs and uploading them to the company’s system, Prove establishes trust across the customer journey.

We also provide digital identity authentication, which is the ongoing validation of a previously verified client (done after identity verification), which ensures that the person accessing the account is indeed the rightful owner. Authentication procedures are commonly implemented whenever an individual interacts with the company's system.

Various authentication methods include:

  • Multi-factor authentication, which serves as an extra layer of security, is designed specifically to prevent fraud caused by what security experts call the domino effect. Prove offers frictionless mobile authentication and real-time trust scoring.
  • PushAuth® which is a robust tool to elevate your Multi-Factor Authentication (MFA) workflow. Departing from conventional SMS passcodes, PushAuth seamlessly integrates with existing Android and iOS applications. This enables users to effortlessly approve or reject activities occurring on various platforms or devices, such as your website, with just a click. Additionally, PushAuth can discreetly authenticate and verify users within the app, enhancing the overall user experience.
  • Prove Instant Link™, operates as a sort of fortified OTP. It transforms the identity authentication process by delivering a link via SMS instead of a series of numbers. This method not only enhances security but also ensures real-time authentication.
  • Powerful behavioral biometrics tools ascertain a user's identity based on their unique behavioral traits—ranging from walking and typing to how they hold their phone. This cutting-edge technology provides an advanced layer of identity verification.
  • Trust Score® utilizes a combination of behavioral and phone intelligence signals to gauge the fraud risk and identity confidence associated with a phone number in real time. Ranging from 0 to 1000, with a score below 300 indicating low trust and high risk, the Trust Score model proves invaluable for securing various use cases, including account enrollment, login procedures, high-risk events, and customer communications. This enables companies to steer clear of sending OTPs to phones that have recently undergone SIM swaps, thereby enhancing security measures.

By employing robust and comprehensive digital identity verification solutions, banks, credit unions, and other financial institutions can fortify their defenses against money mule activities. These solutions, encompassing real-time monitoring, behavioral analysis, and advanced authentication methods, empower fraud teams to identify – accurately and definitively – fraudsters and thwart money mule operations.

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