A Guide to Anti-Money Laundering for Crypto Firms

Criminal Money Movement in a Crisis

Financial Crime Knowledge & Training

Cuckooing and money muling are insidious forms of money laundering and an alternative method of criminal money movement. It’s one of the few forms that directly affects those who have nothing to do with any crime and can often be a reminder of how close the criminal world is to legitimate activity.

Criminal Money Movement

COVID-19 has made it difficult to move cash but criminal operations still need their cash flow in order to function, just like every other business. Hopefully, no criminal empires are managing to be bailed out by PPP, CBILS, and similar programs by financial institutions – although criminals are still managing to access that money.

But moving illicit money, even in the best of times when financial activity is at normal pace and behavior, is fraught with difficulty. High-velocity movement of money is suspicious at any time but especially now and especially across borders when so little travel is being done compared to normal.

So for criminals to continue funding the areas of their business that need money or simply move money without arousing suspicion, cuckoo smurfing is an effective way to achieve that. It’s criminal money movement that takes advantage of legitimate payments to hide in plain sight.

For those who are unaware, cuckoo smurfing is using third party banking details to commit money laundering. Say a drug dealer needs to send $10,000 to his boss abroad, an information broker, or a corrupt financial services employee will provide the necessary banking details of a similar transaction happening in the opposite direction but between two legitimate accounts, such as an overseas student and their parents.

Then the payments are rerouted so the money from the drug dealer goes to the student and the money from the parents goes to the drug dealer’s boss. The criminals escape detection and receive their money in the currency needed without alerting the authorities.

If any authorities are made aware of the transaction they’re more likely to put a hold on the student’s money than the drug dealer’s boss as it comes from a known dirty source. Often the criminal boss’s account will appear clean and legitimate.

What’s vitally important in this transaction is the work of the third party, the information supplier who provided bank details or a corrupt member of a financial institution who facilitated the payment. While it can be unpleasant to think of colleagues in this way, it’s worth noting that industry corruption is not uncommon – according to a study by PWC 43% of all major fraud cases worth over $100 million are facilitated by a corrupt FI insider working with criminals.

Money Mules

But it’s not just through corrupt actors in financial institutions where criminals can find a helping hand for moving their money. Due to painfully high unemployment figures, money muling is more appealing than ever in recent memory for money launderers.

The Vasty case in Canada is a prime example; ‘employees’ for a fake healthcare foundation were tasked with a bit of minor work to lull them into a sense of legitimacy before then being given a commission on work funneling illicit cash.

These jobs which appear too good to be true often are, but in a climate where many are hitting the limit of their financial reserves – money muling may present itself as an opportunity that cannot be dismissed.

Financial institutions should be proactive on this issue and warn customers of the potential danger signs of money mule operations. Financial education in this instance may save many FIs considerable pain further down the road when they’re having to adjust their transaction monitoring rules for increased exposure to money mules and filing suspicious activity reports even more frequently.

Misinformation, Muling and Social Media

It’s also worth considering the vectors that many money muling opportunities are made available to individuals. Social media is the most prevalent at the moment and how you view their responsibility depends on how you envision the remit of these companies.

Facebook, for example, has limited controls on false political statements but has had zero-tolerance with COVID-19 misinformation. There is potential as the crisis develops that Facebook and other social media will be encouraged by regulators to step up monitoring of content, including identifying financial crime.

Twitter also recently identified a tweet from President Trump as requiring fact-checking for the first time. While it’s a new development in how the micro-blogging platform interacts with world leaders it may also show a new commitment to protecting users from misinformation and other damaging issues. There may be a developing internal appetite for isolating and removing content that harms users from social media in these companies – whether that will be reinforced by regulatory obligation is yet to be seen.

Criminal money is continuing to change in how it’s moving, however, that doesn’t mean it’s moving in new ways. The technology may be different and there may be new obfuscations but these are still the same old tried-and-true methods that have been used for decades.

FIs are filled with compliance teams that understand criminal behavior and how it manifests itself in the financial system. What they need to do now, during this time of changing criminal activity, is equip those teams with the right toolsets to rapidly identify and respond to criminal money movement in a timely fashion. That means using compliance solutions that are fit for purpose and capable of responding to changes at speed.

Originally published May 28, 2020, updated November 17, 2021

Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.

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