A Guide to Anti-Money Laundering for Crypto Firms
What You Need to Know
Financial exploitation is the misuse of a vulnerable adult’s finances or assets by a third party. Since the elderly are more likely to be isolated or vulnerable to exploitation, they represent an attractive target for criminals seeking to defraud them or use them to launder illegal funds. Elder financial exploitation is a growing problem in jurisdictions around the world: accordingly, firms should understand how to spot its warning signs, deploy an effective AML/CFT response and, most importantly, protect their vulnerable customers.
What is Elder Financial Exploitation?
Elder financial exploitation (EFE) is the most common form of elder abuse and involves the illegal or improper use of the funds, property, or assets of elderly people. The perpetrators of EFE may be close to their victims, friends and family members, or may be strangers such as online or offshore scammers. Perpetrators may seek to move the proceeds of EFE using financial products and instruments, meaning that financial institutions are in a unique position to detect and prevent this type of illegal activity.
EFE incidents have increased significantly over the last decade with around 180,000 suspicious activity reports (SAR) filed with the United States’ Financial Crimes Enforcement Network (FINCEN) since 2013. The financial impact of EFE is significant: in 2017, reports submitted to FINCEN suggest that individual victims lost an average of $34,200 each, amounting to around $1.7 billion since 2017. Since those figures relate only to information derived from official reports, the real-world financial impact is likely far greater, with some estimates suggesting EFE costs older people at least $2.9 billion per year.
EFE may be more prevalent in areas experiencing financial adversity or types of crisis which leave the elderly exposed to risk. The coronavirus crisis, for example, has left millions of elderly people isolated, facing financial hardship, and at greater risk of exploitation from criminals.
SARs submitted to FINCEN detail a variety of EFE methodologies. While some perpetrators may use the threat of violence or intimidation to extract funds from elderly people, others may engage in scams to leverage financial products and instruments in a manner which avoids regulatory scrutiny. Examples of common types of EFE are as follows:
- Romance scams: Elderly people may be contacted by potential romantic partners outside the United States (or their country of residence). Those partners subsequently request or coerce money from the elderly person for a range of fabricated expenses such as travel or medical bills.
- Family-member exploitation: Family members that have power of attorney over elderly people may perpetrate elderly abuse by misusing their elderly relative’s credit cards or other financial products to withdraw or transfer funds. Alternatively, family members may accompany their elderly relatives to banks and other financial services premises in order to withdraw funds in person.
- Caregiver theft: Like family members, caregivers of elderly people may perpetrate EFE by misusing credit cards and other financial instruments to steal money. Caregivers may extract funds by making large withdrawals from ATMS or illegally cashing checks on behalf of elderly people.
- Money muling: Criminals may seek to use elderly people as money mules in order to avoid triggering AML/CFT measures. Elderly people may be drawn into a money mule scheme through coercion, deception or financial incentive and then be requested or coerced to transfer money between accounts on behalf of criminal third parties.
FINCEN has released advisory guidance setting out certain ‘red flag’ characteristics of elder financial exploitation. Those red flags include:
- Sudden changes in an elderly person’s bank account balance or banking behavior, such as uncharacteristic attempts to wire large sums of money.
- Frequent large withdrawals often to the daily maximum ATM limit.
- Frequent cash withdrawals by a person that is accompanying an elderly person to a bank.
- The sudden appearance of a new caretaker, family member, or friend who conducts financial activity on behalf of an elderly person.
- Sudden Non-Sufficient Fund (NSF) activity.
- The inclusion of new names on an elderly person’s bank signature card.
- Changes or discrepancies in an elderly person’s signature on official financial documents.
- Unexplained disappearances of an elderly person’s funds or high value possessions such as jewelry.
- Provision of substandard or unnecessary elderly care.
- The non-payment of an elderly person’s bills despite the availability of funds to do so.
- Sudden changes in the level or manner of communication between an elderly person and their bank or financial services provider.
- Elderly customers that lack knowledge about their financial status or the transactions in which they are engaging.
More than 50% of EFE incidents reported to FINCEN between 2013 and 2017 involved the transfer of funds from an elderly person’s account, while checking accounts, credit cards and money orders were also misused. EFE incidents tended to take place over months (with 4 months being the average) and only 28% of those incidents were reported to state or federal authorities by victims or their family members.
The figures reveal not only the scale of the EFE problem and the need for greater protection for vulnerable elderly people, but the important role that financial institutions play in detecting and preventing the abuse.
Under the Bank Secrecy Act (BSA) and FINCEN’s advisory guidance, when banks, financial institutions, and other obligated entities, detect suspicious financial activity, including EFE, they must submit a suspicious activity report (SAR) to FINCEN. SARs are used to trigger and inform investigations by law enforcement agencies into incidents of money laundering, fraud, and the financing of terrorism, which may be connected to or predicated by elder financial exploitation. FINCEN’s electronic SAR filing includes a designated category for EFE, with the instruction for filers to set out a description of the type of activity involved.
Firms may be able to detect EFE using the controls and measures deployed as part of their BSA AML/CFT programs, which include identity verification and transaction monitoring. Those measures should be risk-based, meaning that they should be deployed in proportion to the level of criminal risk that their customers and transactions present. With that in mind, a suitable AML program should feature:
- Customer due diligence: Firms should seek to accurately establish the identity of their customers so that they can be sure that they are who they say they are and are being truthful about the nature of their business. Effective CDD requires customers to submit their names, addresses, dates of birth, and other identifying information.
- Transaction monitoring: Firms should monitor their customers’ transactions for suspicious activity that is indicative of EFE, including unusual transaction patterns. Suspicious activity may warrant SAR submission.
- Sanctions and PEP screening: Vulnerable elderly people may be used to conduct transactions on behalf of sanctioned individuals or politically exposed persons (PEP) as a way to avoid regulatory scrutiny.
- Adverse media monitoring: Adverse media stories may indicate that an individual is at higher risk of money laundering and may use elderly people as a way to avoid AML/CFT scrutiny. Accordingly, firms should monitor adverse media stories involving their customers in screen, print, and online platforms.
Reported cases of EFE represent only 2% of the estimated 3.5 million cases that occur in the United States every year. The growing number of EFE SARs reveals a widespread and damaging problem with serious implications for ageing populations in the US and around the world and a need for strong, decisive responses from financial institutions and law enforcement agencies alike.
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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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