10th September 2020
AML and Money Mule
and Anti Money Laundering
In order to avoid regulatory measures put in place to prevent money laundering, criminals may seek to use money mules to conduct illegal activities on their behalf. Money mule networks are a global problem and are used to move vast sums of illegal money between accounts, facilitating a range of criminal and terrorist activities. Although it is difficult to assess the scale of the problem posed by money mules to global financial systems, in November 2019, a coordinated action by law enforcement agencies from 31 countries resulted in the identification of 3844 money mules and the arrest of 228 money mule recruiters, preventing a potential loss of over $15 million.
The threat posed by money mules means that banks and other financial institutions must understand how mules operate as part of money laundering schemes and ensure that their AML/CFT compliance programs are set up to detect and prevent the relevant methodologies.
What is a Money Mule?
A money mule (also known as a “smurfer”) is an individual that is recruited, knowingly or unknowingly, to act on the behalf of criminals as part of a money laundering scheme. While money mules may historically have been used to transfer physical amounts of cash between locations, in a modern financial context, they are generally used to open and manage bank accounts in order to facilitate the deposit, transfer and withdrawal of illegal funds.
Money mules may be recruited from a range of background, age and gender groups, although most tend to be younger men. When recruiting, criminals may approach potential mules with an offer of seemingly legitimate employment that masks the illegal nature of the work. Alternatively, money mules may be complicit in the criminal enterprise. Criminals looking for money mules often seek to take advantage of certain social trends or crises, such as the COVID-19 pandemic, that have resulted in a high number of unemployed people.
While criminals may specifically target vulnerable people or those with criminal backgrounds for money mule roles, they may equally seek to hire candidates without criminal backgrounds in order to better evade the scrutiny of authorities. Money mules may be paid directly for their participation in a money laundering scheme or may keep some amount of the illegal funds for themselves as a fee.
Criminals recruit money mules with the incentive of lucrative employment or by using leverage or intimidation. After they are recruited, money mules are directed to open bank accounts in their own names, using their own personal details. The strategy is a way for criminals to conceal their identities and the source of their illegal funds, and evade the customer due diligence (CDD) measures that would otherwise raise red flags.
As an alternative to mule accounts set up by legitimate customers, criminals may attempt to open a mule account using a synthetic identity. In this context, criminals may be using the stolen personal profiles of real people or some blend of real and fabricated information.
Once the money mule, or money mule account has been created, criminals can use it to begin transferring illegal money into the legitimate financial system. The laundering process may proceed in the following way:
- A money mule opens an account with a bank or financial services provider.
- Funds are deposited in the mule’s account from a criminal source.
- The criminals instruct the mule how and where the money should be moved.
- Mules transfer the illegal funds to a third-party account or withdraw them as cash.
- Money transferred from a mule account may then be converted into a virtual currency, such as Bitcoin, in order to prevent authorities tracing its origin.
Money mules complicate the process of detecting and remediating financial crime and so represent a significant AML/CFT compliance challenge. Firms that fail to detect money mules using their services to launder money risk penalties, fines and significant reputational damage.
Financial institutions must ensure that their AML program can detect when customers are being used as mules. In the first instance, this means implementing sufficient risk-based AML measures:
- Customer due diligence: The process of establishing and verifying a customer’s identity and the nature of their business is a cornerstone of risk-based AML. Robust CDD is vital to the detection of money mules that are opening accounts on behalf of third parties.
- Transaction monitoring: Firms should monitor customer accounts for suspicious transaction patterns. Money mule accounts may be used to facilitate an unusual volume or frequency of transactions or may engage in unusual transaction patterns.
- Screening: Money mules may be acting on behalf of PEPs or other high-risk individuals. PEP and sanctions screening measures should be implemented to help firms expose customers’ connections to high-risk individuals.
Firms should consider certain “red flag” behaviors or characteristics of money muling as part of their AML response. These include:
Transaction patterns: Money mule activities may only become apparent after a series of transactions, rather than an isolated payment. Mules are likely to engage in multiple transactions that do not fit their customer risk profile, have no obvious purpose or involve transfers of funds into and out of higher-risk jurisdictions. In order to spot suspicious transaction patterns, financial institutions should implement ongoing monitoring measures that capture not only transaction characteristics but also the surrounding context, including recipients and destinations.
Transfer origin and destination: Many money laundering schemes involve value transfers to and from higher-risk countries that have very low scores from international watchdogs such as Transparency International. Nigeria, for example, has been the origin of several high-profile money laundering schemes, and the US Justice Department recently indicted 78 Nigerians involved in a $3 billion money mule laundering scheme. Accordingly, firms should pay special attention to the origin and destination of transactions involving potential money mule accounts, noting the involvement of jurisdictions with weak AML systems and controls.
Shell companies: Criminals may convince money mules to create shell companies in order to obscure beneficial ownership of other components of a money laundering network. Criminals may then use the shell company account to route illegal money to and from locations while frustrating AML tracking attempts from banks and national authorities. Shell companies are often registered in permissive financial “havens” such as Panama: firms should seek to follow chains of title to establish beneficial ownership or, alternatively, report suspicious companies to the authorities.