A Guide to Anti-Money Laundering for Crypto Firms

The Money Laundering Typologies Digital Banks Need to Know About

AML Compliance Digital Bank Knowledge & Training

Digital banks don’t face fundamentally different typologies or risk profiles to other financial institutions. However, their digital-first approach, rapid growth rate and focus on seamless onboarding can make them appealing targets for money launderers.

Here, we explore the top typologies digital banks need to know about – and how they can effectively mitigate the risks they present.

Typology Money mules
Definition Individuals (mules) are recruited – knowingly or unknowingly – to move funds as part of a money laundering scheme.
What to look for
  • Smaller transaction amounts
  • Customers who may initially appear legitimate/unsuspecting
  • Often targets young people who may be less aware of the legal implications
Action to take When suspicions arise, firms should try to build a picture of any relevant associates – money muling networks are often made up of large numbers of individuals across jurisdictions
Typology Smurfing
Definition Involves moving large amounts of illicit money through the financial system by making smaller transactions.
What to look for
  • Large amounts of money broken into smaller deposits and bill payments
  • Likely to involve a large network of individuals
  • Frequently used in conjunction with money muling, as networks are extensive enough to move large sums of money quickly
Action to take Ensure transaction monitoring thresholds are appropriately calibrated to the bank’s risk-based approach
Typology Fraudulent accounts
Definition An account set-up using either a blend of legitimate and fabricated information or entirely false information.
What to look for
  • Typically set-up to perform one transaction – the user will be unconcerned about closure when flagged by the bank’s compliance team
  • Accounts may be opened under one name but then changed to reflect another
Action to take A comprehensive onboarding process is key, including identity and verification checks, and know your customer (KYC) screening such as source of funds, beneficial ownership and expected usage
Typology Identity theft and account takeover
Definition The use of stolen identity information to establish an account, or takeover a legitimate account.
What to look for
  • A customer reports that their identity has been stolen, or flags unfamiliar transactions
  • A spike in this activity could be seen around events where a large amount of data is stolen – for example, in a data breach
  • May focus on accounts known to be of a high value
Action to take As digital banks don’t offer face-to-face transactions, stringent identity verification processes are essential.

Monitor the threat posed by emerging technologies such as deepfakes. They can make it challenging to distinguish between a fraudster and a legitimate individual.
Typology Social engineering
Definition The act of manipulating someone to reveal sensitive information, or take a desired action.
What to look for
  • Flourishing as digital spaces continue to grow, and people spend more time online
  • Often connected to social media channels and online dating sites where people interact with others they may not have met in person
Action to take Digital banks should conduct a risk-based analysis of any typologies and behaviors related to social engineering they are particularly vulnerable to

Identity verification, and an awareness of the risks presented by emerging fraud tactics such as deep fakes is also critical
Typology Tax evasion
Definition A deliberate attempt to avoid paying tax.
What to look for
  • Digital banks operating in markets where they are new or less well established should be especially cautious
  • Criminals will also look to exploit firms who offer low-cost, fast methods of moving their money across borders
Action to take Firms should work with their partners on a strategy for effectively monitoring cross-border payments in particular

Appropriate risk thresholds should be set that reflect what ‘normal’ transaction behavior looks like for a bank’s customer base

To find more about how to build an AML program for digital banks, download our guide.

Digital banks don’t face fundamentally different typologies or risk profiles to other financial institutions. However, their digital-first approach, rapid growth rate and focus on seamless onboarding can make them appealing targets for money launderers. Here, we explore the top typologies digital banks need to know about - and how they can effectively mitigate the risks they present.
TypologyMoney mules
Definition Individuals (mules) are recruited - knowingly or unknowingly - to move funds as part of a money laundering scheme.
What to look for
  • Smaller transaction amounts
  • Customers who may initially appear legitimate/unsuspecting
  • Often targets young people who may be less aware of the legal implications
Action to take When suspicions arise, firms should try to build a picture of any relevant associates - money muling networks are often made up of large numbers of individuals across jurisdictions
TypologySmurfing
Definition Involves moving large amounts of illicit money through the financial system by making smaller transactions.
What to look for
  • Large amounts of money broken into smaller deposits and bill payments
  • Likely to involve a large network of individuals
  • Frequently used in conjunction with money muling, as networks are extensive enough to move large sums of money quickly
Action to take Ensure transaction monitoring thresholds are appropriately calibrated to the bank's risk-based approach
TypologyFraudulent accounts
Definition An account set-up using either a blend of legitimate and fabricated information or entirely false information.
What to look for
  • Typically set-up to perform one transaction - the user will be unconcerned about closure when flagged by the bank's compliance team
  • Accounts may be opened under one name but then changed to reflect another
Action to take A comprehensive onboarding process is key, including identity and verification checks, and know your customer (KYC) screening such as source of funds, beneficial ownership and expected usage
TypologyIdentity theft and account takeover
Definition The use of stolen identity information to establish an account, or takeover a legitimate account.
What to look for
  • A customer reports that their identity has been stolen, or flags unfamiliar transactions
  • A spike in this activity could be seen around events where a large amount of data is stolen - for example, in a data breach
  • May focus on accounts known to be of a high value
Action to take As digital banks don't offer face-to-face transactions, stringent identity verification processes are essential.
Monitor the threat posed by emerging technologies such as deepfakes. They can make it challenging to distinguish between a fraudster and a legitimate individual.
TypologySocial engineering
Definition The act of manipulating someone to reveal sensitive information, or take a desired action.
What to look for
  • Flourishing as digital spaces continue to grow, and people spend more time online
  • Often connected to social media channels and online dating sites where people interact with others they may not have met in person
Action to take Digital banks should conduct a risk-based analysis of any typologies and behaviors related to social engineering they are particularly vulnerable to
Identity verification, and an awareness of the risks presented by emerging fraud tactics such as deep fakes is also critical
TypologyTax evasion
Definition A deliberate attempt to avoid paying tax.
What to look for
  • Digital banks operating in markets where they are new or less well established should be especially cautious
  • Criminals will also look to exploit firms who offer low-cost, fast methods of moving their money across borders
Action to take Firms should work with their partners on a strategy for effectively monitoring cross-border payments in particular
Appropriate risk thresholds should be set that reflect what 'normal' transaction behavior looks like for a bank's customer base
To find more about how to build an AML program for digital banks, download our guide.

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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