To combat evolving threats associated with the various sectors Payset serves, the company needed a transaction monitoring solution to evaluate risks associated with a client’s account and specific transactions. Additionally, the solution would need to perform pattern-level analysis across a range of data sets and timelines simultaneously and be able to immediately suspend all movement of funds on a client account as required.  

From seamless integration to sandbox

After partnering with ComplyAdvantage, Payset’s in-house development team collaborated with their appointed implementation manager to integrate the company’s data into its new transaction monitoring platform seamlessly. Following this, Payset was able to utilize ComplyAdvantage’s sandbox environment, where real-life transaction monitoring data could be screened to ensure any proposed changes were effective before altering the configuration of the live platform. Once live, Payset’s dedicated customer success manager provides ongoing expert guidance, ensuring compliance operations are aligned with wider business goals. 

In addition to the quick and efficient implementation process, Payset partnered with ComplyAdvantage due to its wide-ranging transaction monitoring rules library. The compliance team could deploy these individually and collectively within the company’s designated customer risk segments, meaning Payset can now take more of a risk-based approach in its analysis of transaction monitoring data.

Tailored fraud detection

With ComplyAdvantage’s Fraud Detection solution, Payset is now able to more effectively handle scenarios that pose a particular threat in light of the company’s offerings and the sectors it serves. These include:

• Smurfing
• Payment fraud
• Business trading fraud
• Financial investment fraud

Mackulin also noted the solution’s capability to detect transactions inconsistent with a customer’s risk profile, stated business model, and flow of funds presented during the onboarding stage. By implementing ComplyAdvantage’s advanced behavioral analytics, Payset can detect unexplained and inconsistent account activity and map out associations between multiple client accounts and counterparties. 

Efficiency gains

With ComplyAdvantage, Payset has experienced an improvement in the efficiency and effectiveness of its compliance team. In keeping with the company’s risk-based approach to compliance, the transaction monitoring alert process has allowed Payset analysts to prioritize and focus on the cases that require the most immediate and detailed attention. “We can now easily identify tasks and assign which ones need to be analyzed live or in retrospect,” said Mackulin.  

Additionally, thanks to ComplyAdvantage’s built-in report generation and data analysis tools, Payset can quickly summarize and assess its performance against various metrics. This information is then incorporated into the company’s senior management discussions to inform future strategy and decision-making.

Looking forward, Payset can update its platform in keeping with its ever-evolving transaction monitoring processes and working procedures. As the company’s client numbers and transaction volumes continue to grow, Payset is confident it has invested in a scalable solution and a long-standing partnership that will grow and adapt in tandem.

The post Payset boosts analyst efficiency through transaction monitoring alert prioritization appeared first on ComplyAdvantage.

The guide, Preventing misuse and criminal communication through payment text fields, aims to raise awareness of how criminals are using payment text to communicate with each other – or to harass, stalk or threaten victims – rather than for the purpose of transferring funds.

The growth of digital-first fintechs, alongside an increasing amount of data and number of payment platforms, has enabled larger character limits to be applied to payment text fields, and criminals are making use of this facility to carry out illegal activities. 

Common themes within payment text fields identified by AUSTRAC include:

• Technology-facilitated abuse
• Threats or extortion attempts
• Criminal communication
• Threats of suicide and self-harm

Additionally, communications involving child abuse, illicit drugs, firearms, ideologically-motivated extremism and outlaw motorcycle gang activity have been spotted. 

Westpac bank research shows that more than half (51%) of Australians have received some form of online abuse, including via email, mobile and social media channels. One in four (26%) admit to having used some form of inappropriate language in payment transactions.

The guide, created in collaboration with public-private partnership the Fintel Alliance, provides financial service providers with insight and examples to help them target, detect and disrupt this practice.

“Financial service providers should use indicators in this report and their own business knowledge to conduct further monitoring and identify if a suspicious matter report (SMR) needs to be submitted to AUSTRAC,” the guide states.

Guidance on identifying the misuse of payment text fields includes how to determine if text is a threat or a joke, the use of abbreviations and slang to hide meanings, references to self-harm and suicide, how emojis can be used to convey threatening or abusive messages, and how criminals can refer to a shipment of illicit goods or planned event in their messaging. 

Potential red flags to look out for include payments below $10, high frequency payments and relationship patterns, along with incorrect spellings and the use of slang. 

A real-world example describes how a 23-year-old man was identified by a financial services provider after sending 10 payments of less than $5 to a female victim. Messages within the payment text field asked the victim to contact him and threats to take his own life. After a report to AUSTRAC, police arrested and charged the man for breaching a Protection Order.

Key Takeaways

This guide highlights the importance of agility in transaction monitoring, which can be challenging for firms – what counts as suspicious activity for one customer may be normal business for another. 

With constantly changing typologies and global regulatory expectations, false positives can be common and the risk of missing illegal behavior increases. For example, slang words and emojis are not fields a firm would traditionally expect to have to screen for, and context can be a challenge. Managing high volumes of false positives and unfamiliar alerts can also impact a firm’s wider operational efficiency.

It also underlines some of the changing demands on transaction monitoring systems. Firms need to  weigh up whether building a transaction monitoring solution in-house is right for them, or whether buying a solution that will push through updates automatically to cover emerging anti-money laundering (AML) risks would be more cost effective and efficient in the long-run.

At 13-pages, the guide provides a quick and easily digestible format for compliance teams and is well worth a read. It should be assessed in the context of the firm’s own business/industry, as part of a wider risk-based approach.

The post AUSTRAC guidance tackles misuse of payment text fields appeared first on ComplyAdvantage.

While prepaid cards and wallets are popular with consumers and service providers because of their convenience and availability, those benefits also present opportunities for criminals seeking to exploit the anonymity associated with their use. Gift cards are easily transferable and hard to track, and it is difficult to recover funds once spent. 

Banks and financial institutions must be aware of the risks of fraud and money laundering using prepaid cards and how to address that risk in their AML/CFT compliance solution to protect financial systems and ensure legislative compliance. 

What are Prepaid Cards?

Prepaid cards don’t require a bank account and can be used to pay for goods and services.  Issued by banks and other financial services firms, prepaid cards are pre-loaded and reloaded with funds and can be purchased on behalf of others.

Unlike credit and debit cards, prepaid cards do not require an evaluation of the cardholder’s creditworthiness or the existence of a payment account. Some prepaid cards can be used to withdraw money from ATMs.

Fraud and money laundering using prepaid cards can be carried out using one of two types of cards: 

• Closed: Also known as non-reloadable or closed-loop, closed prepaid cards are typically issued as gift cards. This category of prepaid card restricts purchases to a single merchant or a small network of merchants and may not be used to access ATM networks 
• Open: Also known as reloadable or open-loop, open prepaid cards are issued as real, payment network-branded cards and linked to an account containing preloaded funds. Open prepaid cards can be used for transactions with any merchant or provider linked to their payment network

How are Prepaid Cards Used in Money Laundering Schemes?

The accessibility and availability of prepaid cards mean criminals can purchase them from numerous outlets and use them to move and transform illegal funds. Money laundering using prepaid cards can happen at any of the 3 stages of money laundering – placement, layering, or integration: 

Placement: Criminals may, for example, use their illegal funds to purchase large numbers of prepaid cards and then introduce their stored value into the legitimate financial system or transport the cards overseas to avoid the scrutiny of authorities. The criminals may even hire money mules to purchase and transport the cards.

Layering: Funds stored on prepaid cards can be spent on or redeemed for merchandise (such as computers or other high-value electronics) resold or transported abroad. Criminals may also use prepaid cards as currency, reselling them to beneficiaries meaning that anti-money laundering layering needs to be considered.

Integration: Money laundering using prepaid cards can be carried out when criminals use them as a form of payment for legitimate goods and services, such as component chemicals for drug manufacturing, real estate deals, or life insurance products.

Why Do Money Launderers Use Prepaid Cards?

The specific financial abuses and risks of money laundering using prepaid cards, and what makes them such a popular tool for money launderers, include:

• Anonymity: Prepaid cards can be purchased without the same customer due diligence (CDD) identification and verification measures associated with other payment cards 
• Global reach: Many open prepaid cards can be used on global payment networks and so enable money laundering using prepaid cards across borders, by facilitating funding in one country and cash withdrawals in another
• Portability and transport: Prepaid cards physically resemble normal credit cards and can be transported discreetly in many environments, as an alternative to large volumes of cash 
• Funding methods: The origin of funds loaded onto prepaid cards, and their transaction history, can be obscured. Funds may be loaded onto open cards via a variety of services, including phone and online mediums 
• Service complexity: The large number of service providers involved in the prepaid card industry makes AML transaction monitoring administratively challenging. Typically, the provision of a prepaid card involves a program manager, issuer, acquirer, payment network, distributor, and vendor

Prepaid Cards as a Tool for Fraud 

Prepaid card fraud happens when stolen prepaid card information is used to make a purchase or when a fraudster buys a prepaid card with stolen payment information.

Because prepaid cards are often not tied to specific identities, they can also be purchased with stolen funds and are often used to make untraceable purchases.

Fraudulent use of prepaid cards might include:

• Gift card fraud
• Account takeover 
• Stolen account data
• Phony balance checks
• Loyalty points and rewards
• Tax fraud
• Cloned or swapped cards

In 2022, the US Justice Department highlighted a case in which two men tricked hundreds of people across the US into giving them Walmart gift cards. The fraudsters used an app to obtain gift card numbers from sources in China gained from victims across the US. New gift cards were then bought and sent back to China.

Victims of the scam were tricked out of the gift cards in various ways, including threats of arrest, finance schemes, and romance scams. According to the Federal Trade Commission, older people are more susceptible to different types of fraud loss.

AML/CFT Responses to Prepaid Card Fraud and Money Laundering

In the US, while chargeback rules apply to most payment cards under the Fair Credit Billing Act, this does not include prepaid cards. Branded prepaid cards from card networks such as Visa and Mastercard offer less risk, with the brands providing fraud protection and customer dispute options.

The Financial Actions Task Force (FATF) has issued guidance regarding fraud and money laundering using prepaid cards. Red flags to look out for include:

• Discrepancies between the information submitted by the customer and information detected by monitoring systems
• Individuals who hold an unusual volume of prepaid card accounts with the same provider
• A large and diverse source of funds used to fund the same prepaid cards
• Multiple reference bank accounts in various cities used to support the same cards
• Loading or funding of accounts always done by third parties
• Numerous cash loading, just under the reporting threshold of $10,000, of the same prepaid card(s), conducted by the same individual(s) on several occasions
• Multiple third-party funding, followed by the immediate transfer of funds to an unrelated bank account(s)
• Clients attempting to obstruct CDD processes or asking suspicious questions about their prepaid cards 
• Funds are transferred out of prepaid card accounts immediately after loading 
• Withdrawal of funds at different ATMs, often in other countries 
• Unusual purchasing patterns: for example, a customer paying for a high-value item (such as a laptop) with several prepaid cards 
• Prepaid cards being sent to recipients through the mail or being discovered on travelers who have an inconsistent connection to stated business activities 
• Prepaid card accounts used only for cash withdrawals rather than purchases
• Credit balance accumulation resulting in refunds (CBRs) should be monitored as they can be used as part of a scheme to launder funds
• Unusual purchase of goods or services in countries with a heightened risk for money laundering
• Excessive payments on private label credit cards via gift card from the merchant
• Merchant credits without offsetting merchant transactions
• Excessive customer service calls
• Abnormal customer contact behavior (e.g., frequent changes of address)

The US Federal Trade Commission offers advice on gift card scams. It warns consumers that “no real business or government agency will ever insist you pay them with a gift card. Anyone who demands to be paid with a gift card is a scammer”.

It lists common gift card scams and schemes, including:

• Callers saying they are from the government — possibly the IRS or Social Security Administration – asking for payment of taxes or a fine
• Someone calling from tech support – maybe from Apple or Microsoft – saying payment is needed to fix computer problems 
• Someone on a dating website saying they need money and asking for help
• Someone pretending to be a friend or family member in an emergency, needing money sent to them right away
• The caller says a prize has been won, but first fees or other charges need to be paid with a gift card 
• A caller claiming to be from a power or utility company, threatening to cut off service unless payment is made immediately

Many jurisdictions are tightening their prepaid card AML/CFT regulations to combat the risks of money laundering using prepaid cards. In the EU, for example, the 5th Anti-Money Laundering Directive lowered the transaction limit on prepaid cards and prohibited using cards issued in high-risk countries. From a practical perspective, firms may consider a range of measures to manage and control risks of fraud and money laundering using prepaid cards, including:

• Limits on funding, purchasing, and reloading
• Spending limits
• Stricter controls on cash access
• Geographical constraints 

Given the risks, firms should review their customer due diligence and transaction monitoring solutions to ensure they comply with relevant AML regulations and can detect and report money laundering using prepaid cards accurately and efficiently. 

Firms should also consider real-time transaction fraud detection solutions to help increase protection against fraud and money laundering using prepaid cards.

The post Prepaid Cards: Fraud and Money Laundering Risks appeared first on ComplyAdvantage.

Since 2012, the United Nations Convention against Corruption (UNCAC) Article 52 has significantly impacted FIs’ identification and management of PEPs. This article requires enhanced due diligence (EDD) for PEPs, meaning stricter background checks, verification of wealth sources, and close monitoring of transactions for suspicious activity, expanding on previous regulations by including foreign PEPs and domestic officials, their families, and close associates. 

Of course, being a PEP does not equate to being a criminal or suggest a link to abuse of the financial system. However, as PEPs are higher-risk customers, FIs and DNFBPs must be familiar with the PEP red flags and indicators used to detect such abuse. 

What are 7 PEP red flag indicators?

The Financial Action Task Force (FATF) has developed a list of PEP red flags/indicators to assist in detecting misuse of the financial system by PEPs during a customer relationship. 

Often, matching one or two of these indicators indicates a statistically raised risk of doing business with a particular customer, and several indicators need to be met before grave suspicion is warranted. However, in some cases – depending on specific circumstances – matching just one or more of these indicators could lead directly to suspicion of illegal activity, such as money laundering.

The FATF’s recommended red flags, as outlined in recommendations 12 and 22, are as follows:

 1. PEPs attempting to shield their identity

PEPs know their status may facilitate the suspicion of illicit behavior. With that in mind, they may conceal their true identity through various means to avoid detection, protect unearned assets, or evade legal trouble. Under the FATF’s recommendation, some of the key red flags to watch out for include the following:

• The use of corporate vehicles to obscure (i) ownership, (ii) involved industries, or (iii) countries.
• Use of corporate cars without a valid business reason.
• Use of intermediaries that don’t match with everyday business practices
• Use of PEP relatives and close associates (RCAs) as legal owners.

2. Suspicious behavior from PEPs 

When liaising with entities and monitoring activity, firms need to stay vigilant regarding a PEP’s movements and general behavior.  In particular, firms should be aware of any unusual inquiries about their AML/CTF policies, alongside uncommon transfers to accounts in different countries. As a result, the FATF encourages firms to monitor the following: 

• Investigate any inconsistencies between the information provided by entities and publicly available data, such as asset declarations or salaries, as these discrepancies could warrant further investigation.
• Pay close attention to entities conducting business in your jurisdiction without a clear and justifiable reason – a legitimate business purpose should be readily available.
• Carefully scrutinize entities that provide inaccurate or incomplete information, as deliberate misinformation is highly suspicious and requires further investigation.
• Entities who inquire about a firm’s AML/PEP policies, which could signal potential attempts to exploit vulnerabilities.
• Be cautious of entities seeking services they wouldn’t usually require, as this might suggest attempts to hide assets.
• Monitor entities who frequently transfer funds to countries with no apparent connection, as these unrelated financial activities raise concerns about potential illicit sources of income.
• Conduct additional due diligence for entities denied a visa to your country, as entry restrictions might suggest past issues or security concerns.
• Closely monitor entities from countries with restrictions on foreign account ownership, as country-specific limitations on holding accounts can be a risk factor.

3. The PEP’s position or involvement in business 

While the previous section highlighted behavioral red flags, understanding a PEP’s position and power within their organization adds another crucial layer to the risk assessment. As outlined by the FATF, individuals holding roles with greater control, authority, and influence can be inherently more susceptible to involvement in illegal activities. Here’s why: 

• Substantial authority over or access to state assets, funds, policies, and operations.
• Control over regulatory approvals, including awarding licenses and concessions.
• The formal or informal ability to control mechanisms established to prevent and detect money laundering and terrorist financing (ML/TF).
• If they (actively) downplay the importance of their public function or the public function they’re associated with.
• The PEP does not reveal all positions (including ex officio).
• Access to or control or influence over government or corporate accounts.
• Own or control financial institutions or DNFBPs, either privately or ex officio.
• The PEP (partially) owns or controls the financial institution or DNFBP (privately or ex officio) that is a counterpart or a correspondent in a transaction.
• The PEP is a director or beneficial owner of a legal entity that is a client of a financial institution or a DNFBP.

4. High-risk industries and sectors for PEPs 

Alongside the PEP’s position in their organization, connections with high-risk industries can raise their risk level. FIs and DNFBPs should use national guidance and conduct thorough risk assessments per the FATF’s recommendation 1. While high-risk industries will indubitably vary from country to country, the FATF presents the following as examples of higher-risk sectors in its recommendations 12 and 22:

• Arms trade and defense.
• Banking and finance.
• Businesses active in government procurement (i.e., those whose business is selling to government or state agencies).
• Construction and (extensive) infrastructure.
• Development and other types of assistance.
• Human health activities.
• Mining and extraction.
• Privatization.
• Provision of public goods and utilities.

5. Transaction indicators 

Accurate transaction monitoring is essential as a PEP’s transactions and banking history can reveal a complete overview of their income, spending, and saving activity for any period. The purpose of a transaction, as well as the nature of the business relationship behind it, should be scrutinized, along with the examples below:

• Private banking.
• Anonymous transactions (including cash).
• Non-face-to-face business relationships or transactions.
• Payments received from unknown or unassociated third parties.
• Using several separate bank accounts for unknown purposes.
• Consistent use of rounded amounts that can’t be justified.
• An account shows a sudden flurry of activity after a dormant period.

6. Products, services, and delivery channels red flags 

Another key indicator, depending on the nature of the PEP, is their connection to certain industries, products, services, transactions, or delivery channels that can be labeled as high-risk and easy to exploit for money laundering or other illicit purposes. Some of these include:

• Businesses that mainly cater to (high-value) foreign clients.
• Trust and company service providers.
• Correspondent and concentration accounts.
• Dealers in precious metals, precious stones, and other luxurious goods.
• Dealers in luxurious transport vehicles (such as cars, sports cars, ships, helicopters, and planes).
• High-end real estate dealers.

7. Country-specific PEP red flags and indicators

As defined by the FATF in recommendation 19, due diligence is vital if a foreign or domestic PEP is from a higher-risk country. Additionally, the FATF also recommends taking the following geographical considerations into account when entering into a business relationship with a PEP: 

• Foreign or domestic PEPs from countries that have yet to sign or ratify relevant anti-corruption conventions (or otherwise have not or have only insufficiently implemented these conventions), such as the UNCAC and the OECD Anti-Bribery Convention.
• Foreign or domestic PEPs from countries with mono-economies (economic dependency on one or a few export products), especially if their countries have export control or licensing measures.
• Suppose a PEP from a high-risk country has control or influence over decisions that aim to address any shortcomings in the anti-money laundering and combating the financing of terrorism (AML/CFT) system. In that case, it can lead to additional risks.
• Foreign or domestic PEPs from countries that depend on the export of illegal substances, such as narcotics.
• Foreign or domestic PEPs from countries with high levels of organized crime.

Detect red flags with automated solutions 

With so many red flags to be wary of, manually analyzing a PEP’s financial transactions, wealth sources, and business relationships can be time-consuming and prone to human error. 

Fortunately, advanced AML solutions offer sophisticated tools that empower comprehensive EDD for PEPs. These solutions surpass basic EDD by delving deeper into their finances and finding the true nature of wealth and transactions. 

Even after initial due diligence, continuous monitoring remains crucial – dynamic screening tools can provide a safeguard by automatically monitoring transactions and activities for suspicious patterns or red flags that may indicate money laundering or other financial crimes.

Implementing these solutions can offer significant advantages – streamlined data analysis and automated workflows significantly reduce operational burdens, freeing up resources for your team to focus on strategic tasks.

The post PEP red flags: 7 indicators for suspicion appeared first on ComplyAdvantage.