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The Threat of Fraud and Money Laundering: A Growing Concern

Fraud Overview

Fraud is a broad criminal activity that can be categorized in various ways, including by entity exploited, victim, or method of perpetration. Financial fraud distorts U.S. markets, harms national security, and undermines public confidence in the financial sector and government benefits.

Common Types of Fraud

• Financial Fraud: Involves manipulation of financial information for personal gain
• Identity Theft: Involves stealing someone’s identity to commit fraud or other crimes
• Investment Scams: Involves convincing people to invest in fake or misleading investment opportunities

Money Laundering Methods

The exploitation of data, particularly personal identifiable information (PII), is a common method used by fraudsters to set up bank accounts and conceal fraudulent activity. Large organized fraud groups use vast money mule networks as third-party money laundering mechanisms to launder illicit proceeds from fraud and other financial crimes.

Money Muling

• What is a Money Mule?: An individual who transfers or moves illegally acquired money on behalf of someone else, often unknowingly
• How Does it Work?: Fraudsters recruit individuals to act as money mules by offering them incentives such as payment for services rendered or promises of employment opportunities

Online Scams

Online scams, such as romance scams, involve criminals manipulating victims into sending money to bank accounts, debit cards, and virtual wallets controlled by the scammers. To carry out these schemes, criminals use fake passports with numerous aliases or in the name of other account holders to open bank accounts and launder proceeds.

Types of Online Scams

• Romance Scams: Involves building a romantic relationship with someone online to gain their trust and manipulate them into sending money
• Phishing Scams: Involves sending fake emails or messages to trick people into revealing sensitive information such as passwords or financial information

Trends and Observations

Organized fraud rings are increasingly using credit cards and stored value gift cards to launder money. Law enforcement has observed that individuals suspected of being money mules are often targeted during large-scale campaigns, such as the 10-week Money Mule Initiative campaign in 2021, which resulted in action against approximately 4,750 individuals.

Key Takeaways

• Financial Fraud and Money Laundering: Pose significant threats to the U.S. financial sector and national security
• Exploitation of Data: Common method used by fraudsters to set up bank accounts and conceal fraudulent activity
• Online Scams: Involve sophisticated tactics and can result in significant financial losses for victims