Fraud is the Number One Crime in Money Laundering

On February 2024, the U.S. Treasury released the 2024 National Money Laundering Risk Assessment (NMLRA) which examines the current money laundering environment and identifies the ways in which criminals and other actors seek to launder funds. The Assessment aims to: inform the understanding of illicit finance risk by governmental and private sector actors, strengthen risk mitigation strategies of financial institutions, and enhance policy deliberations by the U.S. government.  The Assessment notes that “fraud remains the largest and most significant proceed-generating crime for which funds are laundered in or through the United States. Fraud, both in the private sector and in government benefits and payments, continues to be the largest driver of money laundering activity in terms of the scope of activity and volume of illicit proceeds, generating billions of dollars annually”.

Of note, the Assessment highlights that for “the first time, investment schemes represented the highest aggregate reported dollar loss to victims, replacing BEC (Business Email Compromise) as the costliest scheme reported to the Federal Bureau of Investigation’s (FBI’s) Internet Crime Complaint Center”.  The Assessment identifies the top money laundering threats as fraud; drug trafficking; cybercrime; corruption; human trafficking; human smuggling; and professional money laundering. This report also includes special focus sections on the increased risk identified during the reporting period for check fraud, tax crimes, unlawful campaign finance, and Russian money laundering. The report also highlights a range of relatively novel schemes including call center fraud; virtual currency investment scams (more commonly known as pig-butchering scams); prescription drug diversion; and schemes involving electronic goods.

Fraud as a criminal activity is categorized by:

• entity exploited (financial institution, government programs, or insurance companies);
• victim (elders, investors, or taxpayers);
• how it is perpetrated (identity theft/fraud, business email compromise (BEC), account takeover, check fraud, loan fraud, wire fraud, credit/debit card fraud, securities fraud, or cyber-enabled fraud).

Assessment Summary of Fraud Activities

Investment:  refers to schemes where criminals provide false information so that the victim will invest or transfer control of assets to the perpetrator. This illicit activity includes types of securities fraud. Once the perpetrator has control of the assets in investment fraud schemes, they divert funds out of the investment vehicle. The recent growth in the number of retail traders and price appreciation for securities and virtual assets from 2020 through 2022 and social media influencers have contributed to and have facilitated investment fraud by using their large audiences and fans’ rapport to solicit funds for investment fraud schemes. Investment fraud involving virtual assets has rapidly increased in both the number of victims and losses, due to certain professions lending themselves to being used to facilitate certain types of schemes that target a certain demographic.

Ponzi Scheme: an investment fraud that pays existing investors with funds collected from new investors. Ponzi scheme organizers often promise to invest your money and generate high returns with little or no risk. But in many Ponzi schemes, the fraudsters do not invest the money. Instead, they use it to pay those who invested earlier and “may” keep some for themselves. With little or no legitimate earnings, Ponzi schemes require a constant flow of new money to survive. When it becomes hard to recruit new investors, or when large numbers of existing investors cash out, these schemes tend to collapse.

Virtual Asset Investment Schemes: these include a variety of traditional fraud fact patterns based on misrepresentations concerning potential investment opportunities in virtual assets.  Victims of Virtual Asset Investment schemes are less likely to recover their virtual asset losses because of the ability to rapidly transfer virtual assets across borders, potential challenges in identifying virtual asset service providers involved in transfers and relevant points of contact, and the fact that virtual asset transfers are typically irreversible.

Pig Butchering: these are investment scams involving virtual currency fraud. In “pig butchering” schemes, the perpetrator develops an online relationship, sometimes romantic, with the victim. The perpetrator entices the victim to “fatten” an account by transferring virtual assets into a virtual asset wallet, usually on a fake virtual asset platform controlled by the perpetrator. Then, metaphorically, “butcher” the victim or their accounts by taking the victim’s funds. “After gaining their victim’s trust,  scammers introduce the idea of investing in virtual assets. The scammers then direct victims  to fake virtual asset investment platforms, controlled by the scammer or co-conspirators posing as investment advisers or customer service representatives. Once victims make an initial “investment,” the fake platforms are manipulated to show substantial gains”.

Healthcare: continues to generate significant proceeds and victimize government programs as well as private entities. One of the most common types of fraud perpetrated against Medicare, Medicaid, and other Federal healthcare programs involves filing false claims for reimbursement. Groups ranging from large networks to small groups are actively filing false claims to generate funds.

Telemedicine: this corresponds to the increase in telemedicine visits due to the COVID-19 pandemic when many patients stopped in-person visits with medical providers.

Elder Financial Exploitation: the illegal or improper use of an older adult’s funds, property, or assets. An increasing number of these schemes are now cyber-enabled.

Check Fraud: has boomed due to the limited capability of financial institutions to verify the legitimacy of checks in a timely manner, the lack of self-verification systems built into checks, the prevalence of remote capture technology, and the ability to directly access all funds within a specified account through a single check. Check fraud refers to the illicit use of either paper or digital checks to unlawfully gain money. Some examples of check fraud include check washing, counterfeit checks or “check kiting” (checks presented based on fraudulent identification or are false checks drawn on valid account), and fraudulent checks.

Mail Theft-Related Check: the fraudulent negotiation of checks stolen from the U.S. Mail. After a check is stolen from the mail, criminals will often “wash” the checks, which is altering them using acetone chemicals to remove the original ink applied by the check issuer. The criminal then replaces the payee information with their own, a fraudulent identity (or that of a money mule), or fraudulent business they control

Business Email Compromise (BEC): is a scam that elicits fraudulent payments or sensitive identifying information using compromised email accounts. Scammers may take over a legitimate email address and use it to contact victims or create their own email address that is nearly identical to a legitimate one and then contact victims. These scams often target businesses or individuals who regularly perform wire transfer payments to send funds. The fraudsters may also compromise or spoof other forms of communication, such as phone numbers and virtual meeting applications, social engineering, or other computer intrusion techniques.

Know this

The 2024 National Money Laundering Risk Assessment discusses how fraud groups are well organized, sophisticated, and can be cyber-enabled. They can use social media, darknet forums, and encrypted messaging apps for communication, coordination, sales, and recruitment of new criminal actors.

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