Mitigating International Fraud SchemesKYC, Transaction Monitoring Thwart Fraudsters
After the tragedy in Japan, fraudulent charity scams were set up online, using well-known social media websites. It's a joint effort between law enforcement, financial institutions and Internet service providers to monitor for scams, but ISPs need to start taking the initiative. "They're lacking in taking down known phishing scams. ... I would urge the ISP to be a bit of a better look-out at the first stage," says Buelens, a Belgium-based fraud expert, in an interview with BankInfoSecurity.com's Tracy Kitten [transcript below].
Also, institutions need to learn the importance of knowing your customer, or KYC, in combating money laundering schemes. Different layers of anti-money laundering efforts need to be put in place, including filtering, or profiling, and monitoring transactional patterns. Putting an extra layer of real-time day-to-day fraud prevention is important, Buelens says.
Areas of political unrest, such as Northern Africa, are more prone to wiring money out of a country. For example, people will send the money over the borders by buying real estate and then selling the houses to get the money.
For financial institutions, monitoring and KYC are still important factors in mitigating international fraud. "The main thing is to know who you're paying and to see where your money is going," Buelens says.
During this interview, Buelens discusses:
- Emerging international fraud schemes banks should be tracking;
- Threats posed by global political unrest;
- Global shifts banking institutions should be watching as they prepare to fight emerging fraud schemes.
Buelens is head of compliance for EastNets, a global compliance and banking payment solutions provider, and specializes in anti-fraud product solutions for the company. He started his career with the Belgian Federal Police as a detective targeting forgery, people trafficking, and organized crime. His specialty evolved into combating payment card crime within the police unit. Paul has worked for MasterCard Worldwide as Leader Security & Risk Services coordinating cross border investigations with financial institutions and law enforcement."
International Fraud SchemesTRACY KITTEN: Let's start with a look at the crisis in Japan. We've noted over the last couple of weeks some of the emerging fraud schemes that we've seen prey on the sympathies of consumers and corporations. Phishing schemes that aim to deceive would-be charitable donors into providing financial information appear to be abounding. What trends are you seeing and what steps, if any, are financial services providers taking to address some of these attacks?
PAUL BUELENS: Indeed we're seeing some charity scams going after the nation's money, even using well-known social websites to set up this form of activity. The rise of phishing incidents are really targeting the Japanese population, and when we see this increase coming from neighboring Asian countries called China, it's scary to see that even they're having such an impact on tragedies or big events. They still seem to be imminent in providing phishing to the Japanese people.
With steps, I think it's a joint effort. I don't see banks taking many initiatives and the ISPs don't even take initiatives. They're lacking in taking down known phishing scams and I think law enforcement, for the time being, has other priorities in tackling these incidents then going after this. I would urge the ISP to be a bit of a better look-out at the first stage.
KITTEN: And what about the ISP? That's a good point that you note. Are financial institutions inclined to work with their information service providers at all to help some of this?
BUELENS: Yes. In looking at the payment schemes, they both have a specific unit that takes care of stopping IT fraud, looking at particularly large amounts of card data, which is being taken that way. But it's really hard to get grips on the ISP. They protect themselves; but that's a local issue. That's not something that payment card schemes should be involved with, nor banks. For them, its easy money. They don't look at taking these sites down.
Identity TheftKITTEN: Identity theft is another concern, as fraudsters work to steal the identities of some of these missing persons in Japan. How are some of these identity theft schemes expected to impact the global market?
BUELENS: It will be important for financial institutions, and anything related to money transfer, to keep a close look on the clients, specifically on patterns, behavior changes, and those typically coming from Japan who suddenly become very active with national and international transactions. The reappearance of dormant accounts and newly opened accounts, going together with address changes, make it easy for fraudsters to commit cross-border fraud scams.
KITTEN: What about the market fallout related to the nuclear crisis in Japan? How might that fallout influence fraud trends in the U.S. and other parts of the world?
BUELENS: I think it's a little bit early to see what it will give, because it takes some time before we get a real picture. But just looking at it, it's not only the phishing, charity scams, account takeovers, false insurance claims, mortgage fraud or just ordinary wire transfers, but also just plain looting. I heard that Japan is even a bit concerned about the looting of neighborhoods, even by local organized criminal groups, in this case the Yakuza.
KITTEN: Institutions throughout the world are quickly learning the importance of knowing your customer. What KYC controls are you seeing implemented across Europe and the U.S. to combat money laundering fraud?
BUELENS: I do think that financial institutions should have different layers of AML tools in place, such as filtering and explaining that you want to know who you're dealing with. You want to know that these people are not wanted or being searched for in any other country or continent. Secondly, it would be a nice to have transactional patterns in-house to see sudden changes, because I think that's one of the main guidance points, to see that fraud could be increasing is to change the patterns and behaviors of the clients. On top of that, put an extra layer of real-time day-to-day fraud, which we see now increasing with skimming.
KITTEN: One thing that has come up quite often in recent discussions that I've had about AML solutions is that these AML solutions really should be integrated with your overall fraud detection systems. And then, getting a cross-channel perspective is really the best way to not only pick up on fraud, but also to fight money laundering. You've also noted skimming. How do some of these other types of fraud tie in with money laundering and the AML efforts that financial institutions should put into place?
BUELENS: As I said, it's a combination of having an integrated solution, having filtering, or profiling, and adding the fraud layer on top of it in order to have a full picture of what is happening. Also it'll raise the risk scores within the banks to know who to do business with and who to not. Having the full integrated system will be a big advantage.
Cross-Border ConcernsKITTEN: I've been tying in a couple of very different international events, of course the natural disaster that has led to many crises in Japan and then talking about some of the political unrest in Northern Africa. Could you give us a sense of the growing level of international fraud the banking industry can expect to face in the wake of the crisis in Japan and the political unrest in Northern Africa?
BUELENS: False insurance claims combined with identity theft and mortgage fraud are the ones which will rise significantly. It's a bit early to give you an estimation of when and how, but these are things that they'll use to profit off the people who are missing and having their identities stolen. That's our main focus for the time being.
KITTEN: And what about the political unrest in Northern Africa? How do you see that impacting some of the fraud schemes that financial institutions will have to face?
BUELENS: That will be a little bit different. I think there will be wiring money or trying to get money out of the country, like what happened in Iraq when people were fleeing from the regime down there. They were taking money over the borders, buying real estate, and then selling the houses and getting the money. That will be a different picture then what we are seeing in Japan. There's a lot going on there with wiring money.
KITTEN: Right, and you raise an interesting point. We haven't talked a great deal about how mortgage fraud might fit into some of these initiatives as far as KYC is concerned, so that's a good point that you raise, especially when it comes to some of the neighboring countries that may be affected by some of the crises we see taking place in Northern Africa.
BUELENS: Oh yeah, and I think Iraq was a fine example if you look at how many Iraqi people fled into Jordan. They're just coming in with cash they brought from somewhere. Nobody really had a clue where the money was coming from. The only possibility for them to get this money, laundered, was to buy real estate. They would then get a certificate from the state saying this house is mine. They would go to the bank, sell the house, get the cash and start a new life. That's what we're seeing now in these dictatorial regimes in Northern Africa and the Middle East. Things like that will definitely be the thing to follow up on.
Emerging Fraud SchemesKITTEN: A year ago we were talking about the impact cyber thieves out of Eastern Europe were having on the global financial market. Of course today, our discussions are quite different. Today we are talking about natural disasters and the fluent political conditions. What other types of global shifts should institutions be watching as they prepare for new and emerging fraud schemes? You've noted skimming, but I'm wondering if there are others.
BUELENS: Skimming is still a very hot topic and it's caused a lot of damage, not only in Europe, but in places where people aren't so familiar with chip and pin, or have had no regulations in place to combat it. We still see huge amounts of money being taken that way. Also, which everybody has the ability to do, there's E-Commerce, using your phone. And a phone is still not a computer, so with the technical possibilities you have to hack into the E-Commerce payment, that's a threat to follow up on.
KITTEN: What types of fraud should banks and credit unions be prepared to fight, especially when it come to fraud that could seep through lax KYC controls?
BUELENS: The reactivating dormant accounts are a thing to follow. You will see a sudden increase of large, or different, amounts going internationally, followed up by sudden address changes, which is not the normal behavior for people. They will try by international gains to use these for their own benefits, and that's something to follow up on. Also, ATMs are still very anonymous. There are a half a million of them all around Europe, just to give an example. It'll be easy for them to cash money which they obtain that way. It would be great to have defined rules in place to follow up ATMs, certainly for big financial institutions.
KITTEN: Before we close, what final thoughts would you like to leave our audience with on the topic of fraud concerns?
BUELENS: The main thing is to know who you're paying and to see where your money is going. Be able to check it to have a possibility to look back onto something. I think that's the main part.