Bates Research | 02-13-23
Spotting and Reporting Romance Scams
Romance scams are a growing concern, as evidenced by The Federal Trade Commission’s report that romance fraud is one of the most costly forms of consumer fraud in the United States.
As AML and compliance professionals, we all know how the scam works, including these typical warning signs:
- The other person is very quick to profess their love to the targeted individual.
- They are constantly asking for financial help, such as wiring money or providing gifts.
- They make excuses about why they cannot meet in person.
- They will not video chat with you.
However, how do you as a compliance professional spot romance scams?
The goal is to identify any unusual or suspicious transactions that could indicate romance scams. These could include:
- Large deposits, withdrawals, and transfers in the victim's accounts.
- Payments made to third parties with no apparent connection to the account holder, such as online payment services or overseas entities.
- Wire transfers that appear to be out of character or done without the account holder's knowledge.
Elderly people are particularly vulnerable to romance scams. Senior romance scam victims may be less likely to report being scammed out of fear of embarrassment, or they may not even realize they have been taken advantage of until it is too late. Therefore, it is increasingly important to monitor accounts of elders and vulnerable persons more closely for any activity that is not considered normal transaction activity.
Elder Exploitation Red Flags and Bank Secrecy Act Obligations
In an advisory alerting financial institutions of “rampant fraud and abuse targeting older adults,” the Financial Crimes Enforcement Network (FinCEN) highlighted new behavioral and financial red flags last year to help in the identification, prevention, and reporting of suspected elder financial exploitation (“EFE”).
As detailed in our reporting last year, FinCEN at that time reminded financial institutions that it is critical for “customer-facing staff to identify and consider [ ] behavioral red flags when conducting transactions involving their older customers,” and that the details should be incorporated in SARs filings. They listed twelve behavioral red flags in all, among them sudden and unusual changes in contact information, an unusual degree of fear or submissiveness by a client toward a caregiver, and unexplainable or unusual account activity. FinCEN listed an additional twelve financial red flags, including sudden or frequent non-sufficient fund activity, customer purchases of large numbers of gift cards or prepaid access cards, and uncharacteristic attempts to wire large sums of money, among others.
The FinCEN advisory also reminds financial institutions of their Bank Secrecy Act obligations, including SARs reporting, currency transaction reporting, reports of cash payments over $10,000 received in a trade or business, foreign bank and financial accounts reporting, and registration of money services business, among others. As FinCEN Acting Director Himamauli Das then stated: “Financial institutions serve on the frontlines in protecting their older customers’ finances, and can play a critical role in helping to identify, prevent, and report suspected elder financial exploitation. Financial institutions’ vigilance matters. Their reporting matters.”
Money laundering investigators should always be aware of romance scams, their indicators, and potential victims. AML and compliance officers have an obligation to monitor and report suspicious activities. Taking the time to investigate any suspicious activities or transactions can help stop romance scammers in their tracks and prevent individuals from falling victim to fraud. Awareness is key to stopping romance scammers in their tracks and keeping vulnerable individuals safe.
How Does Bates Help?
Bates Group is committed to working with your firm to develop strong AML and compliance programs for banks, broker-dealers, money services business and digital asset firms, including virtual and cryptocurrency firms. Learn more about how we can help strengthen your AML and compliance program at the following links below:
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