I. INTRODUCTION
The Financial Crimes Enforcement Network (FinCEN) has issued an advisory to warn financial institutions about the potential for fraudulent transactions in the wake of disasters, including recent hurricanes and wild fires. The advisory is intended to help financial institutions identify and prevent fraudulent activity that may interfere with legitimate relief efforts.
The U.S. Department of Justice established the National Center for Disaster Fraud (NCDF) which investigates, prosecutes, and deters fraud relating to any natural or manmade disaster. More than 30 federal, state, and local agencies participate in the NCDF, which allows the NCDF to act as a centralized clearinghouse of information related to disaster relief fraud of all types. Financial institutions are encouraged to use the resources made available by the NCDF to help identify and mitigate their potential for all types of disaster fraud risks.
II. POTENTIAL FRAUDS
While there are many indicators of general fraud, financial institutions should pay particular attention to benefits fraud, charities fraud, and cyber-related fraud.
A. Benefits Fraud
Benefits fraud typically occurs when individuals apply for emergency assistance benefits to which they are not entitled. Financial institutions are at risk when fraudsters seek to deposit or obtain cash derived from the emergency assistance payments. FinCEN has noted an increase in the use of wire transfers to perpetrate these frauds. In those situations, requests for withdrawals are made and funds are wired to bank accounts, where the fraudster immediately withdraws the funds.
The NCDF has identified certain possible signs of fraudulent activity that may assist financial institutions in identifying and combating hurricane-related benefit fraud, including the following red flags:
The presence or absence of a red flag in any given transaction is not by itself determinative of whether a transaction is suspicious. Financial institutions should take into account all relevant details of a customer or transaction and should not necessarily presume suspicious activity based on a single red flag.
B. Charities Fraud
Charities provide a vehicle for donations to assist hurricane victims. However, during times of disaster, criminals seek to exploit these vehicles for their own gain. Both legitimate and fraudulent contribution solicitations and schemes can originate from social media, e-mails, websites, door-to-door collections, flyers, mailings, telephone calls, and other similar methods.
To ensure those contributions end up where donors intend, and not in the hands of criminals, the NCDF has identified possible signs of fraudulent activity to assist financial institutions in identifying and combating hurricane-related charities fraud, which may include the following red flags:
C. Cyber-Related Fraud
Cyber actors take advantage of public interest during natural disasters in order to conduct financial fraud and disseminate malware. Financial institutions may want to be aware of public reporting on hurricane-related or wild fire phishing campaigns, malicious websites, and associated malware. Institutions should be aware of the following red flags for potential cyber-related fraud:
Financial institutions can report any internet-based fraud and crimes to the FBI’s Internet Crime Complaint Center at https://www.ic3.gov/.
III. SUSPICIOUS ACTIVITY REPORTING
Consistent with suspicious activity reporting requirements in 31 CFR Chapter X, if a financial institution knows, suspects, or has reason to suspect that a transaction has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and the financial institution knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction, the financial institution should file a Suspicious Activity Report (SAR).
As noted above, the presence or absence of a red flag in any given transaction is not by itself determinative of whether a transaction is suspicious. Financial institutions should consider additional factors such as a customer’s overall financial activity and whether it exhibits multiple red flags, as well as the specifics of their own risk profiles and business models as those relate to the information and red flags outlined in the advisory.
When evaluating potential suspicious activity, financial institutions should also be mindful that some red flags may be observed during general transactional monitoring, whereas others may be more readily identified during in-depth case reviews.
FinCEN requests, though does not require, that financial institutions reference this advisory and include the key term, “Disaster-related Fraud” in the SAR narrative and in SAR field 31(z) (Fraud-Other) to indicate a connection between the suspicious activity being reported and possible misuse of relief funds. Financial institutions should provide a detailed description of the known or suspected criminal violation or suspicious activity in the narrative sections of Suspicious Activity Reports.
If financial institutions encounter any of these situations, or other situations that they suspect may involve hurricane or other disaster-related benefit fraud or other potentially illicit transactions, they should complete and file a Suspicious Activity Report and, in these instances, also contact their local office of the Federal Bureau of Investigation or the United States Secret Service.