Five fraud types to watch for in 2023

Published

Harriet Holmes

AML Services Manager

A looming economic recession, a cost of living crisis and inflation levels not seen for years. Not to mention the ongoing effects of the covid pandemic and a Russia-Ukraine war.. Inevitably these turbulent times lead to uncertainty, fear, and desperation — all conditions that criminals prey upon.  

There is much more to the above than just alarming headlines in the media. These economic times  carry potentially severe consequences for the most vulnerable in our society.

Crime thrives during an economic downturn. In times of financial hardship, law-abiding citizens can find themselves motivated and pushed towards crime. A life they would never have considered without the pressures they currently face. 

When someone commits fraud wittingly or unwittingly there are three key components to consider:

  1. Pressure - motivation/incentive 
  2. Rationalisation - Justification of dishonesty 
  3. Opportunity - knowledge/ability

They’re all important to remember when reflecting upon our internal policies, controls and procedures that are currently in place. These three factors will help us understand how our systems could be exploited. 

Read on to learn about the five most prevalent types of fraud heading into 2023, and the red flags to help you spot fraud in the act.

1. Identity fraud 

The number of identity fraud cases recorded in the UK grew by 22% in 2021. In the first half of 2022, over 136,600 cases of identity fraud have been recorded – up a third (33%) in 2021. 

Overall, 24% of victims are aged over 61. There was a 53% rise in those aged between 31 and 40 years targeted. 

There has also been a 7% rise in companies being impersonated 

Consider the processes you have in place to verify that your client is a genuine individual. How do you ensure you are dealing with the person with authority behind a company? 

Here are some common red flags to look out for when dealing with individuals you suspect of identity fraud: 

  • Inconsistencies with their appearance and provided documentation.
  • Unexplained changes of address. 
  • Inconsistencies with name or address details.
  • Text and font inconsistencies.
  • Spelling errors on submitted documents. 
  • Signature misalignment. 
  • Failed verification.
  • They request that you forward communications to a different address.
  • The length of their ownership compared to their age. 
  • If they refuse to meet in person or via video call. 
  • Changes to a bank account or client details during the process. 
  • Multiple aliases and variations of their DOB.

2. Rise in Money Mules

Bad actors will recruit money mules to help launder the proceeds of crime. Money mules add layers of distance between the crime and criminals, making it harder for law enforcement to detect.

Not everyone gets involved willingly. Many money mule schemes are disguised as legitimate jobs. Hidden muling is likely to spread and become more prevalent with the increased use of social media. Using platforms like Instagram and TikTok, baddies can openly target many more victims at scale.

Looking at the figures reiterates the concern; 72% of misuse of bank accounts indicates mule activity and an increase of 24% in 2021 compared to 2020. In the first half of 2022, 63% of misuse of bank account cases have intelligence indicative of mule activity.

Don’t make assumptions as to who will participate in these types of crimes. Money mules are likely to be under the age of 35, but there has been an increase in middle-aged mules as criminals switch up their tactics to evade law enforcement.

Some key red flags to look out for that might suggest money mules include: 

  • Company emails are web-based (e.g. Gmail or Hotmail). 
  • Unexplained transfers with money coming in and going out straight away (minus a small percentage). 
  • Employer has no online presence, website or listings. 
  • Company has many third parties with no obvious connection. 
  • Newly opened bank accounts used for company money. 
  • High volumes of financial activity.
  • Individuals at the company cannot describe the role or duties of employment. 
  • Claims of winning a prize or competition to explain sudden influx of cash.

3. Loan sharks

Loan sharks are unregistered, illegal moneylenders who often prey on vulnerable people and charge very high interest rates. If you have doubts, always verify that a third-party lender is regulated. Start by searching the Financial Services Register

Loan sharks are often members of organised crime syndicates and the money in question will be dirty money and the proceeds of crime. 

Red flags to look out for when identifying loan sharks: 

  • No paperwork. Leaving a paper trail makes something seem more legitimate, and loan sharks avoid it at all costs. 
  • Unexplained high interest rates way above the gong market rates.
  • Cash loans or bank transfers. Loan sharks normally prefer to deal in cash, but not exclusively. Bank transfers are becoming more common now.

4. Human trafficking  

Vulnerable people are targeted by criminals for exploitation. This can take may forms, from sex trafficking to forced labour, and these activities are often linked to cash-intensive businesses. 

Human trafficking red flags to look out for include: 

  • Frequent cash deposits. 
  • Frequent transaction cancellations. 
  • Frequent transaction refunds. 
  • Peer to peer payments with transfers coming in and out periodically. 
  • Houses with multiple occupancies.
  • Multiple deposits which appear to be for the benefit of more than one person. 
  • Many voices in the background of client calls. 
  • Multiple deposits linked to adult content.
  • Clients unable or unwilling to meet or video call.
  • Difficulty for clients to provide proof of identity or address.

5. Insider threat 

As people struggle with rising living costs, they could be tempted to supplement their income by exploiting their knowledge of internal processes. Examples of this can include over-claiming overtime, abusing company expenses or exploiting access to the firm's finances. There may also be an increase in staff approaches, where an individual is given the opportunity to make money by making changes to accounts or selling data.

Additionally, due to the economy since the pandemic, many individuals are not disclosing adverse credit or employment history as they feel it will hinder their employment opportunities.

Of insider threat cases,41% in 2021 were concerning dishonest actions, with the majority of filings relating to the theft of cash from an employer. 

In the first half of 2022, 175 individuals have been recorded as an insider threat  – up 51% from the same period in 2021. In the same period, there has been a 47% increase in dishonest actions by staff, spanning 72 cases. Overall, most individuals involved in these cases had been in employment for two to five years (43%).

Insider threat red flags to look out for include: 

  • Performance and behavioural issues. 
  • Unusual, unexplained or excessive expenses. 
  • Demotion. 
  • Negative personal financial events excessive control over financial duties. 
  • Failure to follow policies. 
  • Unmet career and/or lifestyle aspirations.
  • Adverse media.
  • Resignation or termination. 
  • Living beyond means. 
  • Poor performance review. 
  • Failure to meet deadlines.
  • Close association with a known supplier. 
  • Failed promotion.
  • Workplace embarrassment.

Further reading: 

THIS IS FRAUDSCAPE 2022

Illegal lending: loan sharks

Does a recession lead to more financial fraud?

United Nations - Human Trafficking 

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