An exclusive article by Fred Kahn
Money laundering is a pervasive and evolving crime, and its methods have become increasingly sophisticated. Criminals often leverage new technologies and methods to bypass anti-money laundering (AML) controls and open numerous bank accounts under false identities. These illicit activities create significant challenges for financial institutions, regulators, and law enforcement agencies. In this article, we will explore the various techniques criminals use to hide their identities while opening multiple bank accounts, ensuring that they remain undetected for as long as possible.
Table of Contents
Synthetic Identities: The Complex Web of Fraudulent Data
One of the most common and innovative methods used by money launderers is the creation of synthetic identities. These identities are a combination of real and fabricated data, often built by fraudsters using stolen personal information, such as Social Security numbers (SSNs), along with fictitious names, birth dates, and addresses. Synthetic identities are created to bypass financial institution verification checks, and because they involve a mix of real and fake data, they often go unnoticed in the initial stages of account opening.
By using synthetic identities, criminals can open multiple accounts across various institutions, making it incredibly difficult to trace the origin of funds. Since parts of the identity (such as an SSN) are genuine, the account seems legitimate, and the laundering process proceeds with minimal scrutiny.
A significant issue arises when fraudsters use data from vulnerable sources—like deceased individuals, minors, or individuals who don’t closely monitor their credit histories. This technique allows them to maintain the illusion of authenticity while operating undetected.
Account Takeover: Hijacking Existing Accounts
Account takeover is another method used by criminals to facilitate money laundering. In this scenario, fraudsters gain access to an existing bank account, often through phishing or malware attacks, to take control of the account without the account holder’s knowledge. Once the criminal has control, they can change key account details like the email address, password, or contact information.
The appeal of account takeover is that criminals can avoid the process of creating a new account altogether. Instead of going through identity verification steps, they take advantage of the legitimacy of an already existing account. This allows them to carry out money laundering transactions, such as moving illicit funds from one account to another, all while masking their true identity.
Forged Documents: Counterfeit Identification for Opening Accounts
Forgery of identification documents remains a tried-and-true method for criminals looking to open bank accounts under false pretenses. Criminals frequently forge documents such as passports, national identification cards, and driver’s licenses to bypass identity verification processes. High-quality counterfeits are often convincing enough to trick banks into believing that the person opening the account is legitimate.
By using forged documents, criminals can create false identities that appear authentic on the surface. They may also use these counterfeit documents to open multiple accounts under different names and addresses, with the sole intent of laundering money without leaving a trace.
The problem with forged documents is that it can be challenging for banks to distinguish between authentic and fraudulent identification unless they employ highly advanced document verification systems, which can often be cost-prohibitive for smaller institutions.
Exploiting Weak Customer Verification Systems
A significant problem lies in weak customer verification systems that some financial institutions use. Many banks and fintech companies rely on minimal identity checks—such as validating a phone number or an email address—rather than implementing more comprehensive identity verification protocols. Criminals can easily exploit these weaknesses by using disposable phone numbers, fake email addresses, or temporary identity documents to bypass standard procedures.
Some online-only banks, for example, offer quick registration processes that require minimal documentation, making them an attractive target for fraudsters. By exploiting these vulnerabilities, criminals can create a network of fake accounts, move illicit funds between them, and evade detection.
Nominee Accounts: Hiding Behind Another’s Name
Nominee accounts are another tool used by money launderers to disguise the real owner behind the funds. In this scenario, a bank account is opened in someone else’s name, often with their consent (although the nominee may not be aware of the illicit activity). The individual listed on the account is not the actual controller, but rather a figurehead who allows the criminal to operate anonymously.
Nominee accounts can be used to conceal the identity of the true beneficiary, who may be a criminal mastermind or a group of people involved in money laundering activities. These accounts often serve as a mechanism to move money between different institutions, making it harder to track the flow of illicit funds.
Cross-Border Account Opening: Moving Funds Internationally
Criminals often take advantage of cross-border account opening to launder money across jurisdictions. By opening bank accounts in countries with weak anti-money laundering regulations, fraudsters can easily move money between multiple financial institutions without attracting the scrutiny of local regulators.
Offshore banks and jurisdictions with lax AML enforcement are particularly vulnerable to this technique. Criminals can open accounts in countries with minimal regulatory oversight and use these accounts to transfer illicit funds internationally. These cross-border money transfers create layers of obfuscation, making it much harder for authorities to trace the origin and destination of the illicit funds.
Cryptocurrency and Prepaid Cards: The Digital Tools of Money Laundering
In recent years, digital currencies such as cryptocurrencies and prepaid cards have become increasingly popular tools for laundering money. Cryptocurrencies offer anonymity and can be used to transfer large sums across borders without triggering traditional banking controls. Prepaid cards, purchased with cash or cryptocurrency, can be used to withdraw funds or make purchases, often without the need for full identity verification.
Criminals may use cryptocurrency exchanges to convert illicit funds into digital assets, which can then be transferred to anonymous wallets or converted back into cash through ATMs. Prepaid cards are another method that allows criminals to access funds without exposing their identity, making them an ideal tool for layering illicit money.
Money Mules: Unwitting Helpers in the Money Laundering Process
Money mules are individuals who are recruited, often unknowingly, to assist in the laundering process. Fraudsters use mules to open bank accounts and receive and transfer funds. The mules typically believe they are participating in a legitimate business or job opportunity and are unaware that they are facilitating money laundering.
Money mules help criminals move illicit funds from one account to another, often by withdrawing the money and depositing it into other accounts or using it for purchasing goods or services. These individuals may be unaware of the criminal nature of their actions, but their accounts are still used to facilitate the movement of illicit money.
Layering Through Payment Service Providers (PSPs)
Criminals often rely on payment service providers (PSPs) to facilitate the layering of illicit funds. PSPs allow fraudsters to move money between multiple accounts without the same level of scrutiny that is applied by traditional banks. Using PSPs, criminals can move money quickly and efficiently, breaking it up into smaller amounts to further obscure its origin.
PSPs act as intermediaries between bank accounts, allowing fraudsters to disguise the flow of illicit funds by spreading it across various platforms. Since PSPs are often less regulated than banks, they can be a weak link in the fight against money laundering.
Bank Account Laundering via Overdrafts
Bank account laundering via overdrafts involves taking advantage of overdraft facilities offered by some financial institutions. Criminals may open multiple accounts and intentionally overdraw them, using the overdrafts to move illicit funds between accounts. By making it appear as though the overdrafts are simply part of normal banking activity, the criminals can avoid triggering red flags from the financial institution.
Overdrafts are particularly useful for criminals because they allow them to move funds between accounts without making withdrawals, which would otherwise attract attention. This method is often used in conjunction with other techniques, such as layering, to create further obfuscation.
Identity Theft: Stolen Information to Open Accounts
Identity theft is a common technique used to open fraudulent bank accounts. Criminals steal personal information—such as names, SSNs, and addresses—and use this data to open accounts without the victim’s knowledge. The stolen identities are used to create a false persona, and the criminal opens bank accounts under that name.
Once the accounts are open, criminals can move money through them, often involving multiple transactions across various financial institutions to avoid detection. Since the identity belongs to a legitimate individual, the account appears to be genuine at first glance.
Conclusion: Evolving Threats in the Fight Against Money Laundering
Money laundering techniques continue to evolve as criminals develop new ways to evade detection. Whether through synthetic identities, account takeovers, or digital tools like cryptocurrency, criminals are becoming more resourceful in bypassing financial controls. For financial institutions, the task is becoming more difficult—yet it is crucial to stay ahead of these tactics to protect the integrity of the banking system.
Banks and financial institutions must invest in advanced identity verification systems, improve transaction monitoring, and ensure international cooperation to combat money laundering effectively. As fraudsters continue to refine their methods, it is essential for the financial industry to remain proactive in implementing robust anti-money laundering measures to prevent illicit activity.
Related Links
- FATF Recommendations on Money Laundering
- Synthetic Identity Fraud: A Growing Concern
- Preventing Account Takeovers
- Understanding Nominee Accounts
- Global Cross-Border Money Laundering Risks
