The Holiday Season Presents Unique Money Laundering Risks
Before we reveal the festive risks, it's essential to understand why the December period presents ripe conditions for money launderers. The answer to this is simple:
A surge in financial transactions and an increase in overall economic activity creates an environment conducive to laundering money acquired through heinous crimes.
Billions of dollars, pounds, and euros - other currencies also, of course - flow stronger through economies in the final month of the year. For example, according to a report, in December 2023, UK Shoppers are set to spend £24.1 billion (and that's just the online figure).
Significant elevations in spending are commonplace in countries worldwide also enjoying the season to be merry. And many of you already know this: Increased financial flows equals increased money laundering risk.
Here is what we'll now cover:
- The Impact of Elevated Transaction Volumes
- Elevated Money Mule Risk
- Transactional Anomalies During the Holiday Season
- Increased Gift Card Transactions and Money Laundering
- A Time To Give: Money Laundering Through Charities
The Impact of Elevated Transaction Volumes
As alluded to earlier, transaction volumes surge during the festive season. And here are some more revealing statistics: According to PWC research, in 2023, 40% of US consumers will spend more than they did in 2022. Households with incomes of $120,000 or more will exceed an average of $3,000.
But what is the impact of elevated transaction volumes for AML professionals?
The tangible effect is that increased online and offline spending results in surging financial transactions. And for compliance teams, it means ensuring their transaction screening capabilities can meet demand.
One way to guarantee this is to embrace regulation technology (RegTech), such as sanctions.io, to perform automated AML screening in real-time and at scale.
Increased Money Mule Risk
The next money laundering risk that grows in strength during the festive period is this: Money mules. Money mules are individuals who transfer and move illegally acquired cash on someone else's behalf as part of a money laundering scheme.
It's important to remember that there are generally two types of money rules. First, those who know what they are doing and decide to commit the crime. And second, individuals who don't know - criminals deceive them into becoming a money mules through an elaborate scam.
But why does money muling risk intensify in December?
Knowingly Becoming a Money Mule at Christmas
A common pattern in societies worldwide during holiday seasons is that some individuals, feeling intensifying financial pressure and burdens, turn to crime.
Criminals target vulnerable people through various online and offline channels with the promise of easy cash. This problem (happening all year round) is why law enforcement in jurisdictions worldwide, such as this example from the UK, create consumer-facing campaigns warning people of the risk.
Unknowingly Becoming a Money Mule at Christmas
Another form of elevated money laundering risk during the December holiday period is through seasonal job offers. Individuals seeking to earn extra cash over Christmas and New Year can unknowingly become money mules by responding to nefarious job adverts.
What happens next? They are instantly hired and asked to provide bank details. The criminals then deploy social engineering tactics to move dirty money through their victims' accounts (convincing the unwitting individuals to receive and transfer funds).
The bottom line is this: Financial institutions like banks and FinTechs should ensure their Know Your Customer (KYC) and AML transaction screenings are robust enough to support the increased risk during the festive period.
Increased Gift Card Transactions and Money Laundering
The next elevated money laundering risk during the festive period is through gift card transactions. It goes without saying why the December gift-giving period is a booming time for pre-loaded cards with a balance.
And criminals often utilize prepaid cards for money laundering.
How? By taking advantage of their anonymity and simplicity. Illegally acquired funds are used to buy prepaid cards, which are then employed to obtain goods and services that can be resold for profit (a tactic used in the layering stage of money laundering).
Once again, effective transaction screening that identifies unusual behavior is imperative in the holiday season - especially as criminals know gift card purchases are more likely to fly under the money laundering radar.
Recommended reading: Reward Card Firm Penalized by OFAC for Sanctions Violations: All the Key Learning Points.
A Time To Give: Money Laundering Through Charities
The final festive money laundering risk that compliance teams must be aware of during the December period is through charities and other NGO organizations.
As mentioned before, December is a time of giving - criminal groups latch on to this period of greater economic activity and double down on their money laundering through charities and NGO schemes.
For example, in December, fake charities set up by money launderers often increase the amount of dirty money being cleaned (elevated transaction volume) as it may appear as typical seasonal behavior and more likely to go undetected.
Genuine charities also face increased money laundering risks during the holiday period, for example, through rogue employees working alongside money launderers.
You can learn more in this sanctions.io article from the blog: AML Guide for NGOs - Government Sponsored Not For Profit.
Final Thoughts and How sanctions.io Supports AML Compliance
The festive period is a high-risk money laundering period characterized by significantly increased transactional volumes. Compliance teams with AML obligations must ensure their organizations remain compliant.
As reported by sanctions.io, sanctions and AML compliance lapses for even a single day can result in regulatory penalties and reputational damage.
One of the best ways for companies to mitigate money laundering risks is to invest in real-time sanctions and AML screening technology - as offered by sanctions.io.
sanctions.io is a highly reliable and cost-effective solution for sanction checking. AI-powered and with an enterprise-grade API with 99.99% uptime are reasons why customers globally trust us with their sanctions screening needs. To learn more about how our sanctions, PEP, and criminal watchlist screening service can support your organization's compliance program:
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