Surge in ‘money mules’ raises concern at UK financial watchdog

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More than 225,000 people were identified as “money mules” for letting criminals use their accounts to launder funds last year, raising concerns at the UK financial watchdog after a 23 per cent increase from a year earlier.

The Financial Conduct Authority said it recognised the “scale of the challenge” in tackling the fast-growing problem of money mules and their pivotal role in enabling the rise in fraud — which rose to a record 45 per cent of all UK crime in the year to March.

The watchdog told the Financial Times it surveyed 37 of the biggest banks and payment companies and found they had closed the accounts of 226,957 people identified as money mules last year — up from 184,935 a year earlier.

Andrea Bowe, a director at the FCA overseeing its work on fraud and financial crime, said the watchdog was working with financial firms, law enforcement and international counterparts. The regulator is also eager for tech companies to do more, given recruitment of mules often happens on social media, she said.

“We recognise the scale of the challenge in tackling fraud generally, which is why fighting financial crime is one of the pillars of the new strategy announced this year by the FCA,” she said.

Research due to be released on Thursday by the Royal United Services Institute, a security think-tank, has found money mules are playing a “significant role” in enabling fraud to become “a national security threat, undermining the rule of law and threatening the financial sector”.

The RUSI research, based on data from Lloyds Banking Group, urged financial services companies to share more real-time data to tackle the problem, particularly as more than half of funds received by money mules is paid out within an hour.

Fintechs and digital banks are particularly exposed to the risk of money mules, the research found. RUSI said banking-as-a-service (BaaS) companies that provide payment or lending services to other fintechs were particularly exposed — receiving 10 per cent of payments it tracked from money mule accounts.

“New entrants to the market, such as BaaS providers, also appear to be being exploited by fraudsters,” RUSI said. “This calls for a robust regulatory response.”

The Lloyds data showed that 57 per cent of the funds flowing through money mule accounts exited via the UK’s Faster Payment system to other accounts and 20 per cent by value went to a single digital finance firm, which was unidentified.

About 10 per cent of the funds were withdrawn from money mule accounts in cash via ATMs or branches, RUSI said, while nearly a fifth went on debit card payments, including some to international money transfer companies. A much smaller amount, less than 1 per cent, went to cryptocurrency exchanges.

“While it has been known about for many years, there are signs that the number of money mules is growing,” said Kathryn Westmore, senior research fellow at RUSI. “It is generally like a game of whack-a-mole, where you tackle it in one area and it pops up in another.”

However, despite rising concern about the issue, there has been a sharp fall in the number of money mules being reported to the UK national fraud database, which can result in the person being blocked from opening another bank account for six years.

The number of money mules reported to Cifas, the fraud prevention agency, fell 17 per cent in the first half of this year to 16,017, compared to the same period a year ago. This was almost entirely due to a 34 per cent drop in filings of money mules aged under 21 and a 19 per cent drop in those aged 21 to 30.

Industry experts say the sharp drop in money mule reporting reflects calls by the authorities for financial firms to treat vulnerable customers better instead of any reduction in fraud or in the targeting of young people to launder funds.

“The key driver here is very large regulated entities responding to changing guidance from a regulator — that is borne out in the significant drop in filings relating to younger people,” said Simon Miller, director of policy, strategy and communications at Cifas.

The government said last year it would work with banks and local authorities to ensure “vulnerable or exploited people” were not removed from the banking system. The FCA this year urged firms to improve how they treat customers in vulnerable circumstances.

Miller said the drop in filings could also partly reflect a change in Cifas reporting rules to avoid banks filing cases where they only suspect someone of being a money mule rather than having evidence they were complicit — but this was thought to have only had a marginal effect.

He added that more money mules were being trained by their recruiters in what to tell banks when they are questioned, which may have contributed to the lower number of filings. More people are handing over their identities to allow fraudsters to open separate accounts in their name.

Ben Donaldson, managing director for economic crime at trade body UK Finance, said many money mules were tricked or coerced into it without knowing it is a crime for which they could be imprisoned, even though few are convicted. “I don’t think we can say all mules are victims but certainly many mules are victims, so it’s a complicated problem,” he said.