Whether perpetrating a consumer fraud, business email compromise, or unemployment insurance (UI) fraud scheme, fraudsters located overseas increase their chances of successfully obtaining proceeds from their schemes when they use U.S.-based financial infrastructure. Victims of consumer fraud schemes, such as lottery fraud and technical-support schemes, are more likely to believe the ruse when asked to send money to U.S. accounts or addresses. Likewise, state agencies targeted by UI fraud schemes are likely to be suspicious when asked to send money to a foreign bank account, but more likely to fall prey if the account is domestic.
Money mules – witting or unwitting U.S.-based individuals who receive victim proceeds and forward them to fraudsters – serve the interest of fraud schemes by supplying critical financial infrastructure. Law enforcement thus should view money mules as both a challenge and an opportunity. They can complicate investigations. Sometimes, proving mules know of the fraud can be challenging. But, given how difficult it can be to arrest and prosecute foreign fraudsters, disrupting money mule networks often can be an effective way to reduce fraud losses to consumers, businesses, and government.
This article discusses the money mule phenomenon and how law enforcement is increasingly using a spectrum strategy, including warning letters, civil actions, and criminal prosecution, to fight fraudsters’ reliance on money mules.
Understanding Money Mules
Key to disrupting money mules is understanding how they first become involved in moving money for foreign fraud schemes.
Some money mules are aware at the outset that their activity is part of an illegal operation. These individuals may, for instance, repeatedly open bank accounts (sometimes using synthetic identities), operate businesses that serve as fronts, or personally visit victims to pick up fraud proceeds. Some of these individuals even advertise their services for sale, and in some cases, witting money mules are friends, family members, or close associates of foreign fraudsters.
A significant percentage of money mules, however, first interact with schemes as victims, rather than participants. Some money mules fall victim to a romance scam, in which they are lulled into a seemingly romantic relationship with a person they meet online who really is a foreign fraudster simply seeking to use the victim to receive and transmit proceeds from a fraud scheme. Other money mules are falsely told they have won a lottery and must help move money to receive their prize.
Many of these money mules, who themselves are victims, do not initially suspect they are assisting fraudsters. Still others realize that money they are transferring was obtained unlawfully. Some are tipped off by the increasingly improbable explanations fraudsters give for why they need to transfer money. Other money mules participate in fund transfers that bear hallmarks of illegality (like receiving UI checks from multiple states). A telltale warning sign for money mules flashes when banks close accounts and, on occasion, even inform the mule that the account was closed due to fraud. In these ways, otherwise unwitting mules may come to understand that they are facilitating a crime.
Because some money mules are complicit in the criminal conduct while others are unwitting, taking action to deter money mule activity is challenging. The sheer volume of individuals operating as money mules in the U.S. dwarfs the available local, state, and federal resources to address the problem. Moreover, particularly when fraud victims are turned into money mules, proving that money mules knew beyond a reasonable doubt that they were participating in an unlawful activity can be time consuming and resource intensive. And while law enforcement investigation into an individual money mule progresses, fraudsters may continue to use that individual to victimize more people.
The Spectrum Approach
Recognizing these challenges, law enforcement is increasingly turning to tools beyond prosecution to combat money mule activity. These tools include less resource-intensive strategies such as warning letters and civil injunctive actions, which can prevent potentially unwitting or witting money mules from continuing to facilitate fraud. Indeed, in just the last two years, federal law enforcement agencies participating in an annual Money Mule Initiative issued thousands of warning letters and civil actions, with the 2020 Initiative involving more than 2,000 warning letters, 450 interviews, 32 civil or administrative actions, and criminal charges or arrests of more than 35 individuals.(( See U.S. Law Enforcement Takes Action Against Approximately 2,300 Money Mules In Global Crackdown On Money Laundering, U.S. Department of Justice, (December 2, 2020). Agencies involved in the 2020 Money Mule Initiative included the Department of Justice, Federal Bureau of Investigation, U.S. Postal Inspection Service, Department of Labor Office of Inspector General, Federal Deposit Insurance Corporation Office of Inspector General, U.S. Immigration and Customs Enforcement’s Homeland Security Investigation, Social Security Administration Office of Inspector General, U.S. Secret Service, and U.S. Treasury Inspector General for Tax Administration. 1
Put differently, just as money mule knowledge is on a spectrum, from unwitting, to witting, to complicit, the appropriate law enforcement response also extends across a spectrum. In some cases, it will be clear from the outset that prosecution is warranted. In many other instances, however, where an individual appears to be unwitting, warning letters can be used to alert the individual that they are facilitating a fraud scheme and engaging in unlawful monetary transactions, and implicitly, that law enforcement is watching for that activity. The spectrum strategy involves four major steps: detection, deconfliction, disruption, and documentation.
Detection and Deconfliction
Law enforcement may collect evidence that an individual is acting as a money mule from a variety of sources, including victim complaints, Suspicious Activity Reports (SARs) filed with the Financial Crimes Enforcement Center (FinCEN) by financial institutions, and substantive fraud investigations. Additionally, foreign actors targeting UI funds frequently use money mules to receive benefits using stolen identities.
When possible, these sources can complement one another. For instance, if a complaint hotline receives a victim report that the person was defrauded by a lottery scheme and sent money to a certain individual, law enforcement may be able to locate other victim complaints mentioning the same recipient or, if available, ascertain whether they have been identified in any SARs. In reviewing information about a suspected money mule, the key question is whether it appears that the individual could have knowledge they are facilitating fraud. If knowledge of the fraud is apparent, agencies should then consider where on the knowledge spectrum it appears an individual falls and, thus, whether a softer tactic—such as a warning letter—is warranted or a more aggressive strategy is called for.
Prior to taking any action, agencies should endeavor to avoid duplicative or inconsistent efforts being taken by another law enforcement agency and deconflict the potential money mule. Agencies should follow their usual procedure to identify other potential investigations or matters, including consulting law enforcement databases and contacting other law enforcement agencies as needed.
Disruption and Documentation
Agencies may elect disruption strategies that could include warning letters, interviews, civil actions, and criminal prosecutions.
If evidence suggests the mule is unwitting, a warning letter, possibly accompanied by an interview, could be considered. After-action monitoring by federal law enforcement of money mules who have received warning letters indicates that the vast majority cease their activity and do not become recidivists.
While the precise warning letter language used may vary from agency to agency, most letters tend to follow the same basic formula: (1) law enforcement has reason to believe the individual is facilitating a fraud scheme; (2) a brief explanation of what the scheme is and how that type of scheme tends to operate; (3) the potential law enforcement consequences of continuing to facilitate fraudulent conduct; and (4) a signature line for the individual to acknowledge receipt of the letter.2
When possible, an investigator also can interview the money mule receiving a warning letter about the conduct and use the opportunity to gather intelligence and information about the scheme, as well as impress upon the individual that further money transfers could result in law enforcement consequences. If an interview occurs over the phone, two copies of the letter should be mailed with a request that one be signed and returned.
Any contact with a potential money mule should be documented and maintained, including a copy of any warning letter, according to agency practices. If possible, the file should be kept so that if another law enforcement agency later encounters the same individual, it will learn of the prior contact with and warning of the individual.
If a warning letter is served, an agency should, if possible, conduct after-action monitoring, such as setting a scheduled query in FinCEN’s Bank Secrecy Act filings database. Federal law enforcement has found that an interview by phone and the mailing of the warning letter often is as effective as an in-person interview and service of the letter, while requiring fewer resources. If additional money mule activity occurs after the warning letter, escalation to another form of enforcement may be needed.
At the federal level, escalation may entail a civil injunctive action. Similarly, if the initial information gathered about an individual indicates they may not be unwitting, a civil injunctive action may be considered. These actions generally use a unique federal statute, 18 U.S.C. § 1345, which allows the Department of Justice to bring a civil action to enjoin an ongoing fraud scheme. State attorneys general may be able to make use of similarly broad state laws or consumer protection statutes to the same effect.3 Much like with a warning letter, after-action monitoring should be used to ensure the individual stops the facilitating activity.
The heaviest hammer in the law enforcement toolbox is criminal prosecution, which is warranted where a money mule is complicit in the activity and knows his or her conduct is facilitating fraud. If a money mule has previously been warned, the necessary criminal intent evidence may already be in hand.
Investigating and prosecuting major fraud schemes is rarely easy. It is especially complicated when criminal actors are primarily based overseas. Law enforcement can add friction to transnational fraud schemes by addressing money mules here in the United States. By using every tool at our disposal, including warning letters, civil actions, and prosecutions, we can work together to reduce victimization and protect consumers, businesses, and relief funds.
Other articles in this edition include:
- Consumer Chief of the Month
- Attorney General Consumer Protection News: October 2021
- Federal Consumer Protection News: October 2021
- See U.S. Law Enforcement Takes Action Against Approximately 2,300 Money Mules In Global Crackdown On Money Laundering, U.S. Department of Justice, (December 2, 2020). Agencies involved in the 2020 Money Mule Initiative included the Department of Justice, Federal Bureau of Investigation, U.S. Postal Inspection Service, Department of Labor Office of Inspector General, Federal Deposit Insurance Corporation Office of Inspector General, U.S. Immigration and Customs Enforcement’s Homeland Security Investigation, Social Security Administration Office of Inspector General, U.S. Secret Service, and U.S. Treasury Inspector General for Tax Administration.
- An example of such a warning letter is appended to an article authored by three Assistant United States Attorneys. See Galdo, Tait, and Feldman, Money Mules: Stopping Older Americans and Others from Participating in International Crime Schemes, Department of Justice Journal of Law and Practice (Dec. 2018).
- See e.g., Arkansas Attorney General Office, Attorney General Rutledge Announces Settlement Against Hot Springs Woman Operating as a Money Mule, (June 30, 2021).