Protect Yourself From Money Mule Fraud

Along with adapting to evolving technology, many business leaders abruptly changed how they run their businesses during the COVID-19 pandemic. These disruptions can create the distraction required for criminals to prey on the unprepared. Money mule fraud is rapidly increasing, so all leaders of nonprofit and for-profit organizations need to be aware of this scheme to avoid becoming a victim. According to the FBI, money mule fraud is a scenario where “illegally obtained money is moved or transferred on behalf of someone else.” Several variations of this scheme exist, including:

  • Overpaying to get a victim to send back the difference.
  • Tricking someone into integrating proceeds from illegal activity to launder money.

Gaining Popularity

Unfortunately, fraud schemes are only increasing in popularity during the pandemic. Money mule cases like the one outlined below are on the rise as criminals target consumers, small businesses, and large organizations.

The FBI recently published an advisory warning of the increased number of cases it is seeing so far in 2020, after a late 2019 operation targeting over 600 people involved as part of a two-month-long national campaign.

A Large Unsolicited Deposit

One business recently encountered a money mule fraud attempt when it received an e-mail from someone pretending to be interested in ordering a product. After receiving a quote for the product, the would-be fraudster requested the payment information to complete the order. A few days later, a check for $165,835 arrived for payment at the bank where the business holds its accounts with instructions to deposit the check into the company’s account.

The accounting professional at the business noticed the deposit while reviewing the business’s accounts online. They immediately thought the deposit was suspicious and contacted the bank. The bank then reversed the suspicious deposit.

A few days later, the business received a follow-up inquiry from this same person claiming that the check was part of a “mix up” and should have been for a much smaller amount. The fraudster then requested that the company send back a large portion of the original check.

Luckily, the business had already identified this as fraud and did not engage with the fraudster or send any money. Instead, they notified local police and the FBI’s Internet Crime Complaint Center.

The Risks

Maybe you’re thinking through this scenario and wondering, “What’s wrong with overpaying?” or “What ever happened to found money?” While it might appear a windfall, the consequences of falling victim to a money mule scheme include:

  • Frozen bank account. While law enforcement investigates the crime, your business may not be able to access its bank accounts, which can cause a multitude of issues. Your bank will likely require the account to be closed and a new one reopened. This takes time and may require you contact any vendors that credit or debit your account via automated clearing house transactions to give them notice of the change.
  • Loss of funds that were remitted back to the fraudster.
  • Potential loss of merchandise or nonpayment for work performed.
  • Even though you may not have perpetrated the fraud, you or your business can be prosecuted as part of a money mule scheme. You also may be found personally liable for repaying losses. Your business’s reputation may be damaged, as well.
  • Information theft. In the process of accepting the fraudulent payment, you or your business may now be vulnerable to other fraud if the criminals acquired your personal or business information.

Don’t be a Victim

Since many of these money mule schemes originate outside of the United States, law enforcement often has difficulty catching or stopping the fraudsters. This means that it’s up to each organization to take necessary steps to identify and prevent fraud from taking place.

Here are some ways you can protect your organization from being a victim in a money mule fraud scenario:

  1. Review your accounts daily. Someone in your business should review your accounts daily to monitor deposits and debits to make sure nothing unusual is happening. If there is something unusual, contact your bank immediately.
  2. Sign up for fraud detection and prevention products and services that your bank offers.
  3. Implement dual controls for all disbursements, which include calling the third party using a phone number in your system, reviewing source documents for legitimacy, and requiring another employee independent of the disbursement to approve the transaction.
  4. Beware of suspicious deposits. Unexpected or large deposits often lead to a request to return a portion of the funds.
  5. Never move money on someone else’s behalf. You might be helping a criminal move funds and launder illegally acquired money.