US Treasury’s FinCEN outlines ID exploitation risk to financial sectors

US Treasury Fincen

The Financial Crimes Enforcement Network (FinCEN), a bureau of the US Treasury, has highlighted a significant risk of identity fraud in US markets in a recent report.

Covering 2021, thereprot analysed identity-related suspicious activity in Bank Secrecy Act (BSA) reports filed in that year, finding that 1.6 million identity-related reports had been filed.

According to FinCEN’s estimates, this indicates $212bn in suspicious activity concerning identity. The network is particularly concerned about how criminals can conduct transactions and open and access accounts by exploiting identity processes.

ID verification is a vital element of the KYC and payments journey for many firms with an extensive digital presence, not just payments providers but also various forms of e-commerce firms, trading apps and betting and gaming companies.

“This report reveals the existence of significant identity-related exploitations through a large variety of schemes,” said FinCEN Director Andrea Gacki

“Robust customer identity processes are foundational to the security of the US financial system, and critical to the effectiveness of financial institutions’ programs to combat money laundering and counter the financing of terrorism. 

“Financial institutions are encouraged to work across their internal departments to address these schemes.”

Over 14 ‘typologies’ were highlighted by FinCEN in identity-related BSA reports, the most frequent being fraud, false records, identity theft, third-party money laundering and circumvention of verification standards. 

Collectively, these five forms of financial crime accounted for 88% of all ID-related BSA reports and 74% of the ID-related suspicious activity reported in general during 2021. Meanwhile, the 1.6 million ID reports in question accounted for 42% of BSA reports that year.

Out of the various segments of the US financial sector, depository institutions were the most at risk in 2021 accounting for 54% of all ID reports. ID impersonation was the most widely reported criminal act, except for money services businesses which reported verification circumvention. 

The gambling industry in the US has enjoyed substantial growth over recent years, as following the repeal of the PASPA legislation in 2018 over 36 states have now opened their markets to legal, regulated betting.

With this expansion comes a continued risk of fraudulent activity, including ID related exploitation. For bookmakers and casino operators, this also includes the risk of underage people gambling on websites or at premises, which can risk regulatory backlash.

Although gambling was only touched on lightly in FinCEN’s report, it was noted that casinos and ‘card clubs’ reported 6,500 cases of ID impersonation, 1,000 cases of compromisation and 6,500 cases of verification circumvention in 2021.

Of the various forms of criminal activity highlighted by FinCEN, the bureau’s report singled out compromised credentials as having a ‘disproportionate financial impact’ in comparison to other forms of ID exploitation.

FinCEN has, however, also highlighted efforts made to reduce risk regarding identity exploration, such as engagement with the private and public sectors through the Bank Secrecy Act Advisory Group, FinCEN exchanges, innovation Hours, and a partnership with the Federal Deposit Insurance Commission and other law enforcement bodies.

The agency concluded: “These efforts served as a forum for stakeholders to both embrace responsible innovation and leverage innovation to mitigate risks, as well as identify threats and opportunities to protect the American people and the financial sector from illicit finance.”