Week 4 - Fraud Typologies: MSBs & Invoice Fraud

Question 1

What are MSBs?

Answer 1

Money Service Businesses.

Financial entities that provide services beyond traditional banking services including CONSUMER TO CONSUMER (C2C) MONEY TRANSFER. Intended to be a low cost way of transfering money.

Examples are Western Union, Moneygram etc. These are INTERNATIONAL

Often abused by criminals to move money internationally (e.g by smurfing)

Question 2

How do MSB C2C transactions work?

Answer 2

Have
- sender
- payee
- MSB principle (e.g Western Union)
- Money transfer agent (usually 2)
These are authorised to provide money transfer services on behalf of the MSB. Have a sending agent & a recieving agent.
- MTCN (money transfer control number) allocated to the customer of WU

Steps:
1. sender enters MSB with cash
2. Agent sends transaction data to WU
3. WU issues MTCN to the sending agent
4. Reciever goes to MSB with the MTCN.
5. Paying agent sends data to WU
6. WU confirms the transaction & allows payout

Basically the recipient has to show the same MTCN as the sender had to get the money

Question 3

MSBs - notes for investigators

Answer 3

WU are good at providing info to LE & have their own systems for detecting sus activity.

What can we look for to ID sus activity?

• large transfers
• small amounts just evading the reporting limits (smurfing)
• multiple transactions between same people
• suspicious commonalities (e.g. same address / phone no being used or same agent)
• no apparent business purpose

Question 4

Summarise invoice fraud & why it is used.

Answer 4

Businesses are often heavily used in ML.

Invoice fraud is a good way to INTEGRATE finances back to the launderer.

It involves manipulation of invoices using either UNDER or OVER invoicing to transfer benefit from one person to another.

Often used when the buyer & seller are connected or the same person.

Can be used as a pure ML technique or just to disguise a payment

Question 5

Describe the process of UNDER INVOICING using an example.

Answer 5

An example could be using under invoicing to transfer benefit from one person to another to buy drugs from a foreign supplier (concealing the purchase of drugs).

A. UK Drug dealer. Has aircraft parts business.

B. Drugs supplier in hong kong. Orders some parts from A.

A supplies £50,000 worth of parts to B. Invoices for only £25,000 (half the value of the parts).

B recieves £50,000 parts for £25,000 & sells them on full price (£50,000). Now B has gained £25,000 of benefit.

B transfers this £25,000 benefit back to A by sending them £25,000 of heroin.

Question 6

Describe the process of OVER INVOICING with an example

Answer 6

An example of using OVER invoicing to launder money. This is a closed example where both sides are the same person.

Person A. UK drug dealer owns a UK car dealership.

Person A also has control of an offshore car parts company (via bearer shares) in Panama via a nominee.

Person B is this nominee (does not know that person A controls the business in panama).

Person A buys car parts from the panama company. Panama co bills for goods worth £500,000 (but they are only actually worth £100,000). Person A pays £500,000 to Panama co.

Panama co ships the parts (worth £100,000) to person A.

Panama company now has a benefit gain of £400,000 (which has been transferred from person A).

Person A instructs person B to pay £400,000 from the Panama business account to his own offshore account.

Question 7

What is Teeming & Lading?

Answer 7

Often used by people in control of the money in an organisation to steal.
On paper the books ‘balance’ but if you had all the companies cash laid out in front of you it would be missing a large amount.
It creates a snowball effect that is hard to cover up.

TEEMING - involves recieving payments from a source & using the funds to cover up a previously stolen amount. The fraudster delays detection by continually doing this with new payments to reconcile accounts where money has been stolen.

LADING - describes the false sense of balance or ‘loading’ of the accounts with incoming payments to mask the deficit. It basically describes LADING the accounts with new funds to give the appearance of correctness / solvency.

Question 8

An example of TEEMING & LADING

Answer 8

The sports club example.

Club has a number of bank accounts (& chequebooks) and a cash account 9that was recorded on paper)

Treasurer with full control of accounts.

He would record a payment to a service in cash. Steal the cash & pay the service much later by cheque.

Small amounts each time (100s) but regular and over long period. Stole over £200,000 from the club.

The entire cash account ended up being almost totally fiction ‘holding’ the £200,000 that he had stolen.

Question 9

How to Investigate Teeming & Lading

Answer 9

• tedious audit
• obtain all bank cheques
• digitise analogue records (e.g into a spreadsheet)
• line up payments chronologically
• Record the payment refrences carefully to try to tally up.
• Need to understand what services were being used (names being changed on payment references to try to avoid the ‘double payments’ being obvious.
• are electronic records photoshoped or manipulated
• need to present evidence in a way the jury (or initially CPS) can clearly understand (excel is good)
• I2 analyst notebook is good for visual representation of relationships and timelines.
• Microsoft Viso also good and Maltego