How Can Businesses Prevent Cross-Border Remittance Fraud?
In cross-border remittance there are parties involved from different geographies. Click here to know about how crimical commit fraud and ways to prevent such frauds!
A few years ago, cross-border remittance transactions were tedious and took weeks to process. However, with global internet penetration, the finance industry has also leapt over the years.
Cross-border payment or remittance has become fairly accessible and takes anywhere between a few minutes to 3–5 business days to process. However, such conveniences often come with certain tradeoffs. One such tradeoff associated with cross-border payments is the risk of online fraud.
In this blog, we talk about what cross-border remittance is, how remittance fraud happens, and how businesses can curb these kinds of fraud.
What Is Cross-Border Remittance?
Remittance refers to money being sent from one party to another.
Cross-border remittance means cross-border transactions between companies, banks, and individuals in two separate countries.
Such transactions are typically used by expatriates to send money to their families or international companies to pay their overseas employees. However, criminals also use cross-border remittances for money laundering using crypto, tech, gaming, and BFSI businesses as mules.
How Does Cross-Border Remittance Fraud Take Place?
Although fast, cross-border remittance is a complex procedure. As parties involved in these transactions belong to different geographies, their jurisdictions also differ.
Cybercriminals use loopholes in the banking systems of different countries to commit fraud.
The Bangladesh bank heist is an unfortunate example where a cybercriminal stole $81 million within hours. Another incident involves America's Capital One Bank in Manhattan, New York, where a hacker gained access to about 100 million credit card applications and accounts.
Another common means of fraud is money laundering.
Several online casinos act as money mules for criminals. For instance, criminals often use huge sums of cash to buy chips at a casino. They return these chips to remit money to their overseas bank accounts.
Another example is crypto companies. Cybercriminals purchase cryptocurrencies using hard cash. As cryptocurrencies are decentralized and offer anonymity, no one can question the source of capital. Once bought, criminals sell the coins and get the money remitted to their accounts.
While some tech, crypto, online gaming, and BFSI companies are shell companies set up to launder money, many businesses are genuine. The latter must follow stringent methods to protect their clients and their business from being used for money laundering. Further, they should also reduce cross-border remittance fraud to a minimum.
How Can Businesses Curb Cross-Border Remittance Fraud?
Here's what businesses can do to curb cross-border emittance frauds:
- KYC Due Diligence: Any financial entity or business in the finance domain must verify customer identity using digital KYC solutions while onboarding. Additionally, businesses must perform KYC due diligence at regular intervals and rate customers based on the risk they pose. Business entities can rely on HyperVerge's end-to-end identity verification platform that seamlessly onboards and verifies customer identity accurately using AI against government records. HyperVerge also offers Video KYC, which businesses can use to verify a person's identity.
- AML Checks: Businesses need to perform AML or anti-money laundering checks to reduce their exposure to money launderers that often disguise illegally obtained funds as legitimate income using online border remittances.
- Advanced Monitoring: Businesses must opt for real-time and cross-channel transaction monitoring solutions. These can help detect mule accounts, unusual transaction volumes, transactions inconsistent with customer profiles, and customers with a past SAR/STR marked history.
- Watch List Screening: Smart screening solutions must be in place to screen clients against internal lists, sanction lists, remitter, or beneficiary lists to find potential defaulters.
- Advanced ML tools: A machine learning model that helps create a genuine transaction profile for every customer could also help. The ML model can easily detect and report anomalous patterns against customers' peer groups and past transaction history.
- Compliance: Businesses must comply with all the necessary regulations ensuring no gaps are left for hackers to exploit. For instance, entities such as banks and other financial organizations must comply with BSA regulations to prevent money laundering or fraud.
- Entity Link Analysis Tool: Entity link Analysis Tools are another impactful way of preventing remittance fraud. Such tools help discover any hidden relationships between parties that seem disparate but are somehow interrelated based on demographic profiles. They also help analyze transaction patterns and detect mule account schemes, thus preventing money laundering.
While cross-border remittance frauds are a serious issue and hard to prevent, businesses can reduce the risk to a minimum by taking precautions and following stringent guidelines.
Partnering with digital KYC service providers such as HyperVerge for accurate identity verification can further help curb cyber fraud in cross-border remittances.