Elder financial exploitation: What you need to know
AML AND COMPLIANCE NEWS |
The Consumer Financial Protection Bureau (CFPB) issued a 36-page report in February 2019 detailing issues and trends relating to elderly financial exploitation (EFE). A disturbing trend developed over the course of five years, when FinCEN changed the suspicious activity report (SAR) format. Since 2013, over 180,000 EFE SARs were filed, involving more than $6 billion in funds. SAR filings related to EFE quadrupled from 2013 to 2017. In 2017, EFE SARs totaled 63,500, with many believed to be unreported. The statistic-filled report can be found on the CFPB website. The trends relating to the large increase in EFE SARs can be attributed to a few factors.
The first factor is related to technology. Between social media and easy access to email, phishing scams luring older adults to respond to a message in which a stranger approaches them about a monetary award, reward or benefit is becoming more prevalent. The reason the scams are becoming more prevalent is due to the scheme’s success rate as detailed within the CFPB report. More detail relating to the most common types of scams are described below.
The second factor is related to private data. How many times over the past decade have you heard of a data breach that has occurred at credit agencies, government agencies, social media companies, hotels, hospitals, large retailers and financial institutions? Each time private data are compromised, scammers use that information to target older adults. The scammer, having obtained all sorts of personal information illegally, can then target older adults using their date of birth or possibly other means depending on the information obtained.
The third factor is related to an updated SAR format. In 2013, the Financial Crimes Enforcement Network (FinCEN) introduced a new field in which a filer has the option to select “elder financial exploitation,” or checkbox 35d. In addition, the dramatic increase in EFE SAR filings is more than likely due to the adoption and training within the industry relating to elderly financial exploitation.
This is the first public analysis of EFE SAR filings since introduction of the designated category for elder financial exploitation.” Financial institutions are uniquely positioned to prevent and respond to elder financial exploitation because they often come in contact with victims and/or perpetrators. They usually know their customers personally. In addition, financial institution personnel frequently have the opportunity to observe how funds move from the older person to the perpetrator. The trends cited within the report are staggering. Not only has the amount of EFE SARs filed drastically increased over time, so has the money lost to the scammers. In about 75 percent of the filed EFE SARs, the targeted older adult loses money. And on average, the targeted adult loses about $34,200. The filer of the EFE SAR loses only about 9 percent of all EFE SARs filed. The average amount lost per filer was $16,700.
It is important for filers to know how the scammers work and who they are. The CFPB report details the most common suspects include family members and strangers. Scams are defined as “scams” by the filer of the SAR itself or described within the SAR as a scheme involving the transfer of money to a stranger for a promised benefit to be received by the older adult, but the older adult will never receive. Non-scams include a broad array of activities, such as theft by family members or others known to the older adult, account takeovers, identity theft and other crimes. The first scam is referred to as a “romance scam.” Romance scams include the older adult sending money, normally outside of the United States, in order for the scammer (referred to as girlfriend, boyfriend of fiancé) to come visit them. The older adult will claim to have met this individual online, but will have never met the scammer in person. Another common scam that older adults face is exploitation by a family member or fiduciary. Financial institutions can review an older adult’s bank statements for transactions that were not commonly made by the older adult. The examples include: liquor store purchases, casino gambling, ATM withdrawal activity, checks made out to family members, etc. It is also important to note when the older adult comes into the financial institution, who he or she is accompanied by for cash withdrawal activity. Not only does the financial institution have to be mindful of family members and fiduciaries, but also theft by a caregiver is common. The last common scam is referred to as the “money rule,” which is when an older adult receives and sends numerous money transfers over the course of a few months. Funds normally come in from outside the United States and are then sent to another destination (normally outside of the United States as well) by the older adult. The scam is often referred to as “flipping” and the older adult is the victim of a “person in need” scam. When questioned by the financial institution, the older adult will normally provide a vague description of the individual in need. The CFPB provides as an example “sending funds to a nephew to help pay for food and educational expenses.”
The CFPB provided some valuable statistics related to these scams, not only by financial institutions but also by money service businesses (MSBs). Approximately 70 percent of MSB EFE SAR filings were related to scams. Romance, relative in need and lottery/sweepstake scams were the most common types of scams described in these filings. Only 27 percent of EFE SARs filed by financial institutions involved scams. The most common suspects for MSB EFE SAR filings were strangers (no statistic or percentage was provided by the CFPB), whereas the most common EFE SAR filings for depository institutions were known suspects (66 percent). More than half of the EFE SARs involved a money transfer (52 percent) and the second most common product that was used was checking or savings accounts (44 percent). Filers should be able to monitor an older adult’s accounts by a variety of methods, as we will describe below. The filer should closely monitor outgoing funds from older adult’s accounts. Not only would large outgoing payments be atypical for older adults, but also the CFPB concludes that it is the most common way older adults are exploited.
The CFPB report also informs that less than one-third of EFE SARs indicated that the filer reported the suspicious activity to a local, state or federal authority. So when should the financial institution report elderly financial exploitation to the authorities? According to the March 2016 CFPB advisory for financial institutions on preventing and responding to elder financial exploitation, the financial institution must be aware of state reporting mandates. The financial institution should have clear guidelines for reporting requirements and when it is necessary to report exploitation to relevant federal, state and local authorities.
RSM recommends all financial institutions review and consider the following:
- Front-line personnel training—personal bankers, tellers, new deposit representatives and customer service providers who have direct interaction with financial institution customers, including older adults, will be essential for reporting suspicious activity relating to older adults. Does the financial institution have sufficient training in place for front-line employees?
- AML system monitoring—many financial institutions have moved on from manual report processes to advanced mass data systems that monitor daily, weekly and monthly activity of customer accounts. The most common types of mass data system used by financial institutions are automated AML data systems, which monitor an array of transactions and can also recognize other suspicious activities, including cash structuring and ATM withdrawals. Is the financial institution’s AML system monitoring properly set for monitoring of elderly financial exploitation? Has the bank completed an AML system validation recently?
- Collaboration—SAR committees are becoming more common within the industry. Before SAR submission, is the financial institution discussing the merits of filing a SAR? Elderly financial exploitation does not have a threshold dollar amount to be reported. It is important to emphasize to financial institution personnel what constitutes as “suspicious activity” and allows for the activity to be reported through channels in order to get to the SAR committee. Is your institution discussing suspicious behavior or activity relating to older adults account activities?
- Offering age-friendly services that can enhance protections against financial exploitation–often times, these accounts have the word “senior” or phrase “60 plus” included within the title of the account and as part of the account features, the customer is required to prove age at account opening. Does the financial institution offer deposit products that are tailored to older adults? The features can include but are not limited to the following:
- Setting up a power of attorney at account opening
- Offer transactional daily limits
- Offer alert notifications for authorized third parties for suspicious transactions