FATF warnings on risks of cyber enabled fraud – how to tackle those risks while relying on existing tools?

Background

Conscious of new risks arising from digitalisation, emerging technologies and evolving scam tactics, the Financial Action Task Force (“FATF”) published a paper raising awareness on threats of cyber-enabled fraud. This paper examines how to harness existing FATF standards to combat cyber-enabled fraud (the “Paper”).

Cyber-enabled fraud is now one of the most widespread forms of crime. Fraudsters rely on emerging technologies, such as AI and AI-enabled deepfakes, to enhance their criminal abilities. Fraudsters use phishing emails, fake websites, social media advertising, messaging applications and other cyber-enabled means to perpetrate scams remotely and at mass scale. This is further enhanced by the increasing use of virtual assets and instant and cross-border payment channels with insufficient dedicated mitigation measures.

Hence, in the Paper, the FATF examines how existing anti‑money laundering and counter‑terrorist financing frameworks can be used to (i) disrupt the threat, (ii) prevent criminal proceeds from reaching offenders and (iii) facilitate their recovery where transfers have occurred. 

FATF suggestions 

In the Paper, the FATF examines how i.a. national authorities, financial institutions or crypto-asset service providers can leverage existing FATF standards to tackle cyber-enabled fraud. 

The FATF reminds countries and financial institutions of the following steps which can help them in preventing risks of cyber-enhanced threats:  

• Improvement of payment transparency to improve traceability of proceeds, for example through “confirmation of payee” checks;
• Strengthening of asset recovery notably by establishing (i) rapid payment‑suspension and freezing mechanisms and (ii) non‑conviction‑based confiscation regimes;
• Regulation of crypto-assets and crypto-asset service providers should be tightened and harmonised to close gaps that enable misuse for cyber‑enabled fraud.
• Transparency over beneficial ownership;
• Stronger domestic and international partnerships between national anti‑fraud centres, supervisors and financial intelligence units (FIUs);
• Recourse to advance technology: FIUs and banks are (i) deploying machine‑learning models to spot unusual transaction patterns linked to fraud and other financial crime, and (ii) introducing payment risk‑scoring to prioritise prevention and investigation. 

Should you have any questions on the above, please do not hesitate to contact one of our experts of the regulatory team.