US Treasury Publishes Suspicious Activity Report Highlighting Crowdfunding Scams & Frauds

Danger ElectricutionThe US Department of Treasury, via its FinCen or Financial Crimes Enforcement Network, is ringing warning bells when it comes to rewards based crowdfunding. FinCen notes a rise in “suspicious activity reports” (SARs).

In a report published this past week, FinCen spotlighted rewards based crowdfunding as capturing “unwanted attention” from the wrong types of users. Though small in number overall, their data indicates a rise in the number of complaints and campaigns that are associated with illicit activity;

In 2014 and thirty-eight through May 2015. The figures through May 2015 represent a 171% increase over all of 2013. Wide accessibility, ease of use, and limited fraud controls can make rewards-based crowdfunding platforms susceptible to financial abuse. SAR analysis indicates that crowdfunding sites have been used as a layering and comingling mechanism in money laundering and fraud schemes, often before participants withdraw funds or move them further through the financial system.

The nefarious use includes: money laundering, fraud, terrorist financing and other criminal activities. FinCen states that “common forms of illicit or suspicious activity” include credit card fraud, identity theft, account takeovers, phishing – all targeting the crowdfunding space.

In detailing the money laundering issue, FinCen provided the following bullets:SARs Crowdfunding FinCen Treasury

  • Personal bank accounts funded by cash deposits from unidentified individuals and checks from foreign businesses. The funds were then transferred to crowdfunding sites.
  • Wire transfer activity from the U.S.-based account of a foreign political party to a foreign country. This account was funded by personal checks drawn on foreign banks, online money transmitter transfers, out-of-state cash deposits, and deposits from crowdfunding sites.
  • Individuals received deposits from crowdfunding sites, followed by structured cash withdrawals from the accounts.
  • Customers received electronic deposits from multiple checking accounts, then immediately made payments to crowdfunding sites.
  • An account relationship (personal and business account) funded by a high volume of personal checks, money transmitter payments, and crowdfunding payments was sending a large volume of wires to a high risk country.

Stop FraudRegarding terrorist activity, FinCen stated there were limited reports but described at least one SAR as;

“…indicating “Terrorist Financing” as the Suspicious Activity Category was filed on an individual who was receiving funds from a crowdfunding campaign raising funds on behalf of an individual and his organization located in a high risk country, advocating violence. The publicly available information on the transaction parties, account holders and crowdfunding campaign led this bank to suspect a possible terrorist connection.”

It should be noted that none of the reports referenced investment crowdfunding which has remained largely fraud free since the new form of finance came into public awareness.

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