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Feedzai, a provider of financial crime and risk management solutions, has partnered with Mastercard to fight money mules who launder stolen funds from banks to crypto exchanges.
In November, Feedzai announced that it will integrate Mastercard’s crypto intelligence solution, CipherTrace Armada, into its financial RiskOps platform.
Feedzai’s RiskOps is a suite of AI-based solutions designed to stop fraud and financial crime at its source, aiming to alert banks “in milliseconds” when a transaction appears fraudulent.
In its most recent fiscal year, RiskOps analysed more than 19bn transactions worth a combined $1.7trn from across its 200 corporate client users.
Meanwhile, CipherTrace Armada helps banks, crypto exchanges, wallets and other virtual asset service providers (VASPs) to assess fraud risk in digital asset transactions.
CipherTrace Armada facilitates anti-money laundering (AML) compliance by providing financial institutions (FIs) with added visibility into know your customer (KYC) and due diligence processes among VASPs.
It also supports banks’ existing transaction monitoring tools to identify transactions with VASPs, including those with weak KYC or operating as unregistered money service businesses (MSBs).
In September 2021, Mastercard acquired CipherTrace for an undisclosed fee.
Crypto still high priority for AML professionals
The launch of the partnership follows the publication of Feedzai’s annual report, ‘The State of Global AML Compliance’, in August this year.
The report is based on a survey of 271 employees at 77 FIs globally, with roughly even splits between analyst, manager, senior manager and C-suite respondents.
Among the report’s findings, there was broad agreement that regulations have been “effective” at preventing money laundering.
Almost one in five respondents said regulations have been “very effective” in preventing money laundering, while 70 percent said regulations have been “somewhat effective” at preventing money laundering.
Source: Feedzai
At the same time, however, over half of respondents said that money laundering activities are “broadly related” to crypto transactions.
Pedro Barata, co-founder and chief product officer at Feedzai, said that money laundering methods are growing in complexity and are embracing technological advancements.
“The volume and complexity of transactions is growing exponentially,” he said, while “the monitoring of cryptocurrencies (effectively) still challenges many of our respondents.
“Growing use of digital payments invites new money laundering techniques,” he added.
A majority - 60 percent - of respondents said they are already using technology to monitor crypto transactions.
This may explain why only 10 percent of respondents called for “more investment in tech” to “reduce money laundering and associated crimes”.
Instead, as Vixio has reported previously, about 70 percent of respondents said that FIs should collaborate more with each other, with governments, or should focus more on the link between fraud and money laundering.
Mastercard looking closely at instant payments fraud
Another product launch from Mastercard earlier this year puts the focus on real-time payments fraud.
In July, Mastercard launched the AI-powered Consumer Fraud Risk Solution in the UK.
In partnership with nine UK banks, including Lloyds, Halifax, NatWest, Monzo and TSB, Mastercard uses large-scale payments data to help identify instant payment scams before funds leave a victim’s account.
“Organised criminals move scammed funds through a series of so-called mule accounts to disguise them,” Mastercard said in statement.
“To counter this, for the past five years Mastercard has worked with UK banks to follow the flow of funds through these accounts and then close them down.”
Based on insights from this tracing activity, and overlaying them with certain analysis factors, the solution aims to provide banks with the intelligence necessary to intervene before funds are lost.
The analysis process can include factors such as account names, payment values, payer and payee history, and the payee’s links to accounts associated with scams.
TSB, one of the first banks to adopt the solution, said that in its first four months of use it was able to “dramatically increase” its detection of fraud.
Were all UK banks to adopt the solution, TSB said it could save consumers almost £100m in losses to authorised push payment (APP) fraud over the course of year.
This is based on UK Finance’s Annual Fraud Report for 2022, which found that total losses to APP fraud were £485m for the year.
Information sharing is key
Feedzai has said that combining its own transaction monitoring intelligence with Mastercard’s crypto intelligence will help to “instil trust” in the digital asset ecosystem.
At present, based on Feedzai’s estimates, about 40 percent of scam transactions exit directly from a bank account to a crypto exchange.
Speaking to Vixio earlier this year, Mike Nathan, head of global solutions consulting at Feedzai, said the rise of instant payments has made the money mule stage of this process much easier for criminals.
“Once fraudsters have received an instant transfer from their victim, they’ll use the same system to transfer funds to a different mule account, a tactic known as 'layering',” he said.
“They’ll repeat the process multiple times, to second- and third-generation mules, making it harder for banks to track where the payment ultimately wound up.”
The cat-and-mouse game between FIs and criminals has led several jurisdictions to move towards new frameworks that will allow greater sharing of AML intelligence between FIs.
One such jurisdiction is Singapore, where details on its new platform for Collaborative Sharing of ML/TF Information and Cases, or COSMIC, were published last month.
Concerns over fraud were also prominent in Vixio’s 2024 Payments Compliance Outlook report.
Based on a survey of the UK, US, Germany and other jurisdictions, about one in four respondents said that fraud was the “greatest threat” to their organisation over the next 12 months.
