Fraud Trends from an FI to Law Enforcement (The Lost Tapes) with Guests Matthew Hogan and Ryan McKinnon

Wrestling Payments Podcast: Season 3 - Episode 06

In this episode of Wrestling Payments, host Joe Casali engages in an insightful discussion with Matthew Hogan, CAMS, a detective with the Connecticut State Police and a Task Force Officer with the USSS Financial Crimes Task Force, and Ryan McKinnon, Senior Deposit Operations Fraud Analyst at South Shore Bank. The conversation dives into the complexities of fraud detection and prevention in the financial sector, highlighting the collaborative efforts required between financial institutions and law enforcement.

Matthew Hogan shares his experiences investigating white-collar and cryptocurrency crimes, emphasizing the critical need for timely reporting and effective communication between banks and law enforcement to combat fraud. He underscores the challenges of prosecuting financial crimes, particularly those involving international actors and the increasing use of cryptocurrencies for money laundering.

Ryan McKinnon discusses his role at South Shore Bank and the importance of education and community outreach in fraud prevention. He highlights the need for financial institutions to stay vigilant and adaptive to evolving fraud tactics. Both guests stress the significance of bridging the communication gap between financial institutions and law enforcement to enhance fraud detection and ensure effective prosecution. This episode offers valuable insights into the ongoing battle against financial fraud and the innovative strategies being employed to protect consumers.

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Guest-at-a-Glance

💡 Guests: Matthew Hogan and Ryan McKinnon
💡 What they do: Detective / Senior Deposit Operations Fraud Analyst
💡Company: Ryan: South Shore Bank
💡Noteworthy: Matthew Hogan, CAMS: Detective specializing in white-collar and cryptocurrency investigations. / Ryan McKinnon: Senior fraud analyst focusing on deposit operations and financial crimes.

Key Insights

Financial Institutions and Law Enforcement Must Collaborate

Effective collaboration between financial institutions and law enforcement is essential in combating financial fraud. Financial institutions often detect red flags and see the fallout from scams, but without proper communication, the full impact of these incidents remains unaddressed. Law enforcement relies on detailed reports from banks to investigate and prosecute fraud cases. Unfortunately, there's often a communication gap, with banks unaware of the outcomes of their reports and law enforcement not providing feedback. Bridging this gap can enhance the effectiveness of fraud detection and prosecution, ensuring that both sides work together to combat financial crimes more efficiently. Regular interactions and feedback loops between these entities can significantly improve the overall response to financial fraud.

Cryptocurrency is a Major Vehicle for Modern Financial Fraud

Cryptocurrency has emerged as a significant tool for laundering money and committing various types of fraud. Its relative anonymity and ease of transfer make it attractive to criminals. Financial institutions and law enforcement are increasingly encountering scams involving cryptocurrency, from simple thefts to complex Ponzi schemes. Understanding the mechanisms of cryptocurrency transactions and the common tactics used by fraudsters is crucial for developing effective countermeasures. As fraudsters continue to innovate, leveraging cryptocurrency for illicit activities, staying informed and vigilant is vital. Both preventative measures and investigative techniques must evolve to keep pace with the rapidly changing landscape of financial fraud involving digital currencies.

Fraud Tactics Evolve but Core Elements Remain Constant

While the methods used by fraudsters continually evolve, the fundamental elements of fraud remain the same. Most scams involve creating a sense of urgency, presenting a problem or prize, and specifying a particular method of payment. This consistency allows financial institutions to develop robust detection and prevention strategies. For example, check washing, an old technique, has resurfaced and adapted to modern contexts. Understanding these core elements helps in recognizing and mitigating new fraud tactics as they emerge. Financial institutions must remain vigilant, constantly updating their strategies and educating their staff to recognize and respond to both new and recurring fraud schemes effectively.

Episode Highlights

Evolving Fraud Trends in the Financial Sector

Timestamp: [00:15:32]

The financial landscape has seen significant changes in fraud tactics, particularly during and after the COVID-19 pandemic. New types of fraud, such as PVP and EIDL fraud, emerged, while older methods like check washing resurfaced. This evolution shows that while the core elements of fraud remain constant, the techniques adapt over time. The challenge for financial institutions is to stay ahead of these changes and continuously update their prevention strategies.

"Fraud is not necessarily changing. You have the same core elements to every type of fraud or scam. There's a problem or there's a prize. They create a sense of urgency. They ask you to pay in a specific way."

The Role of Reporting in Combating Financial Crimes

Timestamp: [00:06:43]

Timely reporting of fraud cases is crucial for successful investigations and asset recovery. Delays can severely hamper the ability to recover victim assets, with only about a 10 percent recovery rate in some cases. The prosecution of these crimes is also challenging, particularly when the fraud is perpetrated by international actors. Financial institutions must ensure swift reporting to improve the chances of recovery and prosecution.

"In Connecticut, myself and my partner, Mike Grabowski, have seized about almost 4 million in victim assets in recovery. But that's less, about a 10 percent recovery rate. So we're losing about 90 percent of that because of delay reporting and other reasons."

Importance of Community Outreach in Fraud Prevention

Timestamp: [00:12:49]

Educating the public, especially vulnerable groups like seniors, is a vital part of fraud prevention. Financial institutions must engage in community outreach to raise awareness and provide practical tips on avoiding scams. This proactive approach helps empower individuals to recognize and report fraudulent activities, reducing their chances of becoming victims and aiding in broader fraud prevention efforts.

"We've been going out to local communities, speaking with seniors and talking about how they can arm themselves against these different frauds and scams. Our marketing team's fantastic, pushing out awareness items on social media and our webpage."

Challenges of Investigating and Prosecuting Financial Crimes

Timestamp: [00:09:29]

Investigating and prosecuting financial crimes is complex, particularly when dealing with international fraud and money laundering. Financial crime investigators must navigate various jurisdictions and legal systems, making it difficult to bring perpetrators to justice. The process often involves lengthy investigations, sometimes spanning years, highlighting the need for persistent and thorough efforts from both law enforcement and financial institutions.

"Any small case could actually be a big case after you start following the trail of money. It could be one mule leading to three or four more mules, making it a million-dollar case. Most of our cases are several months up to a year." - Matthew

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