Federal Law Enforcement on What the Industry Needs to Know About Fraud Trends

(From left: Lawrence Cameron, Stephanie Glad, Stavros Nikolakakos and Laura Walker, by Anneliese Mahoney)

WASHINGTON–“The bad guys are always finding new ways to reinvent themselves,” said Stavros Nikolakakos, the deputy special agent in charge of the Washington field office, United States Secret Service.

Nikolakakos was discussing fraud risks to the mortgage banking industry as part of a panel featured at the Mortgage Bankers Association Compliance and Risk Management Conference Sept. 29.

The industry needs to be aware of the latest trends or tricks being perpetrated by fraudsters, the panel noted. Nikolakakos said that the mortgage industry is a “high-value target” due to the amounts of money being exchanged.

Laura Walker, supervisory special agent in the Washington field office for the Federal Bureau of Investigation, said she sees fraud–specifically business email compromise–perpetrated with home closings, where victims are tricked into wiring money for a transaction to a bad actor.

Walker also listed as an example home stealing scams, where people file a quitclaim deed, basically taking over a property, thereby allowing them to either take out a mortgage on the property or sell it.

Stephanie Glad, program manager-mail fraud, for the United States Postal Inspection Service, said there’s significant crimes related to mail theft and check fraud, but there are things individuals can do to protect themselves.

She recommended that anyone sending checks through the mail–still a common practice for some real estate transactions–take precautions, like going to the post office in person (as opposed to using a mailbox or collection box). When it comes to avoiding the washing of checks, she recommended using a felt-tip pen.

“When you’re sending a check in the mail, make sure it gets to who it’s supposed to,” Glad said. “Oftentimes, these criminals will open up an LLC in a name that’s very similar,” she gave as an example of how a check could be cashed by a nefarious party.

Moving from lower-tech scams to the higher-tech category, Nikolakakos warned about ransomware and phishing schemes, urging training and education across firms.

One trend is that once criminals get some sort of money out of a financial institution, they’re quickly transferring it to some sort of cryptocurrency. “And once you move it into the crypto world, the money can be anywhere,” he said. “They can move it 10 times.” It all happens very quickly too, he cautioned, and limits how much law enforcement can help recover the funds.

Moderator Lawrence Cameron, a partner with Troutman Pepper Locke, underscored that point. “Foreign banks that have correspondent bank accounts with U.S. institutions, they are subject to legal process,” he explained. “But a lot of these cryptocurrency exchanges that don’t have–or at least nominally don’t have–a U.S. presence, their position is–many of them–is that they’re not subject to U.S. jurisdiction and therefore don’t respond to U.S. legal process.”

Officials are also seeing romance scams continue to play a big role in fraud. Traditionally, romance scams lead to the victim sending money to the scammer, but a newer trend is that such setups are being used to launder or wash money, too.

For lenders or others in the industry dealing with transactions, Nikolakakos offered some further advice, pointing to the necessity of communication and education with customers. Show them the email address you’ll be using and encourage them to come in person with a cashier’s check. If they need to contact you, make sure they do so through a number that’s already saved on their phone, not one they pull off a website or from an email signature.

Firms also need to make sure they’re reporting any witnessed or potential fraud, and keep the lines of communication open with officials, the panelists stressed.  

“I think the thing that is probably one of the largest risks to lenders and to mortgage servicers is failing to file suspicious activity reports and failing to have sufficient controls in place for BSA/AML compliance more broadly,” Cameron said.