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#Financial Crime Prevention

US SAR stats turns spotlight on crowdfunding

International Compliance Association

crowdfunding , Financial Crime , FinCEN , SAR , US

If there’s a gap in the market, you can guarantee that some bright spark will fill it. The same ingenuity also thrives in financial crime. The high-tech world we live in is the perfect breeding ground for new types of threat to emerge. As in the classic Whac-A-Mole game, as soon as one threat is knocked on the head, another is almost certain to pop up somewhere else.

It’s a theme illustrated by the US Treasury Department’s Financial Crimes Enforcement Agency (FinCEN), which in October published its latest (suspicious activity reports) SAR Stats Technical Bulletin, analysing almost 3.1 million filings from March 2012-December 2014.

Among the mass of statistics, the report highlights a still small but growing trend in illicit activity, noting that filings relating to rewards-based crowdfunding in the year to May 2015 were almost three times that for the whole of 2013. That growth mirrors the expansion of crowdfunding as a finance source. According to research from Massolution in April 2015, global crowdfunding grew by 167 per cent between 2013 and 2014, rising from $6.1 billion to $16.2 billion.

Bogus campaigns 

Back to the SAR Stats. Annual filings relating to rewards-based crowdfunding may still only be in double figures but big money is involved. From January 2010 to May 2015, reported transaction amounts for sector-related SARs totalled US$27.9 million, with filings falling into activities including money laundering, fraud and structuring. A cross-section of types of abuse flagged up included:

  • bogus crowdfunding campaigns, with the funds provided through ‘copycats’, set up to resemble legitimate campaigns, immediately withdrawn
  • those behind campaigns taking the money donated but not following through on projects
  • campaigns fully financed using stolen credit cards, with funds sent to an online money transmitter account that had been fraudulently take over and then withdrawn
  • funds donated to crowdfunding sites from personal bank accounts ‘funded by cash deposits from unidentified individuals and checks from foreign businesses’.

Just to illustrate the point, days after the FinCEN report was released, the US Securities and Exchange Commission (SEC) announced it had filed a civil action against Ascenergy LLC and chief executive Joseph ‘Joey’ Galbadon for offering fraudulent oil and gas investments, with a temporary restraining order to halt the offering and orders freezing the defendants’ assets. The SEC said around $5 million had been raised through the company’s own and crowdfunding websites but only ‘a few thousand dollars’ of $1.2 million spent appeared to have been used for oil and gas-related expenses.

Massolution’s research suggests that global crowdfunding in 2015 will total around $34 billion. With money like that around, it seems likely that more savvy criminals will jump on the bandwagon with a view to making a quick buck or laundering illicit money. So the SAR Stats report looks set to be a timely warning to crowdfunding platforms and legitimate users and supporters to be on their guard.

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