SPONSOR BANKS: WATCH FOR SYNTHETIC IDENTITIES BEING USED TO LAUNDER THE PROCEEDS OF CRIME THROUGH YOUR FINTECH PARTNERS

As a former career money launderer, I was extremely cautious about laundering illicit profits through American financial institutions, due to the ability of bank compliance officers to spot the deposit of funds which had no legitimate origin. I therefore tended to work with cooperating businesses which were cash-intensive, and would allow me to supplement their legitimate cash income being deposited with my clients' criminal proceeds.

Sponsor banks should be aware that a similar method can be employed to clean the proceeds of crime through fintechs; a "talented" money launderer first assembles a number of synthetic identities, which are created by using a combination of real and fabricated information to result in what are essentially fake persons. While we are familiar with the widespread use of synthetics to commit fraud, in this case, the laundryman's goal is to have them pose as fintech customers or clients, to add to its legitimate income stream. Thus, the bogus "business" passing through the fintech, and into its sponsor bank accounts, is cleaned.

A criminal element within the fintech, perhaps even working without the knowledge and consent of management, can later find a way to divert that now cleaned dirty money in a variety of ways, such as consultants' fees, or payment for phantom supplies and services. The solution for sponsor bank compliance officers is to periodically vet a sampling of its fintech clients, to confirm that those represented to be customers are actually real individuals, and not synthetics. A smart sponsor bank already has such a program in place; call it proactive KYCC, Know Your Customers' Customers.