Fraud Trends from an FI to Law Enforcement (The Lost Tapes)

EPISODE SUMMARY
It happens to the best of us. This session was recorded last year, but got lost in the shuffle. It may be a crime as the interview was with law enforcement and a member financial institution (at the time) on the topic of fraud... the show notes below.

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. 

GUEST INFORMATION

Matthew Hogan
Detective
Connecticut State Police
(23) Matthew Hogan, MS | LinkedIn

Ryan McKinnon
Assistant Manager Fraud & Recovery
Charlesbridge
(23) Ryan McKinnon, CAMS | LinkedIn
(formerly Sr Deposit Operations Fraud Analyst with South Shore Bank)

KEY INSIGHTS
Financial Institutions and Law Enforcement Must Collaborate

Effective collaboration between financial institutions and law enforcement is crucial in combating financial fraud. Banks often detect scams but need proper communication to address the full impact. Law enforcement relies on detailed reports from banks to investigate and prosecute fraud cases. However, there's often a communication gap, with banks unaware of the outcomes and law enforcement not providing feedback. Bridging this gap can enhance fraud detection and prosecution, ensuring both sides work together more efficiently. Regular interactions and feedback loops between these entities can significantly improve the response to financial fraud.

Cryptocurrency is a Major Vehicle for Modern Financial Fraud
Cryptocurrency is a significant tool for laundering money and committing fraud due to its anonymity and ease of transfer. Financial institutions and law enforcement face scams involving cryptocurrency, from thefts to Ponzi schemes. Understanding cryptocurrency transactions and fraud tactics is crucial for developing countermeasures. As fraudsters innovate, staying informed and vigilant is vital. Preventative measures and investigative techniques must evolve to keep pace with the changing landscape of financial fraud involving digital currencies.

Fraud Tactics Evolve but Core Elements Remain Constant

Fraud methods evolve, but the core elements remain the same: urgency, a problem or prize, and a specific payment method. This consistency helps financial institutions develop effective detection and prevention strategies. 

Transcript

Wrestling Payments - Fraud Trends from an FI to Law Enforcement (The Lost Tapes)
Matthew Hogan and Ryan McKinnon
Season 3 Episode 6

Joseph Casali: [00:00:00] Hi, we have a special episode of Wrestling Payments here at the payments management conference. I'm just sitting here for a little bit of an introduction, and then I'm going to slide over to the other side of the camera and let these guys take it away. Could you guys introduce yourselves? 

Ryan McKinnon:  I'm Ryan McKinnon.

I'm with South Shore Bank.  I am in fraud, fraud operations.  I've been in banking for 16 years and a little, a little bit of everything. But where I find it, I find my passion is that investigative side of things that I've done. I've done BSA and fraud obviously ties so closely, closely together with that.

And that's where I find myself now, because for me, it's one of those things that you can make, you can make an impact on somebody's day.  so that's a little, little about me. I'm also the co-chair of NEACH's fraud committee. So I deal with a lot of the educational directors, developing sessions for things like PMC or the fraud forum in June and even some of the stuff you see in member meetings as well. So [00:01:00] that's a little about me. Thanks. 

Matthew Hogan: I'm Matt Hogan. I'm a detective with the Connecticut State Police. I'm a task force officer with the United States Secret Services Financial Crimes Task Force. And we do everything, general detective, but I do specialize in white collar and cryptocurrency investigations for us.

Joseph Casali: I've been here just a couple of days and I listened to both of you  talk within sessions, just regular sessions, fraud sessions. Can you talk a little bit about your session? 

Ryan McKinnon: Yeah.  Matt and I are doing a session together. Because  from my side of things, the financial institution side, we see the red flags, we see the fallout from a client who's experienced a loss, who's been victimized by a scam.  And as FIs, we don't always get to see the other side of things [00:02:00] of what Matt does.

So I think, bring unique situations, scenarios,  especially with mass crypto knowledge.  That's where a lot of our sessions will focus now. 'cause,  that's, I feel like a very big, big fraud avenue now. So to have him in that discussion and to enlighten our side of the equation on what you guys do, what you guys need and how, how that translates to people that he held accountable for victimizing,  people who've been stealing their honor and money. 

Matthew Hogan: Yeah, I think a lot of times the FIs and law enforcement don't communicate really well, obviously.

So I think this is a good opportunity for us to  really bridge that gap and talk about what we see from your perspective and vice versa, because a lot of times we'll go off of SARs even, and no one really talks about what happens after those are written, which is a huge deal. Obviously, I know financial institutions are always questioning what happens after the fact because we don't call and go, Hey, thanks for that great [00:03:00] job on that SAR.

It was fantastic. So I think that's a really important subject for everybody to know on their side of the house because we don't reach out afterwards. So we can, we're going to hit on a lot of topics that we're seeing. Obviously, crypto is a huge vehicle right now for laundering money. So we're going to touch on kiosks and pick butchering and all other kinds of frauds we're seeing.

So hit it all. 

Joseph Casali: So super interesting.  I have questions for both of you. So I'm going to start with you, Matt. Matt, you mentioned some initials yesterday is a,  there's an organization, an association that you belong to. that works on this  thing. 

Matthew Hogan: Yeah, so, well, there's a lot of law organizations. So IFCI is one of them. International Association of financial crime investigators. It's a mouthful,  but I work on their committees as well. I'm on the planning board committee for the Connecticut chapter. I'm also on the board for a cams Connecticut.  so we're trying to touch that everywhere with crypto because [00:04:00] it's everywhere now.

And everyone's  curious about what it is and how it works. But,  we're doing a lot with the crypto on the state side now too, because we are like feet to the fire with it. Now we were actually embedded with prominent banking,  working with them hand in hand with a lot of this because we needed that civil aspect from our criminal aspect.

Cause there's so much that happens on both sides of the house. We didn't have the opportunity. So now we do. 

Joseph Casali: Ryan, what, what are you seeing? So we have a survey from the, us, the payment associations going out, the survey, and it's a fraud survey. This one is to see, is it getting worse? Is it staying the same?

Can you, can you comment on that? And of course, not from your institution's perspective. Right. 

Ryan McKinnon: Yeah. Just in general, the fraud landscape, I feel like,  2020 really  changed a lot of stuff.  it, it, it brought a lot of new opportunities, a lot of new wrinkles, [00:05:00]   to,  you talk about,  the PVP and EIDL fraud that, that ha that happened during, during that time frame, that's when check washing started to really  rear his ugly head again, because check washing is something we all deal with every day.

And it's,  we've, we've all heard about it at different conferences and, and workshops.  but it's, it's, it's an old school thing. It's not, it's not like there's some brand new thing in that. And that, and that's honestly what fraud is. It's, it's, Not that it's getting worse. It's, it's, it, it evolves in Mm-Hmm, in it, in it's cyclical,  the,  what is hot right now,  we, as financial institutions put so much focus on preventing that because that's what's in the here and now, and,  the processes will dip off a, a little bit,  because you think about that from, from a, from a card perspective and how, how hot debit card fraud it was.

And then now the EMV chip is, is, is supposed to fix everything, right. It fixed in-person. Now, it's just a shift to online fraud and instead with, with, with that. So [00:06:00] 

Matthew Hogan: Fraudsters always learn that they evolve 10 steps ahead of us every time. 

Ryan McKinnon: Exactly. Exactly. And  that's, that's the constant battle is making sure that we're only staying a couple of steps behind and not letting them get,  so, so far ahead.

Joseph Casali: And I've gone to many conferences where the fraud story from the financial institution perspective comes up. And it's just horrifying. Can you write one day and give me some wins? Is there anything you could share? 

Matthew Hogan: Yeah. So I guess it's  case dependent, obviously,  when it comes to a lot of the cryptocurrency investigations we do, unfortunately time is of the essence with those.

So,  delayed reporting,  hampers a lot of those successes.  I will say that 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 another and other reasons.

But also on the other side of the [00:07:00] coin is the prosecution aspect. And we don't have a lot of wins there because a lot of these are overseas frauds,  perpetrated overseas everywhere from the laundering,  all the way down to the actual phone calls. So there's not a lot in the U S. So what we try to do is go after the mules.

A lot of times. And there's also a problem with that, where are they winning or unwitting? Are we dealing with another victim of a romance scam? Are they, how do we prove that? Will the prosecution even accept the case in the first place? So there's a, we have a lot of trouble with frauds in general.

So I will say we have had a really good set of cases where we have arrested mules. Because we were able to prove without a doubt that they were laundering money on behalf of themselves, taking profits, and it was very obvious what they were doing. But, by and large, most of them were romance scam victims, unfortunately.

Joseph Casali: I have a bunch of questions for you now. So, when those cases are filed, or, or, in the courts, Federal, state, where do they, [00:08:00] where do they live? 

Matthew Hogan:  It depends. So, I have the luck, I guess, of  going both sides of the house. I can take them state or federal because of my TFO position. So,  if the state doesn't take them, a lot of times I will try and take them federal.

But it has to be obviously appetizing in some capacity for them because they are so inundated with case work. So dollar amounts have to matter,  or there has to be some  hot button topic, whether it's older, they're 65 plus or something like that,  or if there's some other extenuating circumstances that make it more attractive for them to want to take,  stateside, it's the same problem.

What we wind up doing is we're, we take everything the feds don't take. And dollar amount wise, and then we get really inundated because that's a wide swath of, it could be anywhere from 7, 000. We heard this morning, all the way to six figures. So that broad gap is difficult for us to handle because there's no specialization for financial crime investigators.

A lot of times most agencies, if the agency does have that, they're very lucky, but most don't. 

Joseph Casali: And so [00:09:00] say, Ryan, I know you are in a Massachusetts institution and you're in Connecticut. When hypothetically Ryan reports to his local police or actually I'll just lead that in. What is the process? How could he expect a case to be solved by reporting it to his local jurisdiction?

How does that, how does it, how does it flow? 

Matthew Hogan: No,  I wouldn't say, should expect that because you don't know where it's going to go.  any small case could actually be a big case after you start following the trail of money,  It could be one mule taking to three or four more mules making it a million dollar case.

We don't know.  and the timeframes of these cases are obviously astronomical. None of them are solved in like TV, 30,  30 minute sessions, not going to solve it. Most of our cases are several months up to a year. I'm working a case on the retail fraud side. That's almost two years.

So they go a long time depending on where, where it comes. I have a crypto Ponzi scheme case. It's [00:10:00] almost,  almost two years, a year and a half right now. But there's just so much. And then you start getting reports from other banks and other institutions. We have to ingest that data and try and follow it.

It's just, we don't know. And again, that's part of that communication thing. Like he doesn't know that unless we call and tell him that either. So they're like sitting there twiddling their thumbs. What's happening? Right. We don't do that. So, 

Joseph Casali: And I,  I don't want to say you rock my world, but I watch a lot of law and order, so it's not solving one.

It sucks. No, 

Matthew Hogan: It's not 30 minutes. I wish it was, believe me, but no. 

Joseph Casali:  Ryan, we were talking earlier and you, you,  can you talk a little bit about your path? One of the things NEACH focuses on is education, and we just remodeled around schools of training. Can you talk about just your personal career and how it progressed?

Ryan McKinnon: Yeah,  I honestly, I grew up around banking,  because both my dad and my stepmom are both in the industry.  So I was fortunate enough that,  during college, I worked at an institution. I started doing [00:11:00] online banking support and debit card fraud.  Related items. I helped that bank in their launching of their online banking platform,  back then to the mobile app.

It was cool. So, so,  and I really, I really  started to like the investigative aspect. They came along with some of the things you would see with these debit card disputes. And that's,  when I went out to get my first real big boy job,  I, I, I found, I found a position,  at a, at a community bank,  in, in Newton and I,  there was a BSA role and,  and so I was going to be able to  take that,  investigative aspect that I, that I really liked and  carry it further.

And I did 10 years in BSA. Five as an analyst. Five as a BSA officer  and I found that,  for me, it was,  more and [00:12:00] more as time went on fraud was becoming so much more. I don't know whether it's become more prevalent, or whether it's,  the detection's gotten better, or, or what, or what it,  truly is, but,  fraud was intersecting more with my life day to day,  and that, and that's really where, like I said off the top, found that passion because for me, having that client interaction, having that ability to impact somebody's day, it makes a difference for me now.

And  that's what led me to be part of NEACH's frog company. That's part of the initiatives that we're working on at Southshore right now, myself and Joanne Tully, who is our community relations officer,  have been going out to local communities,   speaking on with with seniors and talking about,  how do they arm themselves against these different [00:13:00] frauds and scams out there because we do a great job.

Our marketing team's fantastic. They do a lot, in terms of engagement with  Facebook, LinkedIn, Instagram,  definitely pushing out a lot of,  not just  product,  content,  it's stuff involving us involved in the community, but also just awareness items,  whether it be through those, whether it be on webpage, things like that. But the seniors aren't always on that.

They might not be accessible. So that's where we've taken that piece of things and that's been such a great exposure and networking opportunity,  and that's where coming to things like this and connect,  I've met Matt before, but,  I feel like over the last couple of days,  I've connected a lot more with him and then even other like-minded  people at different institutions. Sometimes you need to be able to get in touch with a real person on the other end,  when you're working a fraud case to be able to actually recover money.

And if you don't have contact, sometimes that's tough to do. So, the export case, exactly. So taking opportunities like this, coming to PMC can make it,  not just,  expanding your knowledge from the sessions, but also the interpersonal stuff and get from it.

Joseph Casali: Excellent. So let's jump back to your session for a minute. Anything you want to talk about your session?  things people should remember, things people should look into. Do you have it yet? No, it's tomorrow. So as a prep, 

Matthew Hogan:  Yeah. Yeah. It's going to be about fraud and intelligence, the new fraud trends that we're seeing between the both of us.

So  we're covering such a broad swath of things. We're  just going to hit, hit all the hot topics that everybody knows about just  going in depth of what we're seeing. [00:15:00]  but I guess the takeaway would probably be,  be aware that,  the frauds aren't really changing, 

Like you're still, you're still dealing with the money mules. You're still dealing with romance scams instead of wire transfers are now using crypto,  Or they're just modifying the vehicle of transport of money as opposed to what it used to be. So I think that the takeaway is don't think that the frauds are really changing.

They're all the same. They're just moving with time and just think slightly more enhanced. They're using AI now, obviously for a lot of that stuff too, like the session today. 

Ryan McKinnon: And the way that I look, look at fraud, as you said, like 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.  They all have that same thing, but I guess I can sing a song as a pop song. I can sing it as a country song.

I can sing it. R&B it's all the same thing. I'm singing the same [00:16:00] lyrics, but in a different manner. So whether,  you have a romance scam or a job scam,  and what they use in terms of tactics and vehicles,  

Matthew Hogan: Frank Abagnale was in check fraud,  40 years ago, exactly.They're still doing it now. 

Ryan McKinnon: Exactly. So that really, nothing's changing with it. It's just an evolution of how it's done. 

Joseph Casali: Last question for me, and then you can add anything you like. The unwitting mule. What three tips, what five tips would you tell someone to realize you're someone's making you a mule?

Matthew Hogan:  First, it's too good to be true. Probably is right. And,  that's always been true so far. It seems like investments with a lower risk are probably high risk. There's no such thing, when we're dealing with these scams, unfortunately, [00:17:00] and if you've never met the person in person,  you're probably not talking to a real person.

Ryan McKinnon: Exactly. And  the caveat to that is in person, like you and I are here today, not in person that you, you FaceTime or Skype, because as we talked about,  a moment ago with AI,  the technology has evolved with being able to,  

Matthew Hogan: E-meeting doesn't count. 

Ryan McKinnon: Yeah, exactly.

Exactly. Like that, 10 years ago, that was a different story though. I would feel a lot, a lot better about, Oh, you Skype with them. You FaceTime with them. Oh, that, Great. Like that, that makes me feel a lot better as a financial institution,  but now,  with the evolution of technology, I can't, I can't trust it anymore.

They said they saw them, but the picture was  funny. They can blame that on some connection issue or  the image was dark. Oh,  my,  my, my roommate's sleeping and,  I don't, I don't want you to disturb them, but [00:18:00] yeah.

Hey, I'm, I'm on with you. It's an evolving landscape. 

Matthew Hogan: Don't be afraid to report it though, either. That's the biggest problem we have. Most, at least on the more senior side of the house, not so much the, I guess,  forties, thirties aren't necessarily as scared to report it, but seniors definitely are scared to report it.

And  for many reasons, and they don't want to lose their ability to pay. They don't want to get those rights taken away from them.  They're just scared in general,  embarrassed. So we see a lot of, so,  I think it's good for community and regional banks because you guys have that, like, person-to-person contact.

Whereas,  the big banks of the world don't really have any more or they've removed the brick and mortar. And I think that is a big problem down the road for what we're talking about. So knowing that if you were a victim, don't be afraid to report it.  don't be embarrassed. We've all been there.

I've talked to a million victims at [00:19:00] this point, and we've heard every story you can think of. So,  if you are a victim, don't be afraid to report it. 

Ryan McKinnon: And that's something that I definitely take in my own personal approaches. A lot of these people, as you said, they're either ashamed, they feel stupid. 'cause because now, now they're able to sit back and play Monday morning quarterback, which, when they're wrapped into these situations. These fraudsters are professionals. They're good at what they do. And that one thing I try to hammer home with 'em.

Like, you're not the first person this happened to. You're not gonna be the last So what you need to take away from this is how do you not become a victim again? And how can you share that information with those around you? How do you get comfortable with the situation with yourself and to be able to share that information.

So those, so those around you don't, don't maybe, maybe fall into the same trap because if we aren't talking about it with, with the consumer end of things, then nothing’s going to change. Cause we don't, we can have all these great fancy softwares. We [00:20:00] get, we can do so much internal training and do all that.

But until you change how the general consumer is thinking about things, that's where, where this battle against the fraudsters really starts to, starts to shift. 

Matthew Hogan: And the front office really needs to recognize that too, especially the training part. Cause I think a lot of times they're so in the mode of business,  how can I help you?

But they forget to be human a lot of times too. And they, and they, you lose on those cues from other potential victims or, whoever. So I think having that human connection where you remove yourself from being that business person is really important a lot of times because you'll, they'll, they'll probably more likely open up to you.

Like if I'm sitting there as Joe cop with my uniform on, you're not going to want to talk to me as tightly as if I was just like relaxed and easygoing and maybe,  dress more casually. You're probably gonna want to talk to me more easily than some ridiculous uniform that we wear.

Joseph Casali: Excellent. Anything else? This was great. 

Ryan McKinnon: Yeah.  I feel, I feel like,  yeah, [00:21:00] excited, excited, excited for the session tomorrow. I've talked to a handful of people, and,  Joe, I'm like, you're gonna come to my session tomorrow. They're like, yeah, we're, we're coming early. I'm like, I didn't just guilt you into that. And they're like, no, honestly, it seems like,  there'll be some good around it.  Just like there was a lot of good engagement around the pre-conference workshop.

Joseph Casali: It comes from a couple of great people who came up with this. The combination is really good.  It's not just a banker, it's not 

Ryan McKinnon: just a law 

Joseph Casali: enforcement. It's needed. Yeah. Excellent. All right. guys. 

Ryan McKinnon: Yeah. Thank you.