Financial fraud and financial crime evolve as technology advances and moves beyond the boundaries of the traditional banking system or beyond what we have known in recent years, following the rapid growth of the digital financial market.
Based on data included in MOKAS' annual report for 2024, reports of suspicious transactions and activities submitted by all categories of obliged entities showed a significant increase and it emerges that technology has changed the type of fraud.
Specifically, reports of suspicious transactions and activities increased by 62% in 2024, reaching absolute numbers of 3,870, compared to 2,396 submitted in 2023. It is noted that 1,501 reports related to suspicious transactions (STRs) and 2,369 suspicious activities (SARs).
In previous years, the word crypto-assets was almost unknown in the wider financial space or few knew about it. Today this is not the case but, as can be seen from the recording of data in the report, crypto is an outlet for suspicious transactions. It is indicated that the number of reports of suspicious transactions by service providers in crypto-assets, which are licensed in the Republic of Cyprus and supervised by the Cyprus Securities and Exchange Commission, is particularly increased.
The Unit states that transactions in crypto-assets present significant money laundering risks, due to its global reach and speed of transfer.
Criminals can exploit these features to conceal the origin of illicit funds, transfer large sums making it difficult for authorities to detect, and circumvent traditional checks. To explain that the law defines as a crypto-asset the digital representation of value, which is not issued by a central bank or public authority and does not have the legal status of currency or money.
In the report of the Countering Cover-Up Offences Unit and the Financial Intelligence Unit, it is noted that in 2024 crypto-asset service providers submitted 19.6% of all suspicious transaction reports received by MOKAS.
The Central Bank often urges the public to be cautious when it comes to investing in crypto-assets, given the risks involved, financial losses and fraud.
The CBC emphasizes that, despite optimism about the potential of blockchain technology, crypto-assets and their practical use remain questionable. Crypto-assets have faced challenges, such as excessive volatility, highly speculative transactions, fraud incidents, and a lack of trust due to inadequate regulatory frameworks and infrastructure.
In addition, crypto-asset-related activities continue to be considered high-risk under certain regulations, such as anti-money laundering and countering the financing of terrorism regulations.
Banking Industry
The banking industry has traditionally been one of the largest reporting providers. In 2024, according to the annual report of MOKAS, 676 reports were submitted by banking institutions, a number corresponding to 17.47% of the total reports submitted, recording an impressive increase of 44% compared to 2023.
According to the report, suspicious transactions by industry are: 1,369 cross-border reports from the EU's Financial Intelligence Units (FIU) platform (XBR Cross-border Reports), 760 from crypto-asset service providers, 676 from banking institutions, 370 from electronic money institutions, 347 from investment service providers, 152 from money transfer companies, 84 from gaming service providers; 36 from companies providing administrative services, 26 from lawyers, 19 from accountants/auditors, 31 from other obliged entities.
Ten indicators of suspicion
The report lists the ten suspect indicators that were most selected by obliged entities when reporting in 2024.
◗ The internet is fertile ground for committing various forms of fraud. Hacking email accounts, sending false or misleading emails, romance scams, fraudulent bank pages, and personal data theft are just a few of them.
◗ Almost all businesses are created to make a profit, and their financial decisions are made on this basis. In some cases, however, obliged entities identify transactions that lack economic logic. This can create suspicions of illegal activities and can lead to reporting.
◗ As part of the precautionary measures to prevent money laundering, financial institutions require their clients to provide supporting documents to execute transactions. When customers fail to comply with this requirement, this may be an indication of suspicious activity.
◗ Obliged entities may often detect negative information, e.g. from the foreign or domestic press, about their customers. Identifying such negative information often leads to reporting.
◗ Multiple transactions within the same day may indicate an attempt to conceal the illicit origin of funds, by avoiding suspicious transaction detection mechanisms and complicate the work of law enforcement authorities.
◗ Suspicion of fraud is one of the most common reasons for reporting. This indicator does not include suspicion of online fraud, and VAT fraud.
◗ Situations where the origin of the money is not adequately documented/justified. This can be a red flag, as it may indicate that the funds may have been acquired through illegal activities. Any transactions with an unjustified or unclear origin of funds should be thoroughly investigated to ensure, as far as possible, that they are not an attempt to money laundering.
◗ The use of money mules is a common tactic in money laundering. These individuals are recruited to transfer money that has been obtained illegally, between accounts or across borders, often without knowing that the money they transfer is the subject of illegal activity.
Adapting to new market conditions
The large increase in activity in the field of crypto-assets, in the provision of services related to crypto-assets and new investment products, in electronic money services and in new technologies, also shape the challenges that MOKAS, as a Financial Intelligence Unit, has to face and which must be flexible and technologically ready, with the appropriate expertise, to adapt to the new market conditions.
This is stated in the annual report by Maria Kyrmizi Antoniou, Senior Lawyer of the Republic, Head of MOKAS. This trend "is also reflected in the new EU Regulation 2024/1624 on the prevention of the use of the financial system for money laundering/terrorist financing".
It is noted, among other things, that the preamble to the new regulation also mentions the following: "Technology is constantly evolving, offering opportunities to the private sector for the development of new products and systems for the exchange of capital or value. While this is a positive phenomenon, it can create new risks of money laundering and terrorist financing, as criminals constantly manage to invent ways to exploit vulnerabilities to hide and transfer illicit funds around the world."
