• Aled Morgan, Director, Global Compliance & Regulatory at Flywire


• 06.07.2023 10:45 am
#aml

The impact of money laundering is devastating – it’s a crime that funds other serious crimes such as modern slavery, drug trafficking, fraud, corruption and terrorism. It is also a crime without borders, affecting institutions, payers and other victims across the globe. And it’s on the rise. So much so that in 2021 the EU announced its intention to form a central Anti-Money Laundering Authority (AMLA) with the aim of plugging legislative and bureaucratic gaps that criminals are exploiting. 

Traditionally, the sectors perceived to be most at risk from money laundering are financial institutions, accountants, law firms and real estate agents. But criminals are nothing if not creative, and they excel at adaptation. As these sectors have become subject to more and more checks to prevent money laundering, criminals have sought new opportunities resulting in the education sector increasingly being the target of their unwanted focus.

The education sector’s “problem” with money laundering came under close scrutiny in early 2021 when University World News claimed that only 24 out of 478,437 suspicious activity reports filed to the NCA in the 2018-19 fiscal year came from the UK education sector. The article also claimed that British universities were accepting fee payments from Nigerian politicians and public officials, often by a third party, which dwarf the typical (much smaller) salary of a Nigerian cabinet minister, both which is a common indicator of bribery. The headlines may have died down, but the issue still persists. As recently as April 2022, The Times reported that a University of Cambridge college took “high risk” money from China, and institutions have had to grapple with the implications of the financial sanctions imposed on high profile Russian individuals, and their families, following the invasion of Ukraine which started in February 2022. 

Money laundering risks come in many guises and from many directions - from international students getting caught up in tuition fee payment scams, high value cash deposits, to payments from students with links to people or countries subject to economic sanctions or perhaps even criminals who wish to use their illicit funds to further their children’s education. The sheer number of transactions that “could” be illegal makes them difficult to spot and catch. Many institutions accept students from over 50 countries meaning that keeping alert to, and on top of, suspicious payments is more than a full time job, in addition to having an awareness of where money laundering risks may appear from next. 

As if contending with institutional risk wasn’t enough, student’s themselves are also being targeted to act as “money mules” by criminals engaged in money laundering activities. Their age and, especially for international students, the sums of money potentially flowing through their accounts, including to/from overseas, makes them ideal to funnel and help obfuscate the source of funds. 

“Money muling”, a term used to describe the act of using a bank account held in the name of an unsuspecting student to hold illegal funds for a period of time, is on the rise. The student (or someone with access to their accounts) then withdraws those funds in cash, and/or disperses the funds to other money mule accounts. The student is left with a small proportion of the funds as “payment” for the use of their account. At the start of the 2022/23 academic year the Birmingham Mail reported a 78% increase year-on-year in bank accounts of people aged under 21 appearing to be involved in money mule activity. The risks to individual students are significant, with far-reaching consequences on their education, future employability and financial options. If they are found guilty, and convicted of, one or more money laundering offenses under the Proceeds of Crime Act 2002 (POCA 2002) they could potentially be sentenced to up to 14 years in prison! 

So what practical steps can educational institutions take to protect both themselves and their payers? 

• Seek expert legal advice on their potential exposure and the anti-money laundering (AML) regulations as they apply to your institution. Find out the extent to which your institution is exposed. The penalties for institutions are significant if they are found to have accepted and retained a suspicious payment so this is the first and foremost thing institutions should do. 

• Have a clear documented AML process. Ensure that your institution has a documented anti-money laundering process including Know Your Client (KYC) and reporting procedures. Relevant staff should attend regular training to ensure they know the threats and how to identify the red flags on payments, and know the internal and external reporting procedures.

• Educate students about scams and offer support to victims. Institutions have a duty of care towards their students and should educate their students early, consistently and clearly,  about possible scams, such as “money muling” or other fee payment scams. Early, consistent and clear education can help reduce the resources available to criminals to carry out fraud and money laundering activities (some of which will also directly affect institutions). Despite best efforts some students will still, unfortunately, fall prey to a money laundering scam. as well as giving victims support. Offering support to victims, including a way to report criminal activities will mean that criminal activities, which thrive in secrecy, can be dealt with in the open.

• Streamline and simplify payment processes. The possibility that a suspicious payment slips through is much greater when a finance team is struggling to manage a large number of payments from a wide variety of payment methods. By streamlining the number of payment methods; offering a simple, automated payment process and eliminating cash payments or direct bank transfers, institutions can reduce their money laundering risks significantly.

• Use a trusted payment provider that offers flexible payment options to encourage payers to use safe payment methods. Robust anti-money laundering policies and KYC (Know Your Client) and reporting processes, to protect both payers and institutions, are indicators of a trustworthy partner but vigilance, vision and the use of technological developments including artificial intelligence (AI) and machine learning (ML) show true dedication to stamping out fraud by all means possible. Using a trusted third party doesn’t absolve legal responsibility around AML but it will give an added layer of protection. 

Fraud prevention should form a core pillar of the payment process. This will improve not only protection for institutions and payers, but also the overall payment experience for payers, and it will help ease the internal pressures felt so consistently by finance teams.