Straw Buyers and Detecting Cross-Channel Fraud

My topic is on straw buyers, the importance of detecting cross channel fraud and a financial institutions' ability to identify suspicious loans. In a recent case involving over $16 million in fraudulent loans, four individuals are alleged to have obtained 54 fraudulent loans on 29 properties. The scheme involved the use of "straw buyers”. A straw buyer is a buyer that is entering in to the transaction in name only.

Sometimes, the fraudster will steal identities to commit fraud. However, most straw buyers cooperate willing, making the detection of this type of fraud all the more difficult. Depending on the circumstances, the straw buyer may, or may not realize that their identity is being used to commit fraud. In order to commit fraud, much of the documentation provided to support a straw buyer's application is altered to reflect higher incomes, more available cash and a stable employment history etc. BREAK How can your bank stop straw buyers from making it through the loan process? Consider the following:

• Employees must be made aware of the dangers that straw buyers pose. Procedures should detail red flags as well as the escalation process for suspicious loans
• Make sure your bank validates the borrower's social security number, mailing address etc. Take time to review the application in detail. It may be your only chance to uncover the fraud before losses result
• If the borrower's credit score has deteriorated in the last six months ensure that you gain a detailed understanding of the reasons for the change. The change in their personal circumstances may have lead to their willingness to participate in the "straw buyer” scheme and receive some form of payment from the fraudster
• Never accept credit reports provided directly by the borrower. Also, if at all possible, ensure that all documents provided during the application process are original. If in doubt, request a new document directly from the source
• Always contact the borrower's employer to verify employment and take steps to ensure that you are in fact calling the borrower's employer and not a friend or accomplice
• If the funds have been in the borrower's account for less than 30 days, consider asking the borrower for a detailed explanation as to the source of the funds. Closing funds are almost always provided by the fraudster
• Verify that the appraisal was completed by a bank approved professional. In addition, a visit to the subject property is highly recommended. It is amazing how many banks skip this step.
• Fraudsters sometimes commit more than one type of fraud. Consider sharing information regarding suspicious loan applicants across business units. It is not unusual for a fraudster that has been unsuccessful committing one type, attempt a second type of fraud and be successful. A robust case management system is crucial to ensuring an enterprise view of fraud
• In order to commit fraud on a large scale, fraudsters will tend to follow patterns, or a modus operandi (aka m.o.). Similar to deposit and check fraud detection systems, technology can recognize these patterns and stop a fraudulent application in its track.

The list above is certainly not all inclusive, but it does outline most of the basics. How would you rate your bank's ability to uncover "straw” buyers? Do you have the basics covered?

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