Understanding and combating financial fraud

The basics of financial fraud & prevention

“Fraud remains the largest and most significant proceed-generating crime for which funds are laundered in or through the United States. Criminals make billions of dollars annually by deceiving U.S. government programs, private companies, and individuals into sending funds via a variety of methods where those funds are ultimately unaccounted for, diverted, or stolen.” — U.S. Department of the Treasury, 2024 National Money Laundering Risk Assessment (NMLRA)

With any financial interaction comes the possibility of fraud. It happens everyday to the unwitting  — or even vigilant — consumers and businesses. According to Hindenburg Research, up to 75 percent of Block (aka Square) accounts reviewed were fake, involved in fraud, or were additional accounts tied to a single individual. Such criminal deception is conducted with the goal of financial or personal gain.

We think of fraudsters as thieves who try every door to see which is unlocked. Easy access and high volume are their keys to success. With technology powering the backend of most in-person and electronic transactions, fraudsters look for vulnerabilities. In this article, we’ll dive into different types of fraud, ways to prevent it, and the strategic approach we take to combat fraud at Alviere.

Suspicious activity, fraud & theft

The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) defines suspicious activity as any transaction(s) that a Money Services Business (MSB) knows, suspects or has reason to suspect:

  • Involves funds from illegal activity
  • Attempts to evade Bank Secrecy Act requirements
  • Has no business or other lawful purpose
  • Involves use of the MSB’s services to facilitate criminal activity

MSBs that are licensed money transmitters must file Suspicious Activity Reports (SARs) with FinCEN promptly, within 30 days of the transaction. Beyond this requirement, it’s also imperative for regulated entities to take action and prevent any activity from escalating. Fraudulent activities would require a MSB to file a SAR. Payment fraud or identity theft is the most common form of fraud, committed via a combination of friendly fraud, chargebacks, and data theft:

  • Friendly fraud. A customer disputes a legitimate purchase with their credit or debit card after initiating a transaction. 
  • Chargebacks. A customer claims that a purchase was made fraudulently after the good or service was delivered. Then, they file a dispute with the card company, and the business may need to refund the transaction.
  • Data theft. Customer payment information is collected by malicious third parties and is used to pay for unauthorized goods or services.

ACH fraud and debit or credit card fraud, when fraudsters obtain genuine card information and attempt to use it, are also important to be wary of, though less common.

Considerations in fraud prevention

Limiting financial interactions is the best way to reduce fraud, but that can also prevent valid transactions, adding friction to what is expected to be a seamless purchase experience. 

The sheer volume of financial transactions and automated fraud attempts create an environment that is difficult — if not impossible — to manage with static rules and processes.  Fraud prevention requires continuous, automated, and manual monitoring along with fine-tuning to reduce losses while not blocking valid transactions. Increasingly aggressive and sophisticated fraud techniques require vigilant fraud detection methods and manual reviews of customer profiles and patterns to determine legitimacy.

Alviere combats fraud with AI + in-house expertise

One of the ways that Alviere’s in-house compliance team combat frauds and bolster Anti-Money Laundering (AML) activities is by leveraging artificial intelligence (AI). Through Hawk AI’s leading Fraud and AML Surveillance suite, we can detect and prevent financial crimes that other systems miss, while supporting efficient investigation of suspicious account behavior. Integrated in the Alviere HIVE platform, AI-driven AML transaction monitoring and risk scoring helps further strengthen Alviere’s best-in-class AML security for enterprise clients.

Long after client programs launch, Alviere’s Fraud & Compliance analysts continue operating behind-the-scenes to continuously audit customer documentation or transactions, as monitoring systems signal the need for manual reviews. The team works closely with enterprise clients to balance desired customer experience with risk tolerance, which will vary by financial offering and program. Throughout, minimizing the financial impact of fraudulent activity is top-of-mind.

For more on our commitment to Security & Compliance, see here.

Written by Alviere