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What is elder financial exploitation? FinCEN guidance for financial institutions

Terri Luttrell, CAMS-Audit, CFCS
December 10, 2024
Read Time: 0 min

This article covers these key topics: 

Combat elder financial exploitation with tips from FinCEN

Demographic considerations and the vulnerabilities of old age put financial institutions' customers or members at risk of experiencing elder fraud. Education, collaboration, and advanced fraud detection software can help prevent it. 

The increasing threat of elder fraud 

On December 4, 2024, FinCEN, along with the supervisory agencies, issued a statement on elder financial exploitation, or elder fraud. The statement provided examples of risk management and other practices that may be effective in combatting this often-underreported crime.

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What is elder financial exploitation?

Elder financial exploitation (EFE) is a form of abuse where an older individual is deprived of vital financial resources, often without their explicit knowledge or consent. This crime against the elderly typically involves assets being taken through deception, coercion, or threats. It can take many forms, such as misusing or stealing money, coercing an older individual into signing documents, or improperly using conservatorship, guardianship, or power of attorney.  

Unfortunately, family members are often the most common perpetrators of elder fraud, accounting for 62% of reported cases. Some family members rationalize their actions by believing they are merely accessing what will eventually be their inheritance. In contrast, others may exploit their relative's assets out of fear that the older adult will exhaust their savings, leaving nothing behind. This complex dynamic, coupled with the vulnerability and dependency that can accompany old age, makes it a particularly insidious and underreported form of abuse​. 

The growing threat and evolving elder fraud tactics

The Baby Boomer generation is rapidly aging, leading to a demographic shift that financial institutions cannot ignore. By 2030, 20% of the U.S. population will be 65 or older, controlling a large share of the country’s wealth. The FBI's 2023 Internet Crime Complaint Center (IC3) report highlighted a staggering $3.4 billion in losses due to elder fraud, marking an 11% increase from the previous year. On average, elderly victims lost $33,900 each, with over 5,900 individuals losing more than $100,000​. 

Despite these numbers, elder financial exploitation is grossly underreported, with an estimated 79% of cases never reaching authorities. Victims often stay silent due to fear, embarrassment, or a lack of understanding about their financial situation. Financial institutions are in a unique position on the front lines and can significantly prevent these losses. 

Older adults are frequently targeted by various scams that exploit their trust, unfamiliarity with technology, and, sometimes, their social isolation. Understanding these schemes can help financial institutions better detect and prevent exploitation: 

  1. Tech support scams: Fraudsters pose as technical support professionals, convincing victims that their computers have been compromised. The scammers often persuade older adults to grant remote access to their devices or to pay for unnecessary software or services to "fix" non-existent issues. 
  2. Romance scams: These scams involve fraudsters building online relationships with elderly victims, often through social media or dating apps. Once trust is established, the scammers fabricate stories to solicit money, such as needing funds for a fake emergency. 
  3. Check fraud: Check fraud is of significant concern in the U.S., and older adults, who are more likely to use checks for payments, are particularly vulnerable and experience more substantial losses.  
  4. Pig butchering scams: The analogy of “fattening the pig before the slaughter” emphasizes the cruel reality of this crime. This newer form of cryptocurrency fraud targets older adults by luring them into fake investment schemes, sometimes taking months to coerce as much money from the victim as possible. Scammers initially build trust through online interactions, often via social media or dating platforms. Once trust is established, they persuade the victim to invest in cryptocurrencies, only to disappear with the money after the investment has been "fattened." 
  5. Imposter scams: These involve criminals posing as business or government officials to gain the trust of elderly victims. Common tactics include pretending to be from the IRS or Social Security Administration and threatening the victim with fines or legal action unless they pay immediately. 
  6. Prizes, sweepstakes, and lottery scams: In these scams, victims are told they’ve won a prize or lottery but must pay fees or taxes upfront to claim their winnings. Of course, the prize never materializes, and the money sent by the victim is lost. 
  7. Online shopping scams: Fraudsters set up fake e-commerce sites that appear legitimate but are designed to steal the victim's payment information or sell non-existent products. Elderly individuals, who may be less familiar with online shopping, are easy targets for these schemes. 

Identifying red flags of elder financial exploitation

Spotting elder fraud early can make all the difference in preventing significant financial and emotional harm. Here are some common red flags that financial institutions should look out for: 

  • Sudden transfers of assets to unrelated individuals or those outside the family, which could include money being transferred to a caregiver, a new “friend,” or even a charity the elder hasn’t previously supported.  
  • Frequent ATM withdrawals by an elder who typically doesn't use ATMs could indicate that someone is coercing them into making withdrawals. 
  • New names added to bank accounts or sudden changes to account beneficiaries could be signs that someone is gaining unauthorized control over the elder’s finances. 
  • Uncharacteristic spending patterns: Watch for sudden purchases or large withdrawals that don’t align with the elder’s typical spending behavior. For example, if an elder who usually spends modestly suddenly starts making luxury purchases, it could be a red flag. 
  • Unusual involvement of new or previously uninvolved relatives or friends: If someone suddenly becomes highly involved in an elder’s financial decisions, especially if they are pushing for quick changes like selling assets or withdrawing large sums, this could be a sign of exploitation. 
  • Frequent and unexplained changes to wills or other financial documents: Rapid or frequent updates to critical documents such as wills, trusts, or powers of attorney, particularly under the influence of a new “advisor” or friend, can indicate undue influence. 
  • Changes in mailing addresses or redirected bank statements: If an elder’s bank statements or bills are suddenly being sent to a new address, especially one associated with a new acquaintance or caregiver, it could be an attempt to hide financial activities from the elder. 
  • Increased NSF (non-sufficient funds) activity or bounced checks: A sudden increase in bounced checks or NSF fees can indicate that someone is draining the elder’s account through unauthorized withdrawals or fraudulent spending. 
  • Significant changes in behavior or emotional state, such as confusion, fear, lack of awareness, refusal to make eye contact or discuss specific topics, or sudden withdrawal from social activities and increased isolation. Perpetrators often isolate victims to gain control, so a sudden change in social behavior can be a crucial indicator of exploitation. 

By staying alert to these elder fraud red flags, financial institutions can play a crucial role in identifying and preventing elder financial exploitation before it causes irreversible harm. 

Strategies for financial institutions to combat elder fraud 

Financial institutions have a vital role in protecting elderly clients from financial exploitation. Here are some strategies that can be implemented to enhance your AML program: 

  1. Staff training: Regularly train employees to identify and report signs of elder fraud. Ensure they are well-versed in the specific red flags of elder financial exploitation​. 
  2. Community engagement: Work with local law enforcement, adult protective services, and community organizations to educate seniors and their families about the risks of elder fraud. Hosting workshops or information sessions at senior centers can build trust and awareness. 
  3. Implement a senior financial education plan: It is essential to educate seniors about protecting themselves from fraud. Programs should cover topics like identifying phishing attempts, recognizing the dangers of unsolicited phone calls, and safeguarding personal information​. 
  4. Enhance account monitoring: Utilize technology, such as transaction monitoring software and fraud detection software, to monitor for unusual account activity that could indicate fraud. This includes sudden large withdrawals, changes in spending patterns, or requests for high-value wire transfers​.
  5. Mandatory reporting: Ensure your institution complies with state laws regarding mandatory elder abuse reporting. Even if your state doesn’t have mandatory reporting requirements, consider reporting suspected elder abuse to Adult Protective Services as part of your commitment to protecting vulnerable populations​. 

 

Expectations for AML/CFT departments

Proactive policies can help prevent elder financial exploitation from happening at your institution, as can comprehensive fraud detection software. When it comes to check fraud schemes, for example, being able to quickly analyze dozens of distinct check attributes helps detect fraud faster, which can save financial institutions substantial sums.

FinCEN's recent statement on elder fraud includes the following measures that your institution should be taking to protect its older customers:

  • Developing effective governance and oversight, including policies and practices to protect account holders and the institution
  • Training employees on recognizing and responding to elder financial exploitation
  • Using transaction holds and disbursement delays as appropriate and consistent with applicable law 
  • Establishing a trusted contact designation process for account holders 
  • Filing suspicious activity reports to FinCEN in a timely manner
  • Reporting suspected elder financial exploitation to law enforcement, Adult Protective Services, and other appropriate entities 
  • Providing financial records to appropriate authorities where consistent with applicable law 
  • Engaging with elder fraud prevention and response networks 
  • Increasing awareness through consumer outreach  

The statement describes in depth what the agencies expect when it comes to mitigating risk for seniors, and financial institutions should update their procedures accordingly to help safeguard their communities.

This blog was developed with the assistance of ChatGPT, an AI large language model, and was reviewed and revised by Abrigo's subject-matter expert.

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About the Author

Terri Luttrell, CAMS-Audit, CFCS

Compliance and Engagement Director
Terri Luttrell is a seasoned AML professional and former director and AML/OFAC officer with over 20 years in the banking industry, working both in medium and large community and commercial banks ranging from $2 billion to $330 billion in asset size.

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