Loan Schemes

By structuring illicit funds as either loan proceeds or repayments, criminals effectively merge them into legitimate financial channels. This completes the final stage of laundering and presents the capital as lawful.

Criminals misrepresent borrower identities, ownership structures, and financial capacity through shell or front companies, falsified financial data, and forged documentation. These tactics exploit customer due diligence gaps, allowing nominally independent entities to apply for and receive loans without revealing the actual beneficial owners or the illicit source of funds.

This technique exploits vulnerabilities inherent in loans as a financial product. Criminals falsify or omit required documentation, manipulate collateral requirements, and abuse government-subsidized loan programs to introduce illicit proceeds as seemingly legitimate loan disbursements or repayments. By structuring these funds through routine lending processes, criminals mask their true origin and circumvent standard due diligence controls.

Offshore shell entities are established in jurisdictions with minimal oversight or secrecy, enabling criminals to claim these entities as lenders or borrowers in sham 'loan-back' arrangements. By routing funds through regions with weak transparency requirements, perpetrators obscure beneficial ownership and frustrate cross-border AML enforcement.

• Consolidates country risk ratings, regulatory environments, and corruption indices for various jurisdictions.
• Pinpoints loans tied to regions with lax AML controls or high corruption risk, consistent with known loan-based laundering practices.
• Informs risk-based scrutiny for cross-border lending to higher-risk jurisdictions.

• Covers audited statements, tax returns, and related filings indicating actual revenues, expenses, and operational capacity.
• Reveals overstated or falsified financials used to secure subsidized loan terms or justify larger loan amounts.
• Uncovers discrepancies between reported and true performance, flagging fraudulent activity in loan applications.

• Contains invoice references, line items, contractual terms, amounts, and relevant parties.
• Facilitates detection of fabricated invoices or sham contracts used to disguise alleged loan disbursements or repayments.
• Helps investigators match transaction flows with underlying documentation to uncover anomalies in loan-back schemes.

• Provides a chronological record of all incoming and outgoing payments for loan disbursements and repayments.
• Identifies suspicious patterns such as immediate defaults, closed-loop fund flows returning to the same beneficial owner, or third-party payors lacking clear ties to the borrower.
• Supports retrospective tracing of funds to confirm whether loan proceeds are actually applied as stated or diverted to illicit recipients.

• Contains principal amounts, repayment schedules, collateral details, borrower-lender identities, and other obligations.
• Helps detect anomalies like repeated restructuring, strategic defaults, or nonexistent collateral arrangements.
• Enables verification of the stated loan purpose against the actual use of funds, exposing fictitious or sham loan agreements.

• Holds verified identities, beneficial ownership, risk profiles, and supporting documentation for borrowers and lenders.
• Identifies shell entities or undisclosed high-risk associations and uncovers changes in customer details post-loan approval.
• Cross-checks declared financial or business information to spot inconsistencies or omissions indicative of loan fraud.

• Provides official corporate registration data, including beneficial owners, directors, and historical registration changes.
• Exposes offshore shell entities or affiliated companies used to disguise loan-back or back-to-back schemes.
• Enables linkage of borrower and lender under the same beneficial owner, a frequent tactic in disguised loan transactions.

Scrutinize loan agreements, collateral documentation, and borrower-lender relationships to confirm authenticity. Verify that offshore or shell-lender arrangements are valid and not merely a front for self-financing. Cross-check beneficial ownership via public registries, credit bureaus, and tax filings to detect undisclosed relationships. By demanding detailed, verifiable records, institutions can uncover loan-back schemes reliant on fraudulent or incomplete documentation.

Require documented proof of identity, financial standing, and asset ownership from both borrowers and lenders to confirm legitimate income sources and business operations. Conduct independent verification of financial statements, business activities, or personal guarantees. This mitigates typical loan-based laundering tactics, such as overstated revenues or non-existent collateral, by ensuring real, verifiable assets and solvency.

Configure specific alerts for loans repaid unusually early via lump sums from unrelated accounts, frequent short-tenure loans without a valid business justification, or funds looping back to the same beneficial ownership. Track cyclical inflows and outflows to detect closed-loop transactions masquerading as legitimate repayments. By pinpointing unusual loan flows, institutions can expose loan-back or shell-lender tactics.

Conduct thorough due diligence on external loan brokers, outsourcing partners, or correspondent lenders assisting in loan origination. Verify their licensing, examine their AML procedures, and confirm they maintain robust KYC and EDD practices. By monitoring the integrity of third-party relationships, institutions block criminals from exploiting weaker intermediaries in loan-based laundering schemes.

Equip loan officers and credit analysts with the skills to spot red flags unique to loan-based laundering, such as incomplete paperwork, inflated collateral valuations, or missing evidence of legitimate business activity. Provide real examples of loan-back scenarios, fictitious contracts, and strategic defaults. By enhancing frontline scrutiny, staff can detect vulnerabilities at loan origination and during periodic reviews.

For high-risk loans, disburse funds into an escrow account, releasing them only when the borrower provides verifiable proof of intended use, such as legitimate contracts or validated vendor invoices. Limit partial draws until compliance reviews have confirmed that collateral remains valid and no suspicious rerouting is occurring. This protects against the immediate misdirection of proceeds typical of back-to-back loan schemes.

Leverage publicly available data, such as corporate registries, local media, and social media platforms, to confirm that declared collateral is genuine and that borrower or lender entities have real business activity. This helps detect shell companies purporting to issue loans, fabricated business operations, or inflated asset values. By validating external information, institutions limit reliance on potentially falsified records.

Continuously recheck loan repayment sources, collateral revaluations, and contract amendments. Identify third-party repayments unrelated to the borrower’s stated business, repeated loan extensions without clear economic rationale, or abrupt restructuring. By verifying the origin of funds and scrutinizing any new documentation, institutions can detect loan-based laundering that evolves over time, including back-to-back transactions or strategic defaults.

• Fraudulent or sham loan proceeds are commonly deposited into and disbursed from bank accounts, giving them a veneer of legitimacy through documented "lending" activity.
• Criminals maintain multiple accounts—often across different jurisdictions—to layer, move, and mingle illicit funds, disguising their true origin.
• Routine account statements and normal banking processes help conceal abnormal inflows and outflows, which appear to be standard loan disbursements or repayments.

• Fraudsters may fabricate or inflate invoices that serve as collateral or supportive documentation for loan applications, inflating the borrower’s stated revenue and financial health.
• These fictitious accounts receivable justify higher loan amounts or additional credit lines, enabling illicit funds to be laundered through subsequent “repayments.”
• By misrepresenting receivables, perpetrators hide the lack of genuine economic activity and further complicate financial institutions’ detection efforts.

• Criminals create forged promissory notes to simulate legitimate debt instruments, disguising reciprocal transfers of unlawful funds as loan disbursements or repayments.
• These notes often omit verifiable collateral or reflect fraudulent lending terms, making it harder for financial institutions to spot irregularities.
• Backdating or forging promissory notes enables criminals to obscure the origin of funds and create an artificial paper trail of “debt” obligations, further frustrating investigations.

• Criminals employ 'loan-back' or 'back-to-back' arrangements to disguise their own illicit funds as legitimate loan proceeds or repayments.
• They may falsify or omit documentation and collateral requirements to mask the true origin of funds under a veneer of normal lending processes.
• Perpetrators can exploit government-subsidized loan programs by submitting falsified data (e.g., overstated turnover), secure the funds, and then default while effectively integrating illicit proceeds.

• Criminals set up offshore shell entities in minimal-oversight jurisdictions to appear as independent lenders in sham 'loan-back' arrangements.
• This tactic conceals beneficial ownership and fund provenance, enabling criminals to inject illicit funds under the guise of legitimate loans from a purported third party.

Document forgers produce or alter loan agreements, collateral documents, and supporting paperwork to enable:

• Overstated financial capacity or fictitious collateral, aiding criminals in securing fraudulent loans.
• Fabricated records or defaults, masking irregularities and complicating financial institutions' efforts to verify authenticity.

Shell or front companies are created with minimal or no genuine operations to serve as nominal lenders or borrowers in loan schemes.

• Criminals present these entities as independent lenders in 'loan-back' arrangements, concealing beneficial ownership and the ultimate source of funds.
• Their lack of real business activity obscures financial flows, making it harder for financial institutions to detect suspicious transactions.

Financial institutions are unwittingly exploited as gateways for loan proceeds and repayments.

• Loan officers may rely on incomplete or falsified documentation when approving or servicing loans, creating openings for laundering.
• The normal lending and repayment processes help criminals integrate illicit funds, reducing transparency for subsequent due diligence.