Fighting Elder Financial Exploitation: FinCEN Releases Behavioral and Financial Red Flags, NASAA Publishes Guidance on POAs, CFTC Releases Warnings

Timed to coincide with World Elder Abuse Awareness Day on June 15, 2022, federal and state government officials issued proclamations, advisories, and new resources to help in the fight against senior financial abuse. Despite many government initiatives now in place to go after the perpetrators of elder financial abuse, the problem continues to grow. Taken together, these latest government alerts offer a snapshot of where things stand. Here’s a brief look at the most significant developments.  

FinCEN Highlights “EFE” Typologies and Red Flags

In an advisory alerting financial institutions of “rampant fraud and abuse targeting older adults,” the Financial Crimes Enforcement Network (FinCEN) highlighted new behavioral and financial red flags to help in the identification, prevention, and reporting of suspected elder financial exploitation (“EFE”).  FinCEN noted that in 2021, financial institutions submitted 72,000 suspicious activity reports (“SARs”)—nearly 10,000 more than the prior year—and cited CFPB estimates that EFE suspicious transactions grew from an estimated value of $2.6 billion in 2019 to $3.4 billion in 2020. Citing the Department of Justice, FinCEN stated that EFE affects at least 10 percent of older adults each year in the United States. And, citing the Federal Trade Commission, FinCEN stated that “older adults now account for 35 percent of the victims associated with filed fraud reports in cases when a consumer provided an age.”

FinCEN categorized EFE as either related to theft or to scams, the former concerning stolen “assets, funds, or income by a trusted person,” and the latter related to the wrongful transfer of senior assets to a stranger or imposter. Based on its analysis of SARs relating to elder theft, FinCEN found that family members were involved in assets stolen from older adults in 46 percent of the cases between 2013 and 2019. Regarding EFEs perpetrated by strangers, FinCEN identified the following prevalent “typographies”: government imposter scams, romance scams, emergency/person in need scams, lottery and sweepstakes scams, and tech and customer support scams. FinCEN offered case studies on each.

FinCEN reminded financial institutions that it is critical for “customer-facing staff to identify and consider [] behavioral red flags when conducting transactions involving their older customers,” and that the details should be incorporated in SARs filings. They listed twelve behavioral red flags in all. Among them are sudden and unusual changes in contact information, an unusual degree of fear or submissiveness by a client toward a caregiver, and unexplainable or unusual account activity. FinCEN listed an additional twelve financial red flags including sudden or frequent non-sufficient fund activity, customer purchases of large numbers of gift cards or prepaid access cards, and uncharacteristic attempts to wire large sums of money, among others.

The FinCEN advisory reminds financial institutions of their Bank Secrecy Act obligations, including SARs reporting, currency transaction reporting, reports of cash payments over $10,000 received in a trade or business, foreign bank and financial accounts reporting, and registration of money services business, among others. As FinCEN Acting Director Himamauli Das stated: “Financial institutions serve on the frontlines in protecting their older customers’ finances, and can play a critical role in helping to identify, prevent, and report suspected elder financial exploitation. Financial institutions’ vigilance matters. Their reporting matters.”

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NASAA Publishes Primer and Guidance on Powers of Attorney

The state securities regulators’ association published two documents on the importance of the use of powers of attorney (“POAs”) in managing the financial affairs of seniors. The publications were developed by NASAA’s Senior Issues and Diminished Capacity Committee. The first, a primer for all investors, describes how to choose someone to become a POA, the right form, disclosure to key persons and how best to ensure “that the POA will serve its purpose in meeting your needs and expectations.”

The second document offers guidance to financial professionals. As stated: “a well-planned and well-communicated POA can ensure that the financial professional and client relationship is preserved during times of incapacity.” The guidance contains questions that financial professionals can use (i) to engage clients on the subject, (ii) on protective provisions to be considered for inclusion in the document, (iii) on preparations for the moment in time when the client may lose capacity, and (iv) on the obligations to the client when working with someone designated as the power of attorney. The guidance also reviews long-established NASAA guidance for financial professionals on suspected financial exploitation.

CFTC Warns Seniors to Take Precautions Against Investment Fraud

In a CFTC advisory, the agency restated that the reason fraudsters target seniors is “because they have typically acquired more assets through a lifetime of saving and investing.” The agency suggested that seniors are more vulnerable because they are more likely to have dealt with “major traumas and life events—such as severe changes in their health, the death of a loved one, divorce, retirement, financial setbacks, and isolation.” The CFTC highlighted the most frequent scams affecting these seniors, including fraud involving the sale of precious metals (particularly gold and silver as a hedge against economic challenges), fee scams, and romance scams.

The agency warns seniors to be wary of investment pitches made through “social media, dating apps, messaging apps, or through unsolicited email or telephone calls.” The agency also warns senior investors against discussing “trading or investing in digital assets, precious metals, over-the-counter foreign exchange (also called “forex” or “FX” trading), or other commodity derivative products.”

Further, the agency recommends that seniors (i) get a second opinion before making an investment decision, (ii) not share sensitive information online, (iii) check credentials and backgrounds and ensure that firms are registered with federal or state authorities, (iv) not trade in markets or products without understanding them, and (v) stay aware of current fraud trends.

Conclusion

World Elder Abuse Awareness Day, launched in 2006 by the International Network for the Prevention of Elder Abuse and the World Health Organization at the United Nations, is intended to raise “awareness of the cultural, social, economic and demographic processes affecting elder abuse and neglect.” This year, President Biden issued a proclamation officially recognizing June 15^th as World Elder Abuse Awareness Day in the United States. He highlighted the administration’s “comprehensive, collaborative efforts to respond to elder abuse, neglect, and exploitation [through] initiatives to reform guardianship, support adult decision-making, crack down on scammers and fraudsters, and empower victims of exploitation.” As to elder financial exploitation, the regulatory advisories and newly released guidance show how aware we are of the problems of elder financial exploitation, but also how far away we are from getting it under control.  Bates will keep you apprised.

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