FRAUD
Dating services are not formally listed as high-risk by rule or standard-setters, 3 however the fact that FIs prohibit or deem them high-risk is not arbitrary. Rather, the classification is based on the industry’ s merchant category code. 4 They also exhibit risk characteristics prevalent in high-risk industries, including cross-border interaction, susceptibility to financial crimes and limited regulatory oversight.
The online dating ecosystem is increasingly exploited by bad actors to perpetrate financial crimes 5 targeting vulnerable singles. 6 Moreover, dating platforms collect and maintain sensitive data, allow high-risk interactions and even facilitate value exchanges via gifting. 7 These risks intensify in a weak control environment.
Indeed, these services are not just social outlets; they have become breeding grounds for emotional, financial and reputational damage. Yet the industry operates in a gray compliance zone, leaving some FIs to grapple with potential reputational, financial and compliance risks when onboarding them.
This article explores frameworks and best practices underpinning financial crimes compliance programs that dating services can look to in the absence of formal oversight to increase access to financial services. It also explores avenues for FIs to reassess their risk posture and suggestions for government participation.
The risk landscape
There is currently no overarching regulatory body overseeing online or offline dating services. Instead, the industry is governed by a patchwork of general consumer protection, business and data privacy laws, some of which vary by state. Dating platforms have been subject to periodic enforcement actions yet shielded by Section 230 of the Communications Decency Act. 8 However, as the industry expands amid scattered requirements it is facing new risks, including being an entry point for financial crimes. Below is a discussion of the risk landscape.
A. Due diligence dilemma and client obscurity
Trust is the bedrock of business. Although FIs follow the“ trust but verify” ethos, dating services have only recently begun to incorporate customer due diligence( CDD). Some dating services currently take only basic measures to verify user identities or authenticate profiles, with many of them making verification optional. Lack of assurance around the end customer is a risk many FIs refuse to take.
B. Heightened fraud exposure
Internet-based dating services have become a hotbed for various fraud schemes, with many platforms lacking controls to protect users.
1. Romance scams
Using fictitious dating profiles, scammers prey on vulnerable individuals, including the elderly, gaining their trust and ultimately convincing them to send funds or conduct financial transactions under false pretenses. 9 The U. S. experienced an uptick in romance scams during the COVID-19 pandemic as Americans were isolated and increasingly relied on online interaction. This created more remote opportunities for scammers. In fact, romance scams were used to facilitate unemployment fraud. 10 In 2020 alone, internet romance scams led to approximately $ 703 million in losses. By 2022, reported losses were $ 1.3 billion. 11, 12 According to the Financial Crimes Enforcement Network’ s( FinCEN) 2024 Financial Trend Analysis,“ the most reported way scammers contacted victims was through online dating platforms.” 13
2. Pig butchering
In recent years, government agencies 14 have warned against pig butchering, a highly lucrative relationship investment fraud scheme with a blockchain flair. This confidence scam 15 is often perpetrated by criminal syndicates abroad 16 and involves bad actors leveraging fake identities, domain spoofing 17 and trust-building tactics to convince victims to send funds, either directly to them 18 or to a cryptocurrency wallet, for purported cryptocurrency investments. 19 Online dating platforms are one of the primary conduits for pig butchering. 20
3. Money mules 21
Romantic manipulation is also used to facilitate money laundering activity. After forming trust bonds with unwitting dating site users, bad actors trick their victims into moving illegitimate funds for them through the creation of new bank accounts, wire transfers, gift card purchases and / or converting fiat into cryptocurrency to avoid detection by law enforcement( LE). 22
4. Consumer complaints and high charge-back rates
Matching services experience high chargeback rates. Many of them rely on subscriptions and auto-renewals, frequently resulting in consumer complaints and disputes over the charges. Yet not all consumer complaints are legitimate; this is referred to as“ friendly fraud.” 23 Inadequate fraud controls, along with vague or nonexistent refund conditions, ultimately make matching services a gateway to other
24, 25 fraud schemes, including charge-backs.
C. Anonymity, cross-border activity and gifting
Online platforms enable users to mask their true identities for obvious safety reasons. That users can establish accounts / profiles with minimal information, however, allows for synthetic identities,
52 acamstoday. org