Elder Financial Exploitation and Fraud: What You Need to Know

Every year, millions of older adults face financial exploitation, often resulting in devastating losses of their life savings. Imagine a loved one falling victim to a scam, losing not only their money but also their trust and dignity. Elder Financial Exploitation (EFE) is an increasingly pervasive issue, defined as the illegal or improper use of an older adult’s funds, property, or assets. This form of abuse, alongside physical and emotional mistreatment, affects at least 10% of older adults annually in the United States. ¹

With reported financial fraud costs exceeding $3 billion annually as of 2019¹, the situation worsened during the COVID-19 pandemic due to increased isolation and dependence on digital platforms. This article delves into the scope, trends, and impacts of elder fraud, highlighting red flags and strategies to protect one of society’s most vulnerable groups. Statistics and case studies presented are largely from the FinCEN Advisory on Elder Financial Exploitation.

What is Elder Financial Exploitation?

EFE involves various illegal actions aimed at stealing or misusing an older adult’s financial resources. Perpetrators range from trusted individuals like family members and caregivers to strangers operating through organized scams. The exploitation can take multiple forms, including coercion, manipulation, and the misuse of legal tools such as power of attorney.

Scope of the Problem

• Financial Impact: In 2020, $3.4 billion in suspicious transactions related to EFE were reported, marking a 30% increase from 2019.¹ This trend reflects the growing sophistication of financial exploitation schemes.
• Prevalence: Older adults represent 35% of fraud victims where age is reported, with those aged 65 and above accounting for nearly a quarter of all fraud victims.¹

Vulnerability Factors

Physical and Mental Factors

Older adults often face physical and cognitive challenges that make them prime targets for exploitation:

• Cognitive Decline: Age-related issues like memory loss and diminished decision-making abilities reduce the capacity to recognize scams or resist manipulation.
• Physical Limitations: Mobility challenges and health conditions can lead to greater dependency on others, including potential exploiters.
• Health Impacts: Medications can impair judgment, leaving older adults more susceptible to persuasion or coercion.

Social Factors

Social isolation and changes in personal relationships create opportunities for exploitation:

• Loneliness and Isolation: Many older adults live alone, with limited social interactions, making them vulnerable to scammers who build trust over time.
• Loss of Spouse or Partner: Bereavement can create emotional vulnerabilities that fraudsters exploit, particularly in romance and emergency scams.
• Dependence on Caregivers: Caregivers can abuse their positions of trust, using their access to finances or personal information to commit theft or fraud.
• Geographic Distance from Family: Elderly individuals living far from supportive family members may lack oversight, increasing their susceptibility to fraud.

Technological Factors

The digital divide creates additional barriers for older adults in detecting and avoiding scams:

• Digital Banking Challenges: Unfamiliarity with online banking systems makes identifying phishing attempts and fraudulent transactions difficult.
• Online Security Gaps: Lack of awareness about secure browsing practices leaves many older adults exposed to malicious websites and scams.
• Increased Use of Digital Platforms: Reliance on email, text, and other digital communication tools during the pandemic heightened exposure to tech support scams, phishing, and other cyber frauds.

COVID-19 Impact

The pandemic dramatically increased older adults’ vulnerabilities:

• Isolation: Lockdowns limited in-person interactions, cutting off access to traditional support systems like family visits or in-person banking.
• Increased Digital Dependency: Older adults were forced to rely on digital platforms for communication and financial management, areas where they often have less expertise.
• Reduced Access to Services: With in-person banking and community resources restricted, older adults faced more difficulty seeking help or verifying suspicious activity.

6 Most Common Elder Fraud Schemes

Understanding the tactics scammers use can help protect older adults from falling victim to fraud. Below are six prevalent schemes, explained with examples and actionable insights.

1. Government Imposter Scams

How It Works

Scammers impersonate officials from government agencies such as the Social Security Administration (SSA), Internal Revenue Service (IRS), and Medicare/Medicaid Services. These fraudsters use fear and urgency to coerce older adults into providing personal information or making payments.

Threat Mechanisms:

• False claims that Social Security numbers have been suspended due to suspicious activity.
• Threats of arrest, legal action, or bank account seizure for alleged tax evasion or Medicare fraud.

Payment Demands:

• Wire transfers, gift cards, prepaid debit cards, and cash deliveries are common payment methods.

Case Study

An Indian national orchestrated a robocall scam targeting thousands of elderly victims, defrauding them of over $10 million. Scammers impersonated law enforcement officials and threatened severe consequences unless payments were made. This elaborate scheme involved bulk cash shipments and electronic transfers, leaving victims in financial distress.

2. Romance Scams

How It Works

Romance scams exploit the emotional vulnerabilities of older adults seeking companionship. Fraudsters create fake profiles on dating websites or social media platforms to establish trust before requesting financial support.

Manipulative Tactics:

• Scammers fabricate emergencies, such as medical crises or legal issues, to solicit funds.
• Promises of in-person meetings are used to manipulate victims into covering travel expenses or investing in bogus business opportunities.

Money Mule Operations:

Some victims are unknowingly recruited as money mules, tasked with setting up accounts or transferring funds for scammers under the guise of a business opportunity. These activities expose victims to legal risks and further exploitation.

Statistics and Impact

• Losses from romance scams reached $547 million in 2021, a record high.¹
• Victims often experience prolonged exploitation, leading to emotional trauma and significant financial losses.

3. Emergency/Person-in-Need Scams

How It Works

Known as The “Grandparent Scam”,  fraudsters impersonate distressed relatives or authority figures, claiming urgent help is needed to resolve fabricated emergencies such as car accidents, arrests, or medical crises.

Common Scenarios:

• Scammers pose as grandchildren, attorneys, or emergency workers, demanding immediate financial assistance.
• Victims are pressured into secrecy and often instructed to send money via wire transfers, gift cards, or cash pickups.

Pressure Tactics:

• Scammers create a sense of urgency to prevent victims from verifying the claims with other family members.

4. Tech Support Scams

How It Works

Tech support scammers target older adults by claiming their computers or accounts have been compromised. Contact often begins through pop-ups, unsolicited calls, or emails warning of viruses or malware.

Technical Manipulation:

• Victims are asked to grant remote access to their devices, allowing scammers to steal personal information.
• Fraudulent services and software charges are used to extract funds.

Financial Exploitation:

• Scammers often request payments through multiple channels, including prepaid cards and wire transfers.
• Some schemes involve refund scams, where scammers claim to have over-refunded money and demand repayment.

Recent Trends

Recent methods include impersonating online retailers to offer fraudulent refunds for unauthorized transactions, further deceiving victims into providing financial information or additional payments.

5. Lottery and Sweepstakes Scams

How It Works

Fraudsters notify victims of fake lottery or sweepstakes winnings, requiring upfront fees for taxes, shipping, or processing to claim the prize. Victims often face repeated requests for payments until their funds are depleted.

Methods of Exploitation:

• Payment for non-existent prizes through wire transfers or cash deliveries.
• Requests escalate over time, leaving victims in financial distress.

6. Elder Theft by Trusted Individuals

How It Works

Family members, caregivers, and other trusted individuals often exploit their proximity to victims for financial gain.

Methods of Exploitation:

• Abuse of legal tools such as power of attorney or guardianship.
• Theft of funds through unauthorized account access or manipulation.

Case Study

In North Carolina, a housekeeper and her co-conspirators defrauded an elderly widow with dementia of over $300,000.¹ They isolated the victim, fabricated a power of attorney, and exploited her finances until she was left destitute and abandoned. The case underscores the severe consequences of such exploitation.

Red Flags and Warning Signs of Elder Fraud

Identifying red flags of elder financial exploitation is a crucial step in protecting older adults from scams and fraud. These indicators, which may be behavioral or financial, often surface during interactions with financial institutions or through changes in personal habits and account activities. Recognizing and addressing these signs promptly can help prevent significant financial and emotional harm.

Financial Institution Indicators

Behavioral Red Flags

Financial institutions are often the first to notice unusual behavior in their older customers. Common warning signs include:

• Demeanor Changes: Customers may appear fearful, submissive, or anxious, particularly when discussing financial matters.
• Third-Party Involvement: A caregiver or companion may exhibit controlling behavior, such as speaking on behalf of the customer or refusing to leave their side.
• Transaction Hesitation: Customers might seem confused or uncertain about transactions, often following instructions from someone on the phone.
• Suspicious Patterns: Sudden changes in how customers manage their finances, such as shifting control to a new individual, can indicate undue influence or coercion.

Transaction Behavior

• Phone Instructions: Customers taking direction over the phone during transactions is a common red flag, especially when paired with visible nervousness.
• Unusual Activity: Large or frequent withdrawals, especially from previously dormant accounts, may signal exploitation.

Account Activity Changes

• Dormant Account Activation: Previously inactive accounts suddenly exhibit high activity, including frequent withdrawals.
• Large Cash Withdrawals: Uncharacteristic, significant withdrawals or daily ATM maximums are a warning sign.
• Wire Transfers: Transfers to unknown recipients, especially abroad, are a key indicator of potential scams.

Payment Patterns

• Gift Cards and Cryptocurrency: Uncharacteristic purchases of large quantities of gift cards or sudden involvement in cryptocurrency transactions are suspicious.
• Frequent NSF Activity: Repeated overdrafts or non-payment for services may suggest financial exploitation.

Service Changes

• Online Banking Setup: New accounts or beneficiaries established without clear explanations can indicate interference.
• Changed Beneficiaries: Sudden updates to wills, trusts, or account beneficiaries are a red flag, particularly if the customer seems confused or coerced.

Individual and Family Warning Signs

Communication Red Flags

• Unsolicited Contacts: Unverified calls, emails, or messages claiming urgency or authority.
• Pressure Tactics: Scammers use emotional manipulation and demands for secrecy to prevent victims from seeking advice.

Financial Request Patterns

• Unusual Payment Methods: Requests for gift cards, prepaid cards, or cryptocurrency are common in fraud schemes.
• Urgent Demands: Time-sensitive requests often aim to prevent victims from verifying legitimacy.
• Multiple Transactions: Scammers frequently escalate their demands, seeking repeated payments over time.

Online Activity Concerns

• Suspicious Profiles: Fraudsters often use fake online profiles to gain victims’ trust.
• Technical Emergencies: Claims of compromised accounts or devices are used to pressure victims into granting access or making payments.

Protection and Prevention Strategies

Elder financial exploitation is a multifaceted issue requiring proactive measures from individuals, families, and financial institutions. Prevention starts with understanding the risks and implementing safeguards that protect older adults from falling victim to fraud and abuse.

Personal Safeguards

Digital Security

Older adults are often targeted online due to their unfamiliarity with digital platforms. Strengthening digital security can help reduce vulnerabilities:

• Use strong, unique passwords across accounts and update them regularly to prevent unauthorized access.
• Monitor accounts regularly for suspicious activity, including unexpected transactions or changes in account details.
• Avoid clicking on links or downloading attachments from unknown senders, as these are common entry points for malware and phishing scams.
• Before entering sensitive information, ensure websites are legitimate by checking for secure protocols, such as “https,” and verifying the organization’s authenticity.

Financial Protection

Financial safeguards create additional layers of protection against exploitation:

• Enable account alerts to notify about large withdrawals, transfers, or unusual activities, providing early detection of potential fraud.
• Designate a trusted contact to receive alerts and assist in reviewing financial activity when needed.
• Implement transaction limits to restrict large or frequent withdrawals, reducing the risk of significant financial losses.
• Schedule periodic reviews of financial arrangements, such as power of attorney or trusts, to confirm they remain appropriate and free from undue influence.

Communication Safety

Scammers often use phone calls, emails, or even in-person solicitations to prey on older adults:

• Always verify the identity of anyone requesting financial information or funds, especially if the request is unsolicited.
• Utilize call-blocking tools to reduce exposure to telemarketing scams or robocalls.
• Screen mail carefully and avoid responding to unsolicited offers or giving personal information in reply. Shred sensitive documents to prevent identity theft.
• Be cautious with door-to-door sales or unverified service providers and avoid making decisions under pressure.

Financial Institution Responsibilities

Financial institutions are uniquely positioned to detect and prevent elder financial exploitation. They interact directly with customers and oversee transactions, making them critical allies in identifying suspicious activity.

Staff Training

Equipping financial institution employees with the knowledge and tools to recognize and respond to exploitation is vital:

• Provide training to identify behavioral red flags, such as fear, confusion, or undue influence during transactions.
• Establish response protocols that empower staff to intervene and escalate concerns appropriately.
• Emphasize thorough documentation of observed red flags, actions taken, and any communication with the affected customer.
• Ensure employees are familiar with reporting procedures, including the filing of Suspicious Activity Reports (SARs) and contacting local law enforcement or Adult Protective Services.

Operational Procedures

Financial institutions must adopt proactive measures to monitor and protect customer accounts:

• Implement account monitoring systems designed to detect unusual patterns, such as frequent large withdrawals from previously dormant accounts.
• Verify the legitimacy of large or atypical transactions, especially when requested by older customers under suspicious circumstances.
• Engage directly with customers when red flags arise, ensuring they understand the transaction and are not being coerced.
• Maintain comprehensive records of all suspicious activity, customer communications, and institutional responses to assist in any future investigations.

Reporting Mechanisms

When exploitation is suspected, financial institutions have a responsibility to act:

• File SARs to document suspicious transactions, including detailed narratives about the activity, customer behavior, and the suspected perpetrators.
• Cooperate with law enforcement and APS to address severe cases of financial exploitation, ensuring older adults receive necessary support.
• Keep detailed internal records to facilitate follow-up inquiries from regulatory bodies or law enforcement agencies.

Reporting and Response

Addressing elder financial exploitation requires swift and effective reporting mechanisms. Timely intervention can prevent further harm and help recover stolen assets. Both individuals and financial institutions play critical roles in identifying, escalating, and addressing suspicious activities.

Government Resources

Federal agencies provide multiple avenues to report elder financial exploitation:

• Department of Justice (DOJ) Elder Fraud Hotline: Victims and concerned parties can call (833) FRAUD-11 for assistance. This hotline connects callers with trained professionals who offer guidance, resources, and referrals.
• FBI Resources: Reports can be submitted online through the FBI’s tip submission portal or via local field offices. The FBI investigates significant cases of elder fraud and collaborates with financial institutions to track illicit activities.
• Consumer Financial Protection Bureau (CFPB): Offers resources and tools to report financial abuse and prevent further exploitation.

Local Resources

In addition to federal options, local organizations provide essential support:

• Adult Protective Services (APS): Every state operates APS programs designed to investigate reports of elder abuse, including financial exploitation. These programs offer assistance in protecting vulnerable adults and ensuring their well-being.
• Law Enforcement: Local police departments can act as first responders to reports of elder fraud, often coordinating with federal agencies for complex cases.
• Legal Aid Services: Free or low-cost legal services can assist victims in recovering lost funds, resolving fraudulent transactions, and addressing unauthorized changes to legal documents.

Financial Institution Responsibilities

SAR Filing

Suspicious Activity Reports (SARs) are a critical tool in combating elder financial exploitation:

• Financial institutions must file a SAR if they suspect a transaction involves illicit activity, lacks a lawful purpose, or is designed to evade regulatory requirements.
• SAR narratives should include detailed descriptions of the activity, the age and location of the victim, and any actions taken by the institution to address the issue. This information aids law enforcement investigations and supports victim recovery efforts.

Internal Documentation and Collaboration

Financial institutions should maintain thorough records of suspicious activity and responses:

• Documentation: Institutions must retain SARs and supporting documents for at least five years. These records are essential for regulatory compliance and law enforcement inquiries.
• Collaboration: Institutions are encouraged to work closely with APS and law enforcement, sharing relevant information and expediting requests for documentation.

Rapid Response Program (RRP)

The Rapid Response Program (RRP) is an innovative initiative that helps recover funds stolen in elder financial exploitation schemes:

• Purpose and Scope: Operated in collaboration with U.S. and international law enforcement, the RRP focuses on cyber-enabled financial fraud, including scams targeting older adults.
• Process: Victims must file a complaint with federal law enforcement to initiate the recovery process. The program works to trace and retrieve stolen funds through coordinated efforts.
• Success Metrics: To date, the RRP has recovered over $1.1 billion in stolen assets. Quick reporting and cooperation between financial institutions and law enforcement are critical to the program's success.

Protect Against Fraud With NETBankAudit

Elder financial exploitation poses significant risks to individuals and institutions alike, necessitating vigilant protective measures and strict adherence to regulatory standards. NETBankAudit stands as a dedicated partner in this endeavor, offering specialized services to safeguard against fraud and ensure compliance.

With over two decades of experience, NETBankAudit provides comprehensive internal audit services, seamlessly integrating with existing programs to deliver thorough evaluations and compliance assurance. Our team of senior-level, certified professionals brings extensive expertise in cybersecurity and regulatory compliance, tailoring solutions to meet each client's unique needs.

Our services encompass:

• IT Audits: Evaluating and enhancing IT governance, management, operations, and security to protect against emerging threats.
• Internal and External Network Vulnerability Assessments with Penetration and Social Engineering Testing:  Identifying external and internal vulnerabilities and threats.  Enhancing patch management, defense-in-depth strategies, and incident response controls.
• Operational Audits: Optimizing efficiency and compliance across key banking processes, including loan and deposit operations.
• BSA/AML/CFT/OFAC Audits: Ensuring adherence to anti-money laundering and counter-terrorism financing regulations through comprehensive program evaluations.
• Risk Assessments: Identifying, evaluating, and mitigating potential threats across various operational areas to strengthen overall security posture.

By partnering with NETBankAudit, financial institutions can effectively navigate the complexities of today's cybersecurity landscape and regulatory environment. Our commitment to excellence and personalized service empowers clients to manage risks proactively and maintain robust defenses against financial exploitation. Our team is ready to provide the expertise and support necessary to safeguard your institution and its valued customers.

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Sources:

Advisory on Elder Financial Exploitation, www.fincen.gov/sites/default/files/advisory/2022-06-15/FinCEN Advisory Elder Financial Exploitation FINAL 508.pdf. Accessed 10 Dec. 2024.