The dark side of convenience
Remember when transferring money meant standing in line at the bank, filling out paperwork, and showing your driver’s license to a teller who scrutinized it with suspicious (or 4pm glassy) eyes? Those days are rapidly becoming a sepia-toned memory. Digital IDs have burst onto the scene, promising a frictionless future where your identity is just a smartphone tap away.
But as we race toward this digital utopia, fraudsters aren’t taking a vacation. They’re simply adapting their playbooks—and one particularly troubling trend deserves our immediate attention: the marriage of mule accounts with digital ID systems.
Mule accounts: The modern money mules
In the “old days,” drug cartels would use physical “mules” to transport cash across borders. Today’s digital mules rarely break a sweat, but they’re moving something equally valuable: legitimacy.
A mule account is essentially a seemingly legitimate account that serves as a conduit for fraud. The account holders—often unwitting accomplices—fall into three distinct categories:
The Unwitting Dupe: Recruited through “work-from-home” schemes or romance scams, these individuals believe they’re performing legitimate financial services. They’re instructed to receive funds into their accounts and forward them elsewhere, often keeping a small percentage as “commission.” A classic case of “if it sounds too good to be true…”
The Willfully Blind: These mules suspect something’s off but choose to ignore red flags for the promise of easy money. They don’t ask questions about why they need to quickly transfer funds to cryptocurrency wallets or foreign accounts.
The Criminal Collaborator: Fully aware of their role in the scheme, these individuals knowingly participate in the fraud network, often managing multiple mule accounts and recruiting new mules.
What’s particularly concerning is how these mule accounts are increasingly intersecting with our emerging digital ID infrastructure.
The identity laundering cycle continues
As we outlined in our first installment, identity laundering follows a similar pattern to money laundering: placement, layering, and integration. Mule accounts represent a powerful tool in this cycle, particularly in the layering phase.
As digital IDs become more readily accepted into the financial ecosystem, here’s how the process will unfold:
- Acquisition: Fraudsters obtain access (either directly but often through an intermediary or “matchmaker” network) to legitimate credentials through social engineering, data breaches, or by recruiting mules willing to use their real identities.
- Onboarding: The mule opens accounts at financial institutions using either their real identity or the stolen/synthetic identity provided by the fraudster.
- Digital ID registration: The mule registers for a digital ID, which now carries the perceived trust of government verification.
- Account linking: The digital ID is linked to financial accounts, payment platforms, and other services, creating an ecosystem of seemingly legitimate credentials.
- Operation: Fraudsters (or their matchmaker) use these verified accounts to conduct unauthorized transactions, apply for loans, or commit other forms of financial fraud.
What makes this particularly effective in 2025 is the increased perceived trust placed in digital IDs. Do we want that when a financial institution sees a government-issued digital ID, they apply less scrutiny than they might to traditional verification methods?
After all, the digital ID has already been “verified,” right? (If you’re picking up on my skepticism, you’re paying attention.)
A Passage to India
To see how this threat has unfolded in a live digital ID system, we look to India and its Aadhaar system, the world’s largest biometric ID network. The program has been a bright light globally to highlight the potential digital IDs have to jumpstart financial inclusivity, with quicker access for many citizens to government benefits and the formal banking system.
But it has also attracted a darker economy.
Mule accounts can be bought in the country like physical IDs can be acquired in the US—often through social media platforms like Telegram and Facebook: “I urgently need Indian bank savings and current accounts. No scam, no cyber issue. 26% commission. Courier service only.”
These accounts, belonging to individuals or shell companies, are then used to establish illegal payment gateways, enabling the transfer and concealment of illicit funds. Transnational criminal organizations control these mule accounts remotely, utilizing them for various illegal activities, including fake investment scams and online gambling.
In response, the Indian government, through agencies like the Indian Cybercrime Coordination Centre (I4C) and the Ministry of Home Affairs (MHA), has issued warnings against renting out bank accounts and has conducted nationwide raids to dismantle these illegal payment networks. In January of this year, the Reserve Bank of India announced an initiative to work with fintechs to try to dampen this scourge of activity.
Additionally, banks are to implement stricter measures to detect and prevent the misuse of accounts for such fraudulent purposes
The fingerprints of fraud: Identifying mule activity
So how do we spot these sophisticated schemes? The red flags aren’t always obvious, but certain patterns tend to emerge:
- Unusual transaction patterns: Frequent large deposits followed by immediate withdrawals or transfers, especially to cryptocurrency exchanges or foreign accounts.
- Identity inconsistencies: Mismatches between the digital ID information and other verification data, such as employment records or credit histories.
- Geographic anomalies: Accounts being accessed from locations incongruous with the registered address or typical usage patterns.
- Velocity concerns: Multiple accounts opened in quick succession using the same digital ID or related credentials.
- Transactional behavior: Fund transfers that follow common money laundering patterns (structuring to avoid reporting thresholds, round-dollar transactions, etc.).
The challenge for financial institutions is balancing fraud prevention with customer experience. Nobody wants to be flagged as suspicious when they’re simply traveling or making legitimate large purchases.
A multi-layered defense
Addressing this threat requires a coordinated approach:
- Enhanced verification at issuance: As we emphasized in our first post, securing the initial issuance of digital IDs is crucial. Without strong controls at this stage, every subsequent security measure is built on quicksand. This issue must be revisited at issuer level.
- Behavioral analytics: Advanced AI systems can identify patterns consistent with mule account activity, even when individual transactions appear legitimate.
- Continuous authentication: Rather than point-in-time verification, systems should continually evaluate the likelihood that the user is who they claim to be, based on a range of behavioral and contextual signals.
- Cross-institution collaboration: Financial institutions must share intelligence about emerging fraud patterns while maintaining customer privacy.
- Customer education: Many mules don’t realize they’re participating in fraud. Clear communication about the risks and consequences can prevent recruitment.
Eye on the future
Digital IDs hold tremendous promise for enhancing both security and convenience, but we must acknowledge their vulnerabilities. Like any technology, they’re only as strong as their weakest link—and currently, that link is the human element.
As we continue to build out these systems, we need to address the entire lifecycle of digital identity, from issuance to ongoing verification. We need to create environments where fraudsters find it increasingly difficult to exploit gaps in our defenses.
Perhaps most importantly, we need to maintain a healthy skepticism. In an industry racing to embrace the new and shiny, someone needs to pump the brakes and ask the uncomfortable questions. Consider this blog post my foot on the brake pedal.
In our final installment next month, we’ll explore the regulatory landscape surrounding digital IDs and what policy changes might help address the vulnerabilities we’ve identified.
Until then, stay vigilant. In the world of digital identity, trust but verify—and then verify again.
About the post:
Images and videos are generative AI-created. Prompt: A futuristic mule wearing high-tech body armor, neon visor over the eyes, proudly standing on a hilltop. Head held high. Heroic, cinematic shot. Absolutely majestic. Bladerunner vibes. Sun is shining brightly.. Tools: Midjourney, Runway.
About the author:
Terry Brenner is the Head of Legal, Risk, and Compliance for IDVerse Americas. He oversees the company’s foray into this market, heeding to the sensitivities around data protection, inclusivity, biometrics, and privacy. With over two decades of legal experience, Brenner has served in a variety of roles across a diverse range of sectors.
