On October 3, 2017, Anna Sorokin was arrested in Malibu, California. Later that month, she was indicted in New York City for a litany of alleged crimes, including grand larceny in the first degree and one count of misdemeanour theft of services for the fraudulent loan applications made to Fortress and City National financial institutions.
Who is Anna Sorokin?
You may not have heard of Anna Sorokin at the time of her arrest, though the arrest and consequent trial did, in fact, make her infamous. The more recent Netflix adaptation of her story, entitled Inventing Anna™, released in 2022, has once again brought the story of the fake German heiress and her attempts to defraud people and institutions of millions of dollars to light.
Anna Sorokin pretended to be a German heiress and socialite named Anna Delvey. She claimed to be worth $40 million and attempted to set up an exclusive members club called the Anna Delvey Foundation (ADF). She claimed ADF would be like Soho House, only better, housing everything from the finest artwork, restaurants, spa facilities and hotel space.
To fund ADF, Anna attempted to get a loan to the tune of $22 million using her alleged $40 million trust fund as collateral from both City National Bank and Fortress Financial Services.
Anna, a Russian – German visitor to the United States – duped many individuals into believing she was a high-flying socialite living off a substantial trust fund. Hoteliers lost thousands of dollars as she stayed and dined with them, using credit cards with no balances on them to secure her lodgings. There was always the promise of international wire transfers to cover the balance of mounting debts. Anna took faking it to a whole new level.
She fooled the hotels and her friends. But what happened with the banks?
The link between Anna and Financial Institutions (FI)
Anna Delvey was introduced to City National and Fortress through her lawyer. In the Netflix series, we watch the lawyer tick a box confirming she has sufficient funds to cover her loans. The lawyer vouches for Anna without seeing proof of her trust fund and refers her for the loan. Thankfully, FIs conduct their own due diligence using both regtech and human processes.
Although Anna’s lawyer was able to get the ball rolling by vouching for her and, in doing so, one bank did agree to lend $100,000 as an overdraft to Miss Delvey. Anna’s lawyer argued there was never any real chance she would have been able to defraud the financial institutions of the entire $22million she had applied for. Their KYC checks would (and did) throw up red flags, which ensured further checks were performed before issuing the money.
These were checks Anna was unable to forge or talk her way past.
How KYC prevents scams and financial crime
Financial Institutions operate under strict anti-money laundering regulations. These are in place to prevent banks from working with and lending to financial criminals, funding terrorism or operating with individuals under sanctions.
Banks and financial institutions are required to perform due diligence on potential customers. This includes Know Your Customer (KYC) checks which confirm the identity of an individual. There are also checks carried out to verify documents and bank accounts and checks for any PEPS and sanctions against the individual.
Much of the KYC process can be automated using regtech. PassFort allows you to create multiple policies which can be tailored to meet the specific needs of different products and geographical jurisdictions. This can allow low-risk clients who meet the requirements set out in the FIs policies to be onboarded automatically.
Automatically onboarding low-risk clients using regtech allows more time for human expertise to be spent on medium and high-risk clients. Anti Money Laundering Officers or the equivalent are able to check the flagged clients and request more information as and when required whilst leaving a full audit trail of actions and their decisions.
In Anna’s case, more information was requested, which she was unable to provide and consequently, she withdrew her loan applications for fear of being found out as a fraud.
What can we learn from Inventing Anna™?
KYC is vital, and Perpetual KYC is a must
KYC is not a one time process, nor should it be. In fact, a good risk model will include continuous KYC, otherwise known as perpetual KYC or ‘always on’ KYC.
As the name suggests, KYC is conducted continuously on a customer, not just at the time of onboarding. Therefore if the status of a customer changes, for example, in the case of Anna, she becomes the subject of adverse media or has criminal charges placed upon her, her KYC profile will be flagged and adjusted appropriately.
Humans are, well, human
We also learn that humans, when motivated by trust, greed or any emotion really, are fallible. It’s not a criticism; it is a fact – after all, these emotions make us human.
In most cases where Anna Sorokin was able to defraud companies or individuals, it was due to her manipulating them and preying on their need to be liked or not to be embarrassed. The use of regtech and policies, in general, remove the need for humans to make judgements, and that leads to less risk.
Tech isn’t replacing humans
We still need to rely on instinct and the expertise of real-life individuals in the due diligence process. Tech compliments the process, allowing business as usual onboarding to take place seamlessly, whilst experts focus on the more intricate cases in a way software can’t.
Get in touch
If you are looking at solutions to support digital KYC and AML processes, please get in touch with the PassFort team, we would love to hear from you.