How do launderers use factoring and invoice finance?
On 29 January 2026, US prosecutors unsealed an indictment against First Brands' founder and his brother. As alleged by the Southern District of New York, First Brands staff submitted fake, inflated and double pledged invoices to its factoring partners as if they were valid, collectible receivables. The counts include conspiracy to commit money laundering. These are allegations; a third man, Peter Andrew Brumbergs, pleaded guilty on 26 January 2026.
A factor pays cash today for a debt due later, so the invoice is its security, and a false invoice secures nothing. In the UK's national risk assessment of 2025, the factor hands over clean cash and a complicit importer pays the debt with criminal money "through structured repayments to the factor" (para 3.83). The NCA assesses it likely that over £10 billion is laundered through UK trade based schemes each year (para 3.73). Global factoring turnover reached €4,039 billion in 2025, FCI reported.
Anti money laundering (AML) law names factoring among the activities that make a firm a financial institution. Consumer credit, leasing and BNPL sit in the separate guide to AML in the lending industry.
Is invoice discounting riskier than factoring?
As a rule, yes. UK guidance says factoring "should be considered to be a lower risk than invoice discounting", because the factor keeps direct contact with the debtor, while discounting is "hands off" (JMLSG 21.12). Cross border deals, thin paper trails, client collection, confidential and bulk products raise the risk; item by item records, collection by the factor and non recourse terms lower it (21.13, 21.14). MASAK's 2021 sector report reads invoice discounting in Türkiye the same way: the factor offers only finance and knows nothing of its client's debtors or their business (pp. 33 to 34). With limited visibility and fewer documents, a forfaiting company "is unlikely to detect illicit activity", says the CBUAE's trade guidance.
| Product (as of November 2026) | Who collects | Debtor contact | Risk drivers | Reading |
|---|---|---|---|---|
| Disclosed full factoring | Factor | Direct | Item by item ledger, regular contact | Lower; may be rated low where contact, monitoring and review are regular (JMLSG 21.12, 21.21) |
| Confidential invoice discounting | Client, as the factor's agent | None | Bulk ledger, client collects, assignment not disclosed | Higher (JMLSG 21.12, 21.13; MASAK 2021 pp. 33 to 34) |
| Export and import factoring | Two factors, one in each country | Through the factor in the debtor's country | Cross border; documents may be only an invoice and a bill of lading (CBUAE s. 2.1.2.1) | Raised; lower when an approved affiliated factor in the debtor's country manages credit control (JMLSG 21.23) |
| Forfaiting | Forfaiter, without recourse | Limited; the importer's bank usually guarantees the receivable | Little view of the trade, tradable debt instrument | Detection unlikely (CBUAE s. 2.1.2.1) |
| Payables finance (reverse factoring) | Financier pays the buyer's suppliers | Buyer led | The buyer supplies the invoice information | First Brands' payables "round trips", as alleged (DOJ, 29 January 2026) |
| Non recourse facility | Factor | As the product | Factor carries the credit loss | Lowers risk (JMLSG 21.14) |
Does AML law cover factoring companies in the EU, UK, US, Türkiye and UAE?
| Rulebook | Law, as of November 2026 | Supervisor | Caught | Not caught or limits |
|---|---|---|---|---|
| FATF | FATF Recommendations, June 2026 edition: Glossary, "financial institutions" item 2, footnote 104 | National authorities, assessed in mutual evaluations | Lending, which includes "factoring, with or without recourse; and finance of commercial transactions (including forfeiting)" | None in the footnote |
| EU | Today national laws transposing Directive (EU) 2015/849 art. 3(2)(a); from 10 July 2027 the AMLR, Regulation (EU) 2024/1624 art. 2(1)(6)(a); both point to Directive 2013/36/EU (CRD) Annex I point 2. Germany: KWG s. 1(1a) no. 9, GwG s. 2(1) no. 2 | National supervisors (Germany: BaFin); AMLA directly supervises selected institutions from 2028 | Non bank undertakings that carry out lending, which CRD Annex I point 2 defines to include factoring, with or without recourse, and financing of commercial transactions (including forfeiting) | A Member State may exempt occasional or very limited activity with little risk only if all six criteria are met (Directive art. 2(3); AMLR art. 6(1)); KWG counts as factoring only ongoing purchases under framework agreements; GwG leaves out the firms listed in KWG s. 2(6) sentence 1 nos. 3 to 10 and 12 and s. 2(10) |
| UK | MLR 2017 reg. 10(2)(a), (4)(a) and Sch. 2 point 2; Proceeds of Crime Act 2002 (POCA) | FCA, for authorized firms and Annex 1 financial institutions (MLR reg. 7(1)(a)) | Factoring and invoice discounting firms, export and import factors, asset based lending against the sales ledger (JMLSG 21.1 to 21.8) | Debtors need not be identified or verified for customer due diligence (JMLSG 21.27), unless the factor's risk assessment calls for verification (21.32) |
| US | 31 U.S.C. 5312(a)(2)(P) (Bank Secrecy Act) lists a "loan or finance company"; 31 CFR 1010.100(lll) defines it | FinCEN; OFAC for sanctions | Banks that factor, under 31 CFR part 1020; every US person for OFAC sanctions | Non bank factors: no AML program, customer identification, beneficial owner or suspicious activity report rule, because FinCEN's definition covers only residential mortgage lenders and originators |
| Türkiye | Law No. 5549; Regulation on Measures art. 4(1)(ç); Law No. 6361 | MASAK (AML); BDDK, which gives the operating permit (Law No. 6361 art. 7) and writes the invoice rules | Financing and factoring companies (art. 4(1)(ç)); banks (art. 4(1)(a)), whose factoring the Factoring Procedures Regulation also covers (art. 1) | No activity carve out: obliged entities are listed by type, with their branches, agents and representatives (art. 4(1)) |
| UAE | Cabinet Resolution No. 134 of 2025 (CR) art. 2 item 2, which implements Federal Decree by Law No. 10 of 2025 | CBUAE, for the banks and finance companies it licenses | "the purchase of export documents and the purchase of debts, whether with or without recourse" | No carve out; the CBUAE warns that an import or export factoring company may run less stringent due diligence and trade controls than a typical bank (s. 2.1.2.1) |
The EU and UK texts repeat the FATF's wording almost word for word, the UAE's covers the purchase of debts with or without recourse, and Türkiye names factoring companies outright, so in all four a factor is a financial institution, bank or not. A Member State may exempt occasional factoring only if all six criteria are met, among them that it is ancillary to the main business and offered only to that business's customers (Directive art. 2(3) today, AMLR art. 6(1) from 2027). Germany's KWG counts only the ongoing purchase of receivables under framework agreements, and GwG s. 2(1) no. 2 makes such a firm an obliged entity. The US is the outlier.
Does a US factoring company have any AML obligations?
Not under the Bank Secrecy Act's program rules. The Act lists a "loan or finance company" as a financial institution, but FinCEN's definition covers only residential mortgage lenders and originators. So a non bank factor has no federal AML program rule. It still files Form 8300 when, in its business, it receives more than $10,000 in currency in one transaction or related ones, including currency received for another's account, as the rule's example of a debt collector shows (31 CFR 1010.330, para (a)(2)).
Sanctions reach every party, debtors included: all US persons must comply with OFAC sanctions (OFAC FAQ 11). Banks that factor run their full program under 31 CFR part 1020.
Which seven AML duties does a factoring company carry, and where is each written?
Seven duties make up AML for factoring companies, each set by its own article.
| Duty (November 2026) | EU: Directive 2015/849 now, AMLR from 10 July 2027 | UK: MLR 2017, POCA, JMLSG | US, non bank factor | Türkiye (Regulation on Measures; Factoring Procedures Regulation) | UAE (CR 134 of 2025) |
|---|---|---|---|---|---|
| Customer due diligence | The client, on a business relationship; single or linked occasional transactions from €15,000 and transfers above €1,000 (Directive art. 11); from €10,000 under AMLR art. 19 | The client (JMLSG 21.25, 21.26), on a business relationship, an occasional £12,000 or more or a transfer over £800 (MLR regs. 27, 28); an affiliated factor is the customer in export, the client in import (21.29) | No customer due diligence or identification rule | The client, at any amount, in a continuing business relationship, which the Regulation on Measures defines to include factoring (art. 3(1)(i)); single or linked transactions of 370,000 TL or more (art. 5(1)(a), (b)) | Business relationship; occasional transactions of AED 55,000 or more, wires of AED 3,500 or more (CR art. 7) |
| Debtor check | No article names the debtor; risk based | Identity from the client; verification where the risk assessment requires it (JMLSG 21.32) | None under the Bank Secrecy Act | Methods to confirm the debt with the invoice debtor when necessary; never act only on the client's statement or oral confirmation (Factoring Procedures Regulation art. 5(1), (1)(c)) | No CR article; the CBUAE notes the documents in a two factor deal may be only an invoice and a bill of lading |
| Invoice proof | No article; risk based | Where enhanced due diligence applies: audits and calls to the debtor on the validity of the sale and invoice values (JMLSG 21.35) | None | Only receivables documented by an invoice for a sale, and partial assignments to several factors never above the invoice (Law No. 6361 art. 9(2)); registry duplicate check and e-invoice confirmation before funding (Regulation arts. 5(1)(b), 6(1)); funding plus interest and commission never above the invoice, though at a 100 percent advance charges may be billed separately (art. 4(2)) | No CR article; CBUAE trade guidance s. 2.1.2.1 |
| Beneficial owner | More than 25% (Directive art. 3(6)); from 2027, 25% or more (AMLR art. 52) | Over 25% (MLR reg. 5) | No beneficial owner rule | More than 25% (art. 17/A(2): legal persons on the trade register, continuing relationships) | 25% or more (CR art. 10(1)(a)) |
| Politically exposed persons | Directive art. 20 today, AMLR art. 42 from 2027 | MLR reg. 35; enhanced due diligence where any party connected to the client is a PEP (JMLSG 21.34) | No rule | No PEP article in the Regulation on Measures | CR art. 16: foreign PEPs always, domestic PEPs where the relationship is high risk |
| Suspicious transaction report | Promptly, any amount (Directive art. 33; AMLR art. 69) | As soon as is practicable after the information comes to the reporter, to a nominated officer or the NCA (POCA s. 330(4)) | No suspicious activity report rule; Form 8300 when its business receives more than $10,000 in currency, in one or related transactions (31 CFR 1010.330(a)) | 10 business days from when the suspicion arose (art. 28(2)) | Immediately and without delay, whatever the value (CR art. 18(1)(a)) |
| Records | 5 years after the relationship ends or an occasional transaction is carried out (Directive art. 40; AMLR art. 77) | 5 years after the relationship ends or an occasional transaction completes (MLR reg. 40(3)) | Form 8300 copy, 5 years from filing (31 CFR 1010.330(e)(3)) | 8 years (Regulation on Measures art. 46(1)); invoice check results at least 5 years (Factoring Procedures Regulation art. 10(1)) | At least 5 years (CR art. 25(1)) |
Two duties set factoring apart from banking. No rulebook makes the debtor a customer, yet Türkiye requires the factor to have a way to confirm the debt with the invoice debtor when necessary. Only Türkiye writes invoice proof into law; the UK places it in enhanced monitoring. The owner row holds the usual trap: the EU today, the UK and Türkiye say more than 25 percent, while the UAE and, from 2027, the AMLR say 25 percent or more, so the client file records the exact beneficial owner percentage.
Who is the customer in factoring: the client or the debtor?
The client. UK guidance treats the party the factor contracts to finance as the customer and leaves the client's debtors outside it (JMLSG 21.25, 21.26). A factor may identify debtors for credit or collection, but the requirement to identify or verify them "does not apply" (21.27), unless its risk assessment calls for verifying some (21.32). In cross border deals an affiliated factor becomes the customer in export and the client in import (21.29), a link JMLSG compares to correspondent banking at lower risk (21.9). Before the first advance, JMLSG expects a full understanding of the client, its business and the activity the facility should show (21.31).
Which invoice, debtor and payment signals should stop a factor?
Twelve signals run from onboarding to collection. Most come from the FATF and Egmont Group's 2021 trade based money laundering indicators, MASAK's factoring analysis and JMLSG; two come from US cases in which factors were the victims. A signal is a reason to look and proves nothing alone.
| # | Signal | What it looks like | Source |
|---|---|---|---|
| 1 | Paper invoice | Invoices with no movement of goods or services, or overstated values | JMLSG 21.12; MASAK 2021 p. 33 |
| 2 | Second pledge | The same invoice or shipment financed more than once, often at different institutions | FATF 2020 p. 27; Law No. 6361 art. 9(2) |
| 3 | Debtor paid by the client | Collections come from accounts the client controls, most often held in the names of fictitious debtors | DOJ EDCA, 18 May 2026 |
| 4 | Debtor beyond its means | A buyer pays, or promises to pay, forward debts far above its own financial strength | MASAK 2021 p. 35 |
| 5 | Seller vouches for buyer | The client guarantees that its own debtor will pay | MASAK 2021 p. 35 |
| 6 | Price or goods off pattern | Prices out of line with the market or with past comparable deals; generic descriptions of the goods | FATF 2021 |
| 7 | Borrowed name | A debtor or trade entity whose name copies, or comes very close to, a well known corporation | FATF 2021 |
| 8 | Lookalike confirmation | Debtor email addresses that resemble the real company's but were created by the client | DOJ NDGA, 18 September 2024 |
| 9 | Late payment change | Payment redirected to a previously unknown entity at the very last moment, or a changed payment date or amount | FATF 2021 |
| 10 | Circular payments | Funds leave a country and come back to it after passing through another | FATF 2021 |
| 11 | Sudden volume | A new or reactivated client or debtor suddenly trades high volumes and values | FATF 2021 |
| 12 | Short term breach | Breaches of the facility terms, such as invoices assigned days before delivery; usually client error, but possibly a first indicator | JMLSG 21.15 |
What can a factor check when invoices carry trade based money laundering?
Picture an export factor (illustrative) whose client, a textile exporter, assigns a €400,000 invoice on a new buyer abroad. The goods are described as "assorted fabrics", the price is a third above the client's usual rate, and the buyer was registered eight months ago. Nothing here proves laundering. Each detail matches a FATF indicator, and together they show what trade based money laundering looks like from a receivables ledger: value moved under cover of a sale.
The factor can check four things before it funds. The goods: an order, a delivery proof and a description specific enough to price. The price: against the client's history and the market. The debtor: its registration, its owners and whether it can carry the debt. The payment route: do collections come from the debtor's own account? In a two factor deal, the CBUAE notes, the documents may be limited to "an invoice and a bill of lading".
What is double financing and how is it caught?
Double financing is one receivable sold or pledged to two or more financiers. The FATF and Egmont Group's 2020 report on trade based money laundering calls it multiple invoicing: documents reused "across multiple FIs, making it difficult for one institution to identify it" (p. 27). In Türkiye, partial assignments of one invoice to several factors may not exceed its amount (Law No. 6361 art. 9(2)). Before funding, the factor checks the invoice against the Central Invoice Registry for duplicates and confirms e-invoices and e-archive invoices with the Revenue Administration (Regulation art. 6(1)), and art. 43 of the law has factors and banks pool data on the receivables they take over. A factoring company that breaches art. 9(2) faces a fine of at least 62,500 TL and up to five times the transaction amount (art. 44(1)(c), as printed).
How do carousel trades and related party debtors show up in a receivables ledger?
A carousel trade moves value in a loop: money or goods leave one country and return through another, each leg with its own invoice. In a ledger it shows as payments routed in a circle (FATF 2021) and as debtors tied to the client. MASAK counts red flags 4 and 5 among sham debt signs (2021, p. 35). First Brands allegedly routed money from its inventory lenders through a customer collections entity outside the group, so it looked like ordinary customer receipts. A debtor that trades but cannot explain its own business is a front company question, not a credit one.
When is factoring fraud also a money laundering report?
Often. In May 2026 Hector Perez pleaded guilty to wire fraud and aggravated identity theft over a $2 million scheme: fake companies sold invoices to at least four factoring companies, and when the factors were paid, the money came mostly from accounts in the names of fictitious debtors, "designed to disguise the fraud" (DOJ, Eastern District of California). Micky Lee Wagner gave his factor lookalike email addresses to confirm invented staffing contracts (DOJ, Northern District of Georgia).
UK guidance adds that even where the factor seems the only victim, the client's act may itself be an offence under POCA, which the factor must report to the NCA (JMLSG 21.17). So fraud and AML teams work the same case, and every fraud review ends with the suspicious activity report question.
Which factoring cases and fines are on the record since 2024?
Four public cases since November 2023 show factors as targets of fraud or named for AML failings; the list is a selection.
| Date | Authority | Party | Outcome | Point for factors |
|---|---|---|---|---|
| 18 September 2024 | DOJ, Northern District of Georgia | Micky Lee Wagner (Right Step Staffing) | Sentenced to 7 years 10 months; restitution of $3,092,512.88 | Over $6 million of invoices on staffing contracts with major brands that did not exist; stolen identities; lookalike debtor email addresses |
| 11 June 2025 | Bank of Italy | Elea Finance Spa, a factoring and business lending firm | €30,000 fine | An inspection from 31 January to 5 April 2024 found weak AML organization and controls, chiefly in due diligence, customer profiling and suspicious transaction reporting (d.lgs. 231/2007 arts. 7, 16 to 19, 31, 32, 35 and 36) |
| 29 January 2026 | DOJ, Southern District of New York | Patrick and Edward James (First Brands) | Indictment unsealed (allegations); Peter Andrew Brumbergs' guilty plea of 26 January 2026 unsealed | Fake, inflated and double pledged invoices sold to factoring partners, as alleged; money laundering conspiracy charged |
| 18 May 2026 | DOJ, Eastern District of California | Hector Perez | Guilty plea to wire fraud and aggravated identity theft | Fictitious debtors paid from accounts the fraudsters controlled, to hide the fraud |
Only the Elea row is an AML penalty. No FinCEN, FCA, MASAK, BDDK or CBUAE publication found names a factor fined for AML failings. In both pleaded US cases the debtor side was made up: lookalike email addresses in one, accounts in the names of fictitious debtors in the other.
What has moved for factors since July 2025, and what is scheduled?
- 17 July 2025. The UK's national risk assessment describes factoring in trade based laundering (paras 3.82, 3.83).
- 7 November 2025. The CBUAE's trade guidance takes effect, with a section on import and export factoring and forfaiting.
- 14 December 2025. The UAE's Cabinet Resolution No. 134 of 2025 enters into force, 30 days after publication (art. 71).
- December 2025. JMLSG updates its Part II sectoral guidance, invoice finance included.
- 29 January 2026. The First Brands indictment is unsealed.
- 5 May 2026. FCI reports 3.7 percent growth in global factoring turnover for 2025.
- June 2026. The FATF updates its Recommendations; the factoring footnote is now footnote 104.
Next: the AMLR applies from 10 July 2027 and brings factors in through CRD Annex I point 2 (art. 2(1)(6)(a)). AMLA's direct supervision of selected institutions begins in 2028.
Where should a factor start its 2026 AML program, control by control?
Thirteen controls, each with its source. Where complead, formerly Sanction Scanner, leaves work with the factor, the last column says "outside the platform".
| Control | Source | How complead covers it |
|---|---|---|
| Business wide risk assessment rating each product, with discounting and cross border deals rated | JMLSG 21.13, 21.16, 21.22 | Outside the platform; the rules engine then scopes detection rules per product, segment or jurisdiction |
| License or registration confirmed | BDDK operating permit (Law No. 6361 art. 7); FCA register; CBUAE license | Outside the platform |
| Client due diligence and owners before the first advance | Table 2; JMLSG 21.31 | KYB and UBO verification confirms the entity against official registers and follows owners up the chain until natural persons are reached |
| Debtor identity from the client, verified on risk | JMLSG 21.32; Factoring Procedures Regulation art. 5(1)(c) | Every debtor screened like any other party; KYB and UBO verification where the risk assessment selects it |
| Every invoice checked against the order, delivery proof and debtor | JMLSG 21.35; Law No. 6361 art. 9(2) | Outside the platform |
| Duplicate check before funding | Factoring Procedures Regulation art. 6(1); FATF 2020 p. 27 | Outside the platform (Central Invoice Registry in Türkiye) |
| Payer matched to the debtor on every collection | DOJ EDCA, 18 May 2026 | Outside the platform for the match; payment screening checks payer and payee over the API during the transfer |
| Sanctions screening of client, owners and debtors | OFAC FAQ 11 | 3,500+ sanctions, PEP and watchlists from 220+ jurisdictions, refreshed every 15 minutes |
| Related party test between client and debtor | MASAK 2021 p. 35 | Outside the platform |
| Affiliated factor due diligence | JMLSG 21.9, 21.29 | Outside the platform |
| Short term breaches logged and reviewed | JMLSG 21.15, 21.16 | Outside the platform |
| Report clock per jurisdiction, tracked | Table 2 | Reporting support within case management; each alert says which rule fired and what it matched |
| Records: five years, eight in Türkiye | Regulation on Measures art. 46; MLR reg. 40; Directive art. 40 | Each screening search logged: who ran it, which name, when and what came back, no match results included |
How far into the factoring workflow does complead reach?
complead runs beside a factor's current tool as an AI native platform for AML, KYC and fraud. Its lending and leasing setup puts onboarding, screening, monitoring, fraud and investigation on one engine, so each client ends up with one risk score rather than a different score in each tool.
Client screening and ongoing monitoring screens clients, owners and debtors on OFAC, EU, UN, UK (HMT), DFAT and SECO lists and 200+ national regimes. Fuzzy matching thresholds can differ by list type or by single list. An API trigger starts or stops monitoring a debtor as its invoices are funded and paid.
Payment screening checks the sender and the receiver of each collection. In transaction monitoring, collection rules are built without code and backtested; agents close routine cases on their own, each with its evidence, narrative and work log. The MLRO decides and files, and the record shows who decided.
Back to First Brands: the indictment alleges invoices pledged twice and invoices for sales that never took place. A duplicate check before funding answers the first allegation; matching each invoice to an order, a delivery proof and the debtor answers the second.
In the 2026 PDF. Four templates for the factor's own file: an invoice verification sheet (order, delivery proof, registry or e-invoice check, debtor confirmation), a debtor due diligence and payer match card, a related party and circular trade test, and a report clock card for the five jurisdictions. Every rule, article and case stays here in the open text.
