COVID-19 From a Financial Crime Perspective

Throughout the past few months, it has been impossible not to feel the impact of the current global pandemic, COVID-19. Even with the implementation of numerous government schemes and responses, the struggle has been felt globally, both individually and on a corporate basis. There was no way to predict the effects this pandemic would have on this newly technology-focused world, but now that we have been through what we all hope is the peak of the effects, it is interesting to take a look at how things have changed and review what took place from an Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) point of view.

Over the duration of this pandemic, the world economy has been forced to adapt to control the impact and damage dealt to the world’s financial system. Enforced business closures and redundancies were amongst the main scares, due to these having arguably the largest impact on the economy. Alongside this, came the introduction of multiple government relief and advisory schemes to help reduce the impact. This created new opportunities for illicit actions to take place and new avenues for exploitation. No time was wasted in exploring what exploitation methods could be utilised. These include:

• Misdirection (claiming for funds for fake entities, impersonation).
• Counterfeiting of essential items (e.g. medicines).
• Fraud:
  • Increased misuse of online financial services/virtual assets to move and conceal funds without a trace.
  • Exploiting schemes as a means for concealment. (e.g. Filing for false insolvency schemes)
• Cybercrime:
  • Bypassing customer due diligence measures. (increase in online accounts being created as a result of COVID, potential for errors or less due diligence due to high demand/importance of getting the account opened).
  • Increased e-transfers/remote transactions.
• Exploitation of government funds/international financial assistance:
  • Misuse of emergency funds.
  • Increased involvement of the unregulated financial sector (new schemes and policies introduced).
• Impersonation of officials requesting funds/offering deals:
  • Phishing attacks- a large number of people who are newly using systems are more susceptible to fraud attacks.
  • Fake charities (raising funds for a non-existent charity).

The above gives an insight to the typical methods that criminals will use and abuse on a day to day basis throughout the pandemic to exploit the financial sector.

Though it is hard to determine the full impact of COVID-19, evidence suggests that there has been a significant increase of criminal activity. This is partly because the government and private sector have had to have ‘all hands on deck’ to deal with the issues presented by the pandemic. Inevitably, there will have been a reduced focus on many other areas, including financial crime monitoring and controls. It can also take time for banks to catch up with new criminal methods, update their AML/CFT procedures and systems and train their teams.

Even though there are numerous industries that have been affected, here are a couple of examples to get an overview of the effect COVID has had.

1. Although human trafficking data is difficult to record, Interpol has assessed the COVID impact on migrant smuggling and human trafficking[1]. They have concluded that “it is highly likely that the pandemic and the ensuing global economic consequences will only increase the pool of at-risk persons and the likelihood of their being deceived, exploited, and ultimately, trafficked in the mid-term.”
2. Another example is the increased corruption risk for certain jurisdictions, where there is the potential to take advantage of not only the public in need but also from an international standpoint where fake claims can be made and accepted due to the level of authority and or reduced levels of enforced due diligence for example.

With all the negative impacts, there have to be some positives – right? Correct. There have been a number of benefits that should be realised. For example:

• An increase in communication and coordination between sectors and even competing companies (which helps manage and reduce impact – this can also lead to further innovations and benefits due to there being a more collaborative work ethic).
• Increased focus on e-payments (many elderly people now signed up for online banking/electronic payment services – for example, PayPal received a surge of new users throughout the lockdown from over the over 50s bracket).
• Enhanced procedures now that a new perspective of customer dealings have been established:
  • Customer Due Diligence processes.
  • Various monitoring processes.
  • Customer onboarding processes.

Overall, it is clear to see that COVID-19 has had an effect on a range of aspects, by the introduction of new challenges the financial industry and many others have now faced head-on and had the ability to test their robustness.

Here at SQA Consulting, we produce a suite of products services to help address financial crime risk.

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[1] https://www.interpol.int/en/News-and-Events/News/2020/COVID-19-impact-on-migrant-smuggling-and-human-trafficking