AML Compliance in a Post-COVID19 World: Signals to Watch
Nov 17, 2020 – Updated to include industry perspective on COVID-related fraud schemes.
Europol is warning governments that criminals are already planning to adjust their activities such as money laundering after the effects of the COVID-19 (coronavirus) pandemic starts to ease. That will mean compliance officers will have to modify their procedures and pay attention to their instincts to keep ahead of the criminals.
In a new report, Europol said organized crime is exploiting the changing circumstances during the pandemic.
The full impact of the crisis – not only on crime but also more widely on society and the economy – is not yet apparent. However, law enforcement should be prepared to be able to respond to the warning signals as the world deals with the fallout.
“Now more than ever, international policing needs to work with the increased connectivity both in the physical and virtual worlds. This crisis again proves that exchanging criminal information is essential to fighting crime within the law enforcement community,” said the organization that coordinates cross-border operations in Europe.
Report applies to world economy
Although they were focused on Europe, Europol’s assessment of the impact of the pandemic is general enough to apply to other regions in this global economy. Europol’s Executive Director Catherine De Bolle said organized crime is exploiting the changing circumstances during the pandemic.
“Now more than ever, international policing needs to work with the increased connectivity both in the physical and virtual worlds. This crisis again proves that exchanging criminal information is essential to fighting crime within the law enforcement community,” De Bolle said.
The report anticipates developments across the threat landscape that will have an impact on law enforcement authorities. Europol said analysts can look to previous events, such as the economic crisis of 2007 and 2008, to predict how these issues will unfold in terms of security threats.
Three phases of crime
The organization said the crimes can be broken down into three phases:
The current situation: COVID-19-related criminality, especially cybercrime, fraud and counterfeiting have followed the spread of the pandemic. Europol’s previous reports in March and April detail some of those issues.
The UK’s National Crime Agency (NCA) issued this guidance about current red flags in suspicious activity reports (SARs):
- Large credits or cash deposits into accounts, which the account owner explains as funds from a planned holiday, house or car purchase, cancelled due to COVID-19 (sometimes into previously inactive accounts) or business owners claiming to be making deposits for staff wages.
- Sending funds abroad to relatives to buy face masks.
- Customer claim funds, received into accounts from multiple sources, from the importation and selling of face masks.
- Customers in receipt of multiple faster payments then withdrawing large amounts in cash, claiming to have lost faith in the banking system as a result of COVID-19.
- Concerns around the issue of facilitating ‘emergency’ loans to subjects about whom they hold money laundering concerns.
SARs have reflected how the COVID-19 pandemic is being exploited to further facilitate existing scams:
- Individuals or businesses suspected of taking payment for, but not supplying, face masks, hand sanitizers and other Personal Protective Equipment (PPE).
- Social engineering whereby fraudsters impersonating high street banks persuade their victims to transfer funds to a new account following a ‘security breach’. The fraudsters used COVID-19 as an excuse for changes to normal bank procedures.
- Victims believing they are investing in companies developing a vaccine for COVID-19.
- Refunds claimed for fake bookings cancelled due to COVID-19.
- Suspicions that an individual suddenly moving funds from a savings account could be an attempt to the hide true value of savings, in order to fraudulently claim government compensation for loss of earnings.
Mid-term outlook: Europol predicts an easing of lockdown measures will see criminal activity return to previous levels as before the pandemic. However, the pandemic is likely to have created new opportunities for criminal activities that will be exploited beyond the end of the current crisis. Europol points out some of the relevant crime areas compliance teams need to watch for:
- Anti-money laundering: the pandemic and its economic fallout will exert significant pressure on the financial system and the banking sector. Anti-money laundering regulators must be vigilant and should expect attempts by organized crime groups to exploit a volatile economic situation to launder money using the on-shore financial system.
- Shell companies: criminals will likely intensify their use of shell companies and companies based in offshore jurisdictions with weak anti-money laundering policies at the placement stage to receive cash deposits that are later transferred to other jurisdictions.
- Real estate and construction sectors will become even more attractive for money laundering both in terms of investment and as a justification for the movement of funds.
The long-term impact: Law enforcement need to watch for different types of businesses and transactions coming up. Communities, especially vulnerable groups, tend to become more accessible to organized crime during times of crisis. Economic hardship makes communities more receptive to certain offers, such as cheaper counterfeit goods or recruitment to engage in criminal activity.
A crisis often results in changes in consumer demand for types of goods and services. This will lead to shifts in criminal markets and transactions.
Several factors have a significant impact on serious and organized crime during the COVID-19 pandemic. It is essential for law enforcement and compliance teams to monitor these factors to anticipate developments and pick up on warning signals:
- Online activities: people are spending more time online throughout the day for work and leisure during the pandemic, which has increased the likelihood of various types of cyber-attacks, fraud schemes and other activities targeting regular users.
- Demand for and scarcity of certain goods, especially of healthcare products and equipment, is driving a significant portion of criminals’ activities in counterfeit and substandard goods and fraud. Compliance teams may be able to spot this type of crime through suspicious new company formations or unusual transactions.
- Payment methods: the pandemic is likely to have an impact on payment preferences beyond the duration of the pandemic. With a shift of economic activity to online platforms, cashless transactions are increasing. Criminals may shift operations to developing countries in order to launder that cash.
- Economic downturn: A potential economic downturn will fundamentally shape the serious and organized crime landscape. Economic disparity is making organized crime more socially acceptable in economically weakened communities.
- Rising unemployment and reductions in legitimate investment may present greater opportunities for criminal groups, as individuals and organizations in the private and public sectors are rendered more vulnerable to compromise and corruption.
Previous behavior an indicator
Europol said there is no clear way to predict with certainty what will happen next, but basing behavior on past times of economic turmoil is a good way to predict criminal activities in the near term.
Although not addressed in the Europol report, another crime to watch for as economies recover after the pandemic is corruption. Global law firm DLA Piper wrote in a blog: “Companies are encouraged to remind employees that influencing government officials to reopen their business through gifts, payments, or anything of value can create liability under ABAC (Anti-Bribery Corruption) laws.”
For example, U.S. companies may face liability under the Foreign Corrupt Practices Act (FCPA) for giving anything of value to a foreign official to influence an act or decision.
The law firm suggested risk rating the markets where businesses are reopening.
Some markets may be under greater financial pressure or have a greater risk of corruption. Consider rating the markets’ risk potential and engage local compliance officers with practical training on issue spotting potential violations in reopening markets,” DLA Piper wrote.
Perspective from Industry
In a recent ACFCS conference, Andres Betancourt at Scotiabank provided some specific ways that criminals were taking advantage of the pandemic to commit fraud. Schemes mentioned include:
- Benefits Scams and Fraud: Individuals applying for emergency assistance when they do not qualify or using a synthetic stolen identity. Scammers are also using the pandemic to obtain personal and banking information by claiming to be a “participating lender”.
- Healthcare Scams: Demand for payment for treatment given to a friend or relative or fake lists of people infected in the neighborhood. Sale of fake cures or unproven therapies is also another form of healthcare fraud scheme.
- Door-to-door Schemes: Sale of decontamination/cleaning products or services like air filters, COVID tests and hygiene products.
- Financial Advisors: Access to “financial aid or loans to get through a lockdown” and imposter investments.
- Medical Supply Scams: Scammers claiming to have critical medical supplies in high-demand through fake sources.
The presenter also mentioned that there was in increase in the cases of wire fraud reports that contains COVID, Coronavirus, corona virus, mask purchases, ventilator purchases, rent relief during pandemic, COVID-19 donation to China/Hong Kong, or food bank donations in the wire description or purpose.
If your organization is looking for ways to screen wires in real-time or to enhance your fraud prevention program, contact us.