Even in an economic downturn there are plenty of proceeds from crime to be laundered. Hard times actually create opportunities for human and drug traffickers, and perpetrators of fraud are emboldened to pitch schemes that promise huge returns or magical cures, playing on the desperation of their marks.
Crime associated with COVID-19―the cause of the current worldwide recession, 191,000 deaths in the U.S. and more than 890,000 deaths globally (as I write)―is well-documented.
According to the Financial Crimes Enforcement Network (FinCEN), criminals have become particularly aggressive online, perpetrating phishing schemes, extortion, business email compromises and fraud.
In the July 30 “Advisory on Cybercrime and Cyber-Enabled Crime Exploiting the Coronavirus Disease 2019 (COVID-19) Pandemic,” FinCEN lays out red flags for identifying and interdicting cybercrime, starting with a description of how criminals have exploited the vulnerabilities of the remote working conditions necessitated by the pandemic by hacking virtual environments in order to steal sensitive information, manipulate digital identities and use compromised credentials. (The advisory is one of a number released by FinCEN.1)
Unusual transactions, especially through newly opened bank accounts, are among nearly two dozen red flags listed by FinCEN in the advisory, alongside the use of personal accounts for commercial purposes, corporate names that slightly vary from those of well-known brands, and payments for medical supplies between firms operating in other industries.
Crimes that exploit COVID-19 include the theft of governmental relief funds, including unemployment benefits and other types of international assistance, as documented by the Financial Action Task Force in its May report, “COVID-19-related Money Laundering and Terrorist Financing Risks and Policy Responses.”2
So understandably, pursuing cases against criminals involved in COVID-19-related fraud, particularly those stealing from taxpayer-funded programs like the U.S. coronavirus relief bill intended to alleviate suffering caused by the pandemic, has been a priority for the FBI.
Intelligence from anti-financial crime professionals in financial institutions (FIs) is vital to that effort and sometimes responsible for the initial tip off to law enforcement.
Recently, compliance officers at a small New England bank alerted the FBI to loan requests under the Paycheck Protection Plan (PPP) that sought $540,000 to keep dozens of fictitious workers on equally fictional payrolls. Through an enhanced due diligence review that included a drive-by, BankNewport learned that one of the entities seeking a PPP loan, the Apponaug Restaurant Group LLC, was requesting funds for a derelict restaurant that had ceased operating in November 2018.3
Separately, an FI in Virginia alerted the Secret Service to a scheme to get a $320 million payment from a foreign government for what investigators later determined were nonexistent face masks.4
Nevertheless, even as regulators call on FIs around the world to be on alert for COVID-19-related financial crime (as well as the “usual” illicit financial activity), the economic fallout of the pandemic has generated talk of tighter budgets.
Yet the consequences of cutting back on compliance and starving anti-financial crime efforts could be devastating and costly to FIs that become the victims of undetected fraud and the target of regulators’ ire.
Although admittedly COVID-19 is like nothing any of us have seen in our lifetime, we have been through something similar before and would do well to heed lessons learned.
In 2008, when the U.S. housing market collapsed, driving the world into the deepest economic downturn since the Great Depression, many FIs trimmed compliance budgets and cut staff responsible for fighting financial crime.
Initially, regulators focused on safety and soundness and merely murmured their concern that anti-money laundering (AML) issues were being neglected.
But from 2010 through 2015, regulators in the U.S. found reasons to demand hundreds of millions to settle AML violations and even occasional billions―$9 billion, $2 billion (2014) and $1.9 billion (2012).
Beyond monetary penalties, regulators speaking at ACAMS conferences more than once admonished FIs for failing examinations and costly lookbacks and independent monitors were the direct result of cutting staffing and resources so severely during the global recession.
Chief executives, general counsels and senior anti-financial crime professionals at banks and other FIs are encouraged to recall this history, however difficult the economic times ahead become.
Compliance departments will need technology, training and staffing to protect their institutions from fraud and to provide law enforcement with invaluable intelligence.
Certainly, financial criminals do not cut back on their efforts during hard times.
Kieran Beer, CAMS
Chief Analyst, Director of Editorial Content
Follow me on Twitter: @KieranBeer
“Financial Crime Matters with Kieran Beer”
- “Coronavirus Updates,” Financial Crimes Enforcement Network, https://www.fincen.gov/coronavirus
- “COVID-19-related Money Laundering and Terrorist Financing: Risk and Policy Responses,” Financial Action Task Force, May 2020, https://www.fatf-gafi.org/media/fatf/documents/COVID-19-AML-CFT.pdf
- Daniel Bethencourt, “FBI Investigating Banker, Convicted Money Launderer and Others Who Sought COVID-19 Loans” ACAMS moneylaundering.com, May 12, 2020, https://www.moneylaundering.com/news/fbi-investigating-banker-convicted-money-launderer-and-others-who-sought-covid-19-loans/
- Valentina Pasquali, “FinCEN Lists Red Flags for COVID-19 Fraud and Cybercrime,” ACAMS moneylaundering.com, May 19, 2020, https://www.moneylaundering.com/news/fincen-lists-red-flags-for-covid-19-fraud-and-cybercrime/