27th March 2020

Coronavirus-focused Financial Crime

Financial crime is on the rise in the face of the coronavirus. Reports of fraud and phishing attacks are increasing, often using coronavirus-led messaging, and there are less obvious financial crimes happening, too, under the guise of panicked money movement.

Fraud on the Rise

Fraud can be one of the simpler financial crimes to spot. Purely because the crime vectors are easier to see from the outside, everyone’s seen the suspicious Whatsapp message or heard of fraudulent sales of sought after goods. But just because it’s easy to identify for some does not mean it’s not still effective when applied at a wide scale. In the UK alone, it’s cost individuals over £800K since February.

Financial crime is a constant concern, but its uniqueness is found in its adaptability. Criminals are creative and imaginative in their application of financial crime techniques. Firms need to remain vigilant and stay on top of what’s fashionable for financial criminals in order to make sure that their financial crime detection strategy is always fit for purpose. Companies need to learn from the difficulties that became prevalent in Asia during the height of the pandemic in that region.

SME Fraud

Compliance officers also need to bear in mind that fraud isn’t only targeted at individuals. The USA just announced a $2 trillion rescue plan for corona-related economic loss, and the UK promised £330 billion in business loans. Considering how much cash is available for use, it’s likely that there will be fraudulent actors seeking access to that money.

Firms need to make sure that the money is received by those who legitimately need it; the public scandal and reputational damage of failing to do so is incalculable. Public pressure has forced considerable business practice change in recent weeks due to the emotional weight of the crisis, including compelling businesses to pay their staff during forced closure. Financial institutions who permit stimulus money to be defrauded are likely to see an unheard-of public backlash and reputational damage that may change the business permanently.

Money Mules

Unemployment can compel people to abnormal financial behavior. There are criminal enterprises that target individuals with a bank account and clean financial histories for money muling. Criminals offer individuals a fee in exchange for transferring money through their personal bank accounts. Often it’s students who need a bit of extra money, but with 3.28 million recently unemployed in the USA, it’s likely that the pool of potential money mules has widened.

North America is already seeing an increase in advertising for money muling. Cleverly disguised ‘adverts’ under a guise of legitimacy offer individuals money for little to no work, as times get harder and desperation rises, it’s a sure thing that money muling will explode across America. Government bailouts may work to curb that desperation to some degree (US adult citizens are receiving $1200 minimum each), but that is not going to be sufficient to cover many for long. It’s important for compliance officers to focus on new financial behavior from previously whitelisted clients.

Not to say that money muling is purposeful. Often it’s done without the customer’s explicit knowledge: it keeps the criminal entity safe from whistleblowers, and those who end up money muling believe they’re earning legitimate money. Banks, in particular, are going to have to reinforce their messages to customers about the dangers of being exploited as mules – whether knowingly or otherwise – and ensure that their transaction monitoring systems are well-calibrated to detecting mule activity, especially if they have a young or economically vulnerable customer base.

Horses Not Zebras

Profiteering has occurred several times in multiple markets: wholesalers in the USA have had hand sanitizer confiscated after stockpiling thousands of dollars worth, shops have been fined for gouging prices of soap and other essentials, facemasks have seen prices skyrocket, and while there’s no official report of a toilet paper black market, it wouldn’t be surprising to hear one exists. Nations have strict regulations against profiteering for many reasons, the main one being to protect consumers from exploitation in times of need.

Panic and crisis are powerful motivators for market forces to behave in bizarre ways. No-one predicted how important toilet paper would be to consumers in a pandemic. But it matters that prices of basic products are being inflated and no doubt being sold on marketplaces for above-odds value.

When you hear hooves clip-clopping on the pavement you think of horses, not zebras. But really you need to wait and see the animal before you can tell what it is. The same is going to be true for a lot of purchases made on online marketplaces. Criminals can easily exploit this environment of heightened concern to disguise money laundering behavior – trade-based money laundering is never easy to spot, and it’ll be even more difficult to confirm when a customer’s excuse for spending absurd amounts on hand sanitizer, groceries and other essentials is that the shops were empty and they were scared for their family.

It’s going to take a strong understanding of who your customers are, how transactional behavior adapts across demographics during the pandemic and the investigative skills of compliance officers to spot what’s sure to be a flurry of money laundering behavior. Essentially, you’re going to have to wait until you can see the full picture to tell whether it’s a horse or a zebra.

Coronavirus is changing the whole world in ways we can’t fully understand yet, potentially permanently. And as far as financial crime is concerned, it’s only just beginning. For now, the focus is on catching the threats that are sure to come and keeping our eyes peeled for those that are being thought up right now.