The State of Financial Crime 2022 - Read our global compliance survey

Financial Crime in a Cashless Society

Financial Crime Knowledge & Training

There has been an expectation that with a cashless society imposed by the global pandemic, the financial crime rate would fall. There was a general belief that at least crime may falter on the physical front as criminals shifted to digital methods.

That appears to have been unfounded optimism, while a few instances of fraud and criminal activity have been detected and there’s been a general rise in cybercrime, there hasn’t been any new placement or layering behavior that seems abnormal – nothing that could be more trackable than cash going into a cash-intensive but legitimate business. Or at least nothing yet that’s been deemed newsworthy.

Suffice to say that some criminals have not behaved as expected in the face of the pandemic. New financial behavior may have cropped up but it doesn’t appear to be detectable, yet.

Cashless Impact on Crime

It was expected that cybercrime would increase (and it has) but not all criminals are computer-savvy. So what do those who tend to make their money on the streets doing instead?

There are millions of dollars worth of drugs being sold on the streets of LA and UK drug dealers are taking advantage of lockdown exemptions to move their product by dressing up as essential workers. There have been a few shifts in the drugs being solved themselves but the market demand is still there. With millions on furlough or fired and a projected long term recession, it would be naive to expect drug usage to go down.

But these criminals are stuck in a cruel limbo, able to reap a great deal of cash but unable to place it in the financial system without attracting attention. Large cash deposits raise eyebrows in any financial institution with basic transaction monitoring rules in place during ordinary times. When most of the population has foregone cash to reduce contact with strangers a sudden influx of cash is immediately suspicious.

Savvier drug dealers may be taking payments digitally under the guise of other services, using trade-based money laundering to avoid notice from financial institutions. But it appears as though many are still operating regardless of how quickly they can convert their money from dirty cash to legitimate funds.

A cashless society for financial crime is no solution to the issue. For one thing, it’s temporary as cash will return, for another, it’s shortsighted. Many industries depend on cash despite the arrival of seamless payment methods due to consumer preferences or because it’s simply easier than moving the money into many different locations.

Government Assistance

There also exist decriminalized sectors that are high risk for FIs or not strictly legal enough to warrant entry into the global financial system and use cash heavily.

Prostitution has been decriminalized in Spain since 1995, but many sex workers are subject to criminal practices such as pimps and traffickers. And demand hasn’t decreased with lockdown orders either.

These sex workers are not entitled to government aid as they could not prove their employment status prior to the global pandemic and for those who are able to leave the building they’re housed in, they must queue up for meals. They’re unable to utilize cash that would ordinarily be sent for their families back in their home country due to the virus through a money service bureau or wire transfer service like Western Union.

Many others are in a similar situation and find themselves excluded from the global financial system thanks to the peculiar difficulties of their situations. Ultimately, they’re unable to open an account and remit money or make basic purchases.

However, that shouldn’t be an issue for modern banks. For those with no proof of permanent address, such as sex workers or the homeless, allowing them to access and use a highly restricted bank account should be sufficient for preventing money laundering issues.

Backlash to a Cashless Society and Financial Crime

The current situation offers a unique insight into how societies are set up to handle cashlessness. For many, it appears that a cashless society is not an issue, but it’s a situation that has far-reaching negative consequences that haven’t been mapped out.

And this doesn’t only concern those who are unbanked or affected by financial inclusion policies. By over-trusting cashless technology, we may be opening ourselves up to increased cybercrime as a fact of life.

Cash is often blamed for a great deal of illicit money movement, but there’s no proof that digitally-formatted money would be any easier to track. In fact, the speed of the financial system would likely increase once cash is out of circulation and it’s the speed and complexity of monetary movement that makes it so hard to track money laundering.

Once the pandemic passes and analyses begin on how money movement was affected by the crisis, it may reveal that moving away from cash will only facilitate criminal activity more. Albeit from a more sophisticated type of criminal who is able to circumvent the placement stage which has been ruled by cash for so long.

Originally published May 22, 2020, updated December 16, 2021

Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.

Copyright © 2022 IVXS UK Limited (trading as ComplyAdvantage).