COVID-19: Opportunity for Some, Financial Crime Risk for Others

The world has officially declared war on coronavirus (COVID-19). In this blog, I will draw information from a variety of sources and look at ways that opportunistic criminals have attempted to exploit the pandemic as well as some of the wider impacts and regulatory response - adding my own thoughts around this most emotive of subjects.

Let’s be honest, up until a few months ago, probably none of us had heard of, much less expected to experience, coronavirus (COVID-19) however it may have started.

But, does it really matter how it started? We just know that toilet roll is suddenly in very, very short supply and British retailer Ann Summers has had a run on some dubiously shaped pasta. Seriously though, a global pandemic has been declared and people are, perhaps understandably to some extent, acting without thinking. Panic buyers – I’m specifically looking at you here!

Financial Crime Risk

In any period of economic downturn or uncertainty, it is generally to be expected that crime, especially financial crime, will increase. Sadly, this current unprecedented pandemonium is no different and we are already reading reports of people and companies being taken advantage of by scammers.

We live in a dog-eat-dog world. Many people are open to exploitation in one form or another, albeit not necessarily willingly. Scammers will play on the irrational fears of rational people (or is it the other way around?) and, as if by magic, face masks and hand sanitiser are now much harder to find. The simple rules of economic supply and demand come into play. Simply put, unscrupulous individuals are using COVID-19 to swell their coffers.

In a recent RDC The Week Of post, the prospect of an increase in money mules is discussed and this is another, even darker variation on a theme. Criminals, be they emotionally and/or morally bankrupt, don’t care and all they see is a new way to make ‘easy’ money, applying tried and tested processes.

The fast pace of technological innovation has led to a steep rise in reported cybercrime in recent years and this is exacerbated during times of economic downturn. RDC Data Insights supports this trend and illustrates how reported cybercrime spiked in the wake of the financial crisis of 2008. We have already seen several reported cases where cybercriminals are taking advantage of the current COVID-19 pandemic.

Any offer that appears too good to be true, almost certainly is. Any unexpected contact from a ‘financial institution’ needs to be suitably verified and authenticated before proceeding. Never move money unless you know the destination. These pieces of advice aren’t new, but it does no harm in reminding people, especially our older family and friends.

The Wider Impact

The heightened risk of financial crime is not the only headache facing compliance teams as a result of COVID-19. With social distancing and confinement to our homes mandated around the world, many consumer behaviours have changed suddenly and at scale.

Spikes in large cash withdrawals and increased usage of digital financial services are examples that have prompted financial institutions to adjust their risk thresholds to prevent false positives piling up as a result of the pandemic. The good people at ACAMS have covered this topic nicely as it relates to transaction monitoring. This is possibly ‘stage 2’ in financial terms although this issue has been at the forefront of our minds for long enough.

The global nature of the pandemic has also led to banks scrambling to keep their back-office operations online. With India on lockdown and home to many companies that service banks, adjustments have had to be made quickly to accommodate home working whilst maintaining standards for cybersecurity and data privacy.

Regulatory response

Despite the unprecedented nature of COVID-19, this is not the first global event that has led to an increase in financial crime, nor will it be the last. You may, then, be wondering whether regulations introduced since the global financial crisis of 2008 have ensured financial institutions are better protected. Since then, we’ve seen the introduction of the Fourth and Fifth Anti-Money Laundering Directives (4AMLD and 5AMLD) in the EU and many more regulations around the world. Despite their necessity, has keeping up with the sheer volume of new regulations proven to be an onerous task and is regulation still too slow to catch up? Almost certainly.

The soon to be transposed 6AMLD highlights cybercrime, fraud & counterfeiting of products in a list of 22 predicate offences, each of which have already surfaced through coronavirus-related crimes.

We live in uncertain times and now, more than ever, we need to be on our guard against fraudsters. RDC has been curating its market-leading risk database for almost 20 years and fraud is one of the most prevalent crimes we see at any given time – even more so during periods of economic downturn.

Fraud is just one of over 60 offence types we use to categorise our financial crime risk information, helping our customers quickly and easily filter risk relevant to their screening operations and market conditions.