The Week Of: April 20, 2020

This week’s news and stories of interest to the AML community. If you prefer a news roundup sent to you, subscribe to our weekly newsletter.

US law enforcement fights COVID-19 fraud, disrupts hundreds of online scams

The Department of Justice announced this week that hundreds of internet domains have been disrupted as a result of an ongoing effort between law enforcement and private companies to crack down on fraud related to the COVID-19 pandemic.

According to the DOJ, many of the web site promoted fake vaccines and cures, operated fraudulent charity drives, delivered malware, or hosted various other types of scams. Some purported to be affiliated with public health organizations or agencies.

As governments around the world distribute staggering amounts of money to assist the millions of businesses and individuals who have lost income to the pandemic, fraudsters have been coming out of the woodwork to get their piece of the pie.

Many of these scams exist in the cybersphere. Phishing and identity theft have run rampant and the FBI has even warned crypto users to be aware of scams as well. The National Center for Disaster Fraud received more than 9,000 tips in the last month, a third of which were deemed worthy of possible investigation, according to the Washington Post.

“The unfortunate fact is the only limitation here is the limitation on the creativity of these fraudsters to come up with ways to use the situation that we all find ourselves in to separate individuals, businesses and the government from lots of money,” said Brian Benczkowski, the assistant attorney general in charge of the criminal division.

Read more at the Washington Post.

Organized crime comes to the rescue during a pandemic, but at what price?

Governments are scrambling to assist ordinary citizens who may be struggling during the COVID-19 pandemic with financial difficulties or lacking in basic necessities such as food and health supplies.

But while politicians dither over the details of economic stimulus plans, other, more nefarious groups are swooping in to bring immediate help to the neediest.

In Italy, mafia clans are offering loans and food in what officials say is an age-old recruitment tactic and an effort to regain people’s loyalties, according to a Reuters report. Anti-mafia officials say the pandemic has created new opportunities for loan sharking. Typically, sharks offer low interest rates to compete with banks, then later drive them up to 300% to entrap borrowers. The mob can then seek repayment by asking borrowers to take on criminal activities such as transporting drugs.

Similarly, Mexican cartels are handing out aid packages to help cash-strapped residents. Alejandrina Guzmán, the daughter of drug lord Joaquin “El Chapo” Guzman, was seen stuffing household essentials into a cardboard box bearing an image of her father, Reuters reported.

The cartels have taken care to court publicity with images and video on social media of gang members handing out supplies in order to win over the residents of impoverished communities.

 Falko Ernst, an analyst with the International Crisis Group think tank focused on conflict resolution, said the cartels’ propaganda often aimed to distract from the havoc wreaked by their gunmen.

“They’re trying to leverage the perceived absence of the state for their own good and to become deeper entrenched in local communities,” Ernst said.

Shell corporations facilitate contracting fraud at the Department of Defense

Shell corporations with anonymous ownership are being used to facilitate fraud in federal contracting, according to legal publisher Lawfare.

Under the Federal Acquisition Regulation (FAR), contractors must register with the SAM database and include “immediate” and “highest” level of ownership but do not need to disclose their ultimate beneficial owners.

Because of this, contractors are using shell corporations to inflate contract prices artificially by:

  • subcontracting with other companies that they own or control to fraudulently mark up costs or bill for nonexistent work by creating fictitious invoices;
  • disguising conflicts of interest;
  • fostering the appearance of bidding competition for contracts in order to inflate prices artificially; and
  • falsifying certifications that the companies are owned or controlled by veterans, women, minorities, and other groups eligible for work through certain government programs.

Though efforts have been made by some in Congress to require publicly available beneficial ownership information for corporations, and the Financial Action Task Force recently upgraded it to “largely compliant,” shell corporations are still a problem within the AML/CFT framework of the United States.